Making Sports a Winning Investment | Altman Solon

Altman Solon’s 2022 Investors’ Perspective on Sports shows growing opportunities for private equity firms and institutional investors as well as five essential due diligence tips to consider.

Professional sports have increasingly drawn interest from private equity firms and institutional investors as a stable asset and platform for growth

Sports is a growing global enterprise, with sports leagues competing to grow their fan base internationally. Increasingly, the competition has left the pitch and entered the financial realm, with investors looking to tap into the global sports boom. Recent examples include the sale of several top European soccer clubs and U.S. professional sports franchises including Chelsea FC’s sale to a consortium led by Clearlake Capital and Todd Boehly for $3.2 billion, RedBird Capital’s acquisition of AC Milan for $1.2 billion, and investments by Arctos Sports Partners and Dyal Capital Partners in several U.S. professional sports teams. Just this month, media mogul Jeff Zucker launched RedBird IMI, a joint venture with Abu Dhabi-based fund International Media Investments that is flush with $1 billion in initial capital to focus exclusively on sports and media franchises. 

Notable asset sales
Selected top sports-related transactions in the last 3 years

Private equity & sovereign funds enter the game

Over the past decade, and increasingly over the past few years, new investor types have entered the sports investment area including private equity firms, sovereign funds, and other institutional investors. The appeal of professional sports to these investors stems from a variety of factors, including stable media rights revenues, content that reaches global audiences and appeals to advertisers, and adjacent opportunities in areas like media, gaming, and betting. As streaming/OTT platforms are increasingly competing with linear TV networks for sports media rights (as seen in Amazon Prime’s exclusive deal with the NFL for Thursday Night Football games for 11 years), the bidders for sports media rights are rising alongside team valuations.

Investors targeting professional sports
Exemplary

Global sports viewership is high, and fandom is increasingly global

The sports investment boom has been driven in part by strong global interest in and viewership of live professional sports. According to Altman Solon’s 2022 Global Sports Survey, which surveyed 17,000 consumers in 17 countries, 70% of respondents watch sports at least monthly, and popular sporting events and competitions continue to draw audiences of millions. In a media landscape characterized by fragmented audiences and short attention spans, live sports remain a rare event, where people worldwide sit down to watch games in real time and where advertisers and sponsors can reach consumers at scale.

No longer hemmed in by borders, top sports leagues and clubs have morphed into global franchises, with strong international fan bases. European soccer remains a top five sport across all countries surveyed with high international interest in its top leagues, clubs, and players, and the FIFA World Cup 2022 commanding record-breaking audiences worldwide. Interest in U.S. professional sports and fandom for top leagues like the NFL are slowly but steadily growing in Europe and other international markets as US leagues continue to invest to push their sports and brands globally.

League interest by country
% of monthly sports viewers in each country that are very or somewhat interested in each league

Changing the rules of the (investment) game

In the U.S., top organizations like Major League Baseball and the NBA have changed ownership rules in the last few years to allow institutional investors to acquire minority interests in clubs. As a result, there has been growing minority ownership of U.S. teams by investors like Arctos Sports Partners and Dyal Capital Partners. The NBA recently announced it will let sovereign wealth funds, pensions and endowments acquire passive stakes in its teams, opening ownership up to investors who manage assets that by some estimates exceed $30 trillion according to Bloomberg. Not wanting to stand on the sports investing sidelines, the NFL and NBA have launched investment arms to fund businesses to build equity in companies and innovations that could generate value and help their sports and teams. Indeed, sports investing has never been more inclusive, welcoming both institutional investors and the leagues themselves.

In Europe, international and U.S. investment in soccer clubs continues with many owners and investors pursuing a multi-club ownership model, across sports and teams. With the recent sale of Chelsea FC and Southampton FC, more than half of Premier League teams are majority or partially owned by Americans, while investors from the Middle East and Asia own top European clubs (e.g., Manchester City, Paris St. Germain) and are rumored to be seeking to buy others (e.g., Liverpool, Manchester United). Likewise, some European clubs and leagues have sold or are considering selling stakes in media and production arms. Recent examples of this include Germany’s Bundesliga, Italy’s Serie A, and FC Barcelona. Conversely, other clubs are leveraging investments to build in-house media and content creation capabilities.

Making a winning investment in sports

The sports industry has never been more global. As teams’ valuations continue to increase, star players become global brands, and new investor types come to the table, making a play for sports franchises or media rights could be a lucrative move. However, as the cost of franchises and media rights continue to grow, investors should conduct thorough due diligence ahead of any investment. At Altman Solon we recommend investors take the following into consideration:

• Market outlook: Investors should evaluate the outlook for the addressable market of a sports asset, considering consumer interest and competition. The assessment should take into account different revenue streams including stadium attendance, sponsoring, and media rights, depending on the positioning of the asset. It is also important that investors understand how leagues, clubs, rights holders, and bidders are executing their content strategies to adapt to market dynamics like the rise of OTT, social media monetization, and the decline in linear television. Investors should also be aware of the risks involved in changes to the sport itself, including changes in format, ownership rules, and governance. The market forecast and broader industry trends are crucial to value the asset right.
• Consumer interest: Investors should research the popularity of the league or club within its addressable market and see how it compares to other domestic and international sports assets. It is also important to consider consumer preferences, willingness to pay for sports content and services that broadcast or stream live sports, as well as willingness to switch services based on the availability of live sports and specific leagues and clubs when valuing an investment opportunity.
• Competition: Investors should assess how the league or club is positioned within its peer group – paying attention to ranking and revenues – as well as within the wider sports landscape. The analysis needs to include historical trends leading to the status quo and potential changes to the ecosystem from new entrants due to new strategies of existing players or the creation of new sports assets.
• League or club structure: Investors should have a clear understanding of the inner workings of a league or club, paying attention to its organizational structure and governance, its competition structure, and revenue share arrangements. Leagues and clubs are often complex organizations and investors should clearly understand the influence they can have according to club and league regulations.
• Business plan and growth levers: Investors should analyze the league or club’s business plan and the feasibility of achieving growth targets based on historical trends and benchmarks. This includes a detailed assessment of existing revenue streams (especially past, current and future media rights value) as well as potential new growth opportunities and adjacent revenue streams that could be pursued.

Altman Solon is the leading strategy advisor focused on Telecommunications, Media and Technology. Altman Solon works with leading global investors to conduct commercial diligence on media and sports assets as well as target screening, outside-in assessments, and generation of investment hypotheses. More details on the types of investors targeting professional sports, key trends in sports investing, and how we support investors in sports can be found in Altman Solon’s report  Investors’ perspective on professional sports which is available upon request.

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