Amid all the sports news about the Kansas City Chiefs winning back-to-back Super Bowls, NCAA March Madness and the rise of Caitlin Clark, and the upcoming NBA Playoffs, its easy to forget that these entities are businesses and that there are deals happening behind the scenes that could always shake up the scene.
One of the most prominent stories behind the curtain is the entry of private equity into major American sports — and another major completed deal that shows just how interested private equity is in sports team ownership.
Arctos Sports Partners, the firm that already has a stake in teams like the NBA’s Golden State Warriors and MLB’s Houston Astros, announced on Tuesday, April 2 that it has closed a second investment fund round worth over $4.1 billion, according to a report by Sportico.
The Dallas-based firm said that funds come from a variety of sources, including endowments, pensions funds, and family and wealth investing offices.
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The close of this fund means that the company now has around $7 billion in assets invested in several sports teams all over the world.
Arctos closed its 2nd fund and now has about $7 billion in assets under management. Breakdown in their sports holdings is 👇 pic.twitter.com/zBFGftesug
— Kurt Badenhausen (@kbadenhausen) April 2, 2024
Why has private equity come into sports?
Many of the major sports teams — those in the NBA, NFL, NHL, and MLB — have traditionally been owned by individuals or families, such as Jerry Jones with the Dallas Cowboys or the Buss Family with the Los Angeles Lakers. Teams have allowed for minority owners, but they also were individuals like when rapper Jay-Z was a part owner of the Brooklyn Nets.
But team valuations have skyrocketed in recent years, making it harder for individuals to bid on sports teams. This was seen in the bidding process for the Washington Commanders who were sold for a professional sports record of $6.05 billion in July.
In order to broaden the investor pool for sports teams, many of the major sports leagues have now allowed for private equity firms to gain a share of team ownership. The NBA, MLB, NHL, MLS, and NWSL have all allowed for private equity to come in.
For private equity firms, sports teams present a massive growth opportunity considering many of their valuations have grown well above 10% over the last year. The value of the average NBA team grew 35% in 2023 versus the previous year, according to Forbes.
But leagues have put a cap on the ownership percentage that these firms are allowed to have in order to ensure that they cannot have controlling stake. For example, the NBA allows for a single private equity firm to own a maximum of 20% of a team, and a team is not allowed to sell more than 30% of its stake to private equity.
These firms are actually allowed to own more than one team per sports league, though only the MLB allows for a single private equity firm to have stake in an unlimited. The NBA and NHL cap firms at five teams, MLS caps firms at four, and NWSL limits ownership to three franchises.
The NFL has still not allowed private equity to enter the sport — and league owners pushed back a discussion on whether to change the rule just last week. However, that discussion is expected to be brought up again later this year, according to Bloomberg.
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