SportsInvest Column #1 | Context & Approach
Why the sports industry is turning into a growing opportunity for institutional investment
A year ago, I joined the Toulouse Football Club on a one-year secondment from McKinsey & Company after the club was acquired by US private equity firm RedBird Capital Partners in July 2020. It was a unique opportunity to discover the inside of a professional football club while building a first understanding of the investment rationale in the sports industry.
In the context of the Covid-19 pandemic, the 2020/2021 season will probably be remembered as the year when the sports industry officially met with institutional investment. Countless deals were announced across the world. Many articles were published about the pros and cons of sports investment, most of them focusing on specific sports, sports asset archetypes, and geographies.
After gathering all my notes from articles, reports and discussions I had with various sports and investment professionals, I thought that it would be an interesting challenge to try and build a comprehensive perspective on sports investment in order to better understand the depth and diversity of investment theses in sports.
This first piece aims at introducing the context and approach of this exercise — which I really think should be a collaborative effort, so please feel free to reach out should you have any questions and/or suggestions!
Context: Sports Investment’s March 2020 Madness
The last 18 months have seen a notable uptick in sports investment, as both the sports industry (e.g., sports groups, teams, leagues, federations & tournaments) and institutional investors (e.g., private equity and hedge funds, investment consortiums & SPACs) have begun to recognize the potential benefits of institutional capital flowing into sports going forward. According to PitchBook, the total value of private equity investment into the sports industry reached close to $10 billion between January 2020 and February 2021 (vs. $6 billion in 2019 i.e., +50% increase).
How can we begin to explain this shift to institutional investment in a space previously dominated by billionaires?
➡️ On one hand, the Covid-19 pandemic has left the sports industry with major revenue shortfalls, and owners have limited options for covering those losses. This urgent need for liquidity makes current sports owners inclined to explore opportunities to partner with institutional investors.
➡️ On the other hand, institutional investors are starting to consider the sports industry, which was until now the private turf of wealthy individuals looking for trophy assets, as a credible asset class. A rising interest driven by soaring valuations of professional sports teams and leagues, the high level of fragmentation of the sports industry and significant potential for operational improvement and top line growth. Some of the most recently active institutional investors include leading private equity firms CVC Capital Partners and Silver Lake, hedge funds Lindsell Train and Elliott Management, and sports-focused funds like Bruin Capital. Several firms have also launched in 2020 to focus on taking stakes in sports franchises and leagues, such as Arctos Sports Partners and Dyal’s HomeCourt Partners in the US.
Over the past 18–24 months and with a strong acceleration since March 2020, multiple sports entities across sports, asset archetypes, and geographies welcomed institutional investors either as:
➡️ Majority shareholders, mostly in teams with a particular focus on Italy’s Serie A where over 25% of outfits are now in the hands of North American owners betting on the awakening of this “sleeping giant”.
➡️ Minority shareholders, either in sports groups (e.g., City Football Group, Fenway Sports Group), leagues, federations & tournaments (e.g., CVC Capital Partners entering rugby by buying stakes in England’s Premiership Rugby, cross-border league in Pro 14 Rugby and Six Nations Rugby more recently), or teams (e.g., NBA franchises San Antonio Spurs and Golden State Warriors)
Approach: Decoding Sports Investment
As stated by the excellent Pitchbook analyst note by Wylie Fernyhough, “institutional capital is interested in sports ownership and it seems as though it will only continue to mature from here”.
But while a lot has been said and written about sports investment as a whole, it is essential to distinguish carefully between institutional investor profiles as well as sports asset archetypes in order to fully comprehend the trends, rationale and forecasted future of institutional investment in professional sports.
Over the coming weeks, this series of articles will aim at providing targeted deep-dives in order to progressively (and hopefully) build a comprehensive perspective on sports investment.
Main topics will include:
WHY | Providing a background on professional sports ownership, and identifying which economic & regulatory trends are driving the recent shift from private to institutional investment in professional sports
WHO | Decrypting the institutional sports investment landscape and differentiating factors between key players
HOW | Understanding the rationale for investment in professional sports entities, and how the investment thesis differs across sports, asset archetypes, and geographies.
Our first topic will be covered in 2 weeks, stay tuned!
Best,
Achille
Looking forward to the weeks ahead. Congrats, mate.