5 days ago
Club Sportico: The NFL's Lesson in Supply and Demand
This story originally appeared in Club Sportico, which is Sportico's separate community newsletter. Join the club here.
Last summer, following years of internal debate, the NFL joined the other major U.S. leagues in allowing private equity funds to invest in teams. The thinking was simple: with the average franchise worth $6+ billion, the amount of wealthy individuals willing/able to buy small, passive stakes was shrinking. Funds would introduce more buyers, and more demand would mean higher valuations.
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Twelve months later, the shift has had the exact desired effect. Teams are selling minority stakes at record valuations. However, most of the buyers have been wealthy individuals, not PE funds.
The NFL did unlock a new pool of investors, just not the one it expected. Rather than needing to juice demand, it turns out NFL owners just needed to flood the market with supply.
Here are some of the more recent deals:
Buffalo Bills 🐃: Nine individuals and one fund (Arctos) bought about 20% total at a $5.8 billion valuation.
Miami Dolphins 🐬: Two individuals and one fund (Ares) bought 13% at an $8.1 billion valuation.
Los Angeles Chargers ⚡: One individual bought 27% at $4 billion valuation. A fund (Arctos) bought 8%, valuation unclear.
San Francisco 49ers ⛏️: Three families bought 6.2% at an $8.6 billion valuation.
Philadelphia Eagles 🦅: Two families bought 8% at an $8.3 billion valuation.
Cleveland Browns 🐶: One individual bought a very tiny stake, valuation unclear.
New York Giants 🔵: In market right now, but looking to sell 10% to small group of individuals.
We count 21 new NFL minority investors in the last half year, and 18 of them are individuals or families.
Here's what happened…
Institutional investors like sports funds are looking to make money off their investments—they want to capture management fees and sell their team stakes at a later date for a hefty profit. Individuals, on the other hand, buy equity for a bunch of different reasons. It's an ego thing, a vanity thing, a fan thing or a tidy tax benefit. Sometimes it's all of the above. Either way, individual buyers are way less price-sensitive than institutional investors.
How far apart are they? The 49ers ⛏️ were valued at $8.6 billion in their recent LP (limited partner) sale. I was told this week that one of the initial bids from a prominent PE fund was more than $1.5 billion lower.
It seems possible that the NFL didn't realize how much interest still existed from individuals because teams simply weren't testing the market that much. NFL stakes historically don't sell at the rate of some other leagues. Once the institutional rules were changed, however, many teams rushed to capitalize on the new upside. What they found, instead of funds willing to pay top dollar, was a new group of individuals willing to open their wallets.
There now appears to be two separate markets for NFL minority stakes. There's the market for individuals, and the market for funds. Where your team goes likely depends on a number of different factors. Do they want the operational expertise that a group like Arctos offers? Is dollar total the most important factor? Are they willing to roll the reputational dice with a human?
And maybe most importantly, is your team willing to perform the entertainment duties needed to court these individual investors? Joe Billionaire may be willing to invest in the Jaguars 🐱 at a $7 billion valuation, but the Jaguars also have to be willing to give him a parking spot, tickets, access to the locker room and team plane, and maybe a Super Bowl ring. Sixth Street or Apollo don't need all of that.
One other factor here: the NFL rules state that teams can only sell 10% of their equity to PE funds. That's compared to 30% in the NBA, MLB, NHL and MLS. The low maximum—plus the league's unique demand to retain the right to compel sales in certain situations—has also contributed to the trickle in PE deals.
If I were a betting man, I would expect the league to increase that 10% limit in the near future. It's clear funds aren't competing with individuals on the small stakes. But they likely would on the bigger ones.
⚡ Take: All this talk of investors and stakes reminds me of one of my all-time favorite Sportico graphics, hand-drawn division. The story of sports team sales is told below, in traced magic marker and multiple shades of red (an Eben specialty), likely with the help of tools I haven't seen since 2nd grade.
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