The Evolution of Sports Ownership as an Investment
- May 26, 2021
- Earl Clukies
Ownership of sports franchises has long been the playground of wealthy individuals. Strong returns have attracted other investors such as private equity (“PE”) funds and other institutional investors. Over the years, we have seen the value of their investments rise to enormous levels. The ownership landscape appears to be changing, as there have been numerous acquisitions of ownership interests in sports teams and leagues by institutional investors in recent years.
In 1973, George Steinbrenner and Michael Burke purchased the New York Yankees for approximately $10 million. Today, the franchise is worth $5 billion according to Forbes. That is an astronomical 49,000% growth over a period of less than 50 years. This growth is not unusual or limited to Major League Baseball (“MLB”) teams. According to Forbes, the average value of the 50 most valuable sports teams has jumped 9.9% from last year, to $3.4 billion—up 55% from five years ago. We have also seen a great amount of growth in most of the North American major league sports franchises over the years. Here are some examples:
Jerry Jones purchased the Dallas Cowboys of the National Football League (“NFL”) for $150 million in 1989. Today, this franchise is worth about $5.5 billion.
The Madison Square Garden Company purchased the New York Knicks of the National Basketball Association (“NBA”) in 1997 for $300 million. Today, the Knicks are worth $4.6 billion.
Phillip Anschutz purchased the NBA’s Los Angeles Lakers in 1998 for $268 million, which, today, is worth $4.4 billion.
Recent Sales (2010-Present)
The Guggenheim Baseball Management ownership group purchased the MLB’s Los Angeles Dodgers in 2012 for $2 billion. Today, the franchise is worth $3.4 billion.
Joseph Tsai purchased the Brooklyn Nets of the NBA in 2019 for $2.5 billion, which is worth $3.3 billion today.
Recent Growth (2011-Present)
According to Forbes, the top 10 world’s most valuable sports teams a decade ago, in 2011, were:
- Manchester United (English Premier League Soccer) $1.86 billion
- Dallas Cowboys (NFL) $1.8 billion
- New York Yankees (MLB) $1.7 billion
- Washington Football Team (NFL) $1.55 billion
- Real Madrid (Spanish La Liga League Soccer) $1.45 billion
- New England Patriots (NFL) $1.37 billion
- Arsenal (English Premier League Soccer) $1.19 billion
- New York Giants (NFL) $1.18 billion
- Houston Texans (NFL) $1.17 billion
- New York Jets (NFL) $1.14 billion
In 2020, Forbes valued the top 10 world’s most valuable sports teams as follows:
- Dallas Cowboys (NFL) $5.5 billion
- New York Yankees (MLB) $5 billion
- New York Knicks (NBA) $4.6 billion
- Los Angeles Lakers (NBA) $4.4 billion
- Golden State Warriors (NBA) $4.3 billion
- Real Madrid (Spanish La Liga League Soccer) $4.24 billion
- New England Patriots (NFL) $4.1 billion
- Barcelona (Spanish La Liga League Soccer) $4.02 billion
- New York Giants (NFL) $3.9 billion
- Manchester United (English Premier League Soccer) $3.81 billion
This growth has attracted new investors as valuations have outpaced the major stock indexes, but multibillion-dollar valuations have also limited the potential pool of principal investors. With the latest valuations, being a billionaire just may not be enough to purchase a sports franchise. There simply aren’t enough billionaires willing to write multi-billion-dollar checks for sports teams. Hence, the sports leagues need to expand their investor base because even minority stakes are becoming much more expensive. As a result, leagues are turning to deeper pockets to improve the pool of prospective buyers and increase team values. This gives sports franchises more financial options. By widening the pool of potential buyers, leagues are hoping to power further rises in team valuations while offering limited partners a way of cashing in on their investments.
PE funds and other institutional investors have accumulated record amounts of capital that are waiting to be deployed. As the valuation of sports teams and leagues continues to increase, these investments have become very attractive to investors. Although sports franchise sales are infrequent, we have seen an increased participation from PE funds. In January 2021, the NBA’s board of governors agreed to let PE funds and other institutional investors own up to 20% in a single franchise, whereby those entities can own shares in up to five teams. As sports teams valuations continue to grow, expect a larger participation from PE funds.
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Earl Clukies is a Senior Manager in the Financial Services Group with over five years of experience.
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