Access: A Match Made in Heaven
“It’s very difficult to buy a sports team and lose money.” - David Rubenstein
Hello reader,
Welcome to the 37th edition of Access - our last newsletter was the Jobseeker Edition, featuring 90 opportunities across private capital finance, operations, and technology.
This week’s In Depth spotlights the growing relationship between private capital and the sports industry. Over the past few years, the way we consume sports content has changed, partly due to the pandemic. The rise of digital streaming and subscriptions, alongside new regulations (particularly within North American sports leagues), has opened up a new avenue of opportunity for private investment.
Many sports fans have a ‘ride-or die’ outlook when it comes to supporting their favourite team or club - an attitude that transcends wider economic uncertainty, and one that seems lucrative for private capital investors looking for enhanced returns with a low(er) risk profile.
This edition was inspired, in part, by the 2023 Women’s Football World Cup - an event I wasn’t sure I'd have much interest in. But coincidentally, it seems the growth in popularity of women’s sports might be the next venture for sports funds.
Hope you enjoy the read. Until next time -
Melissa & Liz
In case you missed it…
Last week, we posted our latest Jobseeker Edition, with global opportunities at private capital fund managers, technology vendors, and advisors, consulting firms and fund services providers working in private markets.
FEATURING:
In Brief: The very best global private markets resources, including:
Moonfare’s Mid-Year Observations
Subway Sells
Bridgepoint 🤝 Energy Capital Partners
In Depth: A Match Made in Heaven
IN BRIEF
Below, you’ll find a selection of global news stories from people and companies in our private markets network.
Moonfare’s Mid-Year Observations
The economic climate remains uncertain but there are some positives to take away from the first half of the year.
European fundraising spikes in H1 2023 as megafunds gain traction
Dealmakers turn towards add-ons as financing costs rise
PE-sponsored exits show an increase in Q2
Private credit is (still) on the rise
The secondary market demonstrates its resilience whilst holding steady.
“Recent data from Europe suggests fundraising could be back on pace. Certain private market subsegments as well are showing levels of robustness, such as secondaries, while some industry experts believe that private credit is even having a “golden moment”.
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Subway Sells Itself
After six-decades as a family-owned business, Subway has found itself a buyer in Roark Capital, six-months after the business announced it was looking to sell itself. The purchase price is yet to be confirmed but is rumoured to be “around $9.6bn” which would make the deal one of the biggest acquisitions in fast food history.
With $37bn AUM, Roark Capital has extensive experience in the food service industry, with previous investments including Dunkin’ and Baskin-Robbins.
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Bridgepoint 🤝 Energy Capital Partners
This week, Bridgepoint announced their partnership with Energy Capital Partners (ECP), a leading North American infrastructure investor. By joining forces, Bridgepoint adds a third pillar to its business, joining its current private equity and credit strategies.
“Joining forces with ECP is an important powerful next step in Bridgepoint’s strategic objective of building a globally-scaled, diversified platform in middle-market private assets investing. The transaction accelerates our scale, leadership and strategic development, enhances the quality of the Group’s earnings and margin profile, and provides greater diversification and earnings growth potential for shareholders.”
- William Jackson, Chairman at Bridgepoint
[Read the press release in full]
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IN DEPTH
“Sports is, for all intents and purposes, recession-proof.” - John Moag, Chairman & CEO at Moag & Company
In 2021, private equity invested $51bn in sports deals, with $22bn in Europe alone, according to PitchBook. Following the contraction of the sector during the pandemic, the 2021 global wave of activity represented a increasing appetite for the sports industry. Lockdowns had transformed revenue sources, moving away from gate receipts and towards consumption of sport through digital channels. When in-person attendance resumed, the industry had found that it had diversified sources of revenue, which looked particularly appealing to private equity. It’s not just the sport itself that is compelling for PE firms - developments in media rights, sponsorship deals and digital streaming have made the sector even more attractive.
“I think generationally there’s a shift right now in terms of not just content distribution and consumption, but also in terms of the demographics that consume it.”
- Bobby Sharma, ex-NBA executive and Founder & Managing Partner of Bluestone Equity Partners
However, this is not the first time private equity has shown interest in sports. In 2005, CVC Capital Partners invested in the Formula 1 series, exiting in 2015 with a reported 450% return. CVC was an early entrant and this deal was seen as one of the first activities matching private equity and sports. Prior to private equity players entering the market, the industry was dominated by high-net-worth owners or collective fan ownership.
Historically, sports transactions provided portfolio diversification, in addition to strong and stable returns. Coupled with changes to ownership rules in 2019, sports leagues, franchises and stadiums have become private equity investment targets. Firms have since deployed record amounts of dry powder, adding a new source of liquidity whilst also offering expertise in the form of media rights experience, brand building, and stadium operations to maximise revenues and returns.
The Game Changers
The regulation changes in North American Leagues started with Major League Baseball (MLB) in 2019, followed by Major League Soccer (MLS) in 2020, then National Basketball Association (NBA) & National Hockey League (NHL) in 2021. The National Football League (NFL) is the only league of the five American sports leagues to yet change their rules about private equity ownership, though this is highly anticipated.
Timing seems to have an important role, particularly for Actos Sports Partners, founded in 2019 by Ian Charles & David O’Connor. When formed, only the MLB had changed their regulations to allow private equity ownership, so there were many unknowns with this strategy but as an asset class, the sports industry tended to be uncorrelated to the rest of the economy. Charles, a secondaries veteran, studied the sports industry around 10 years ago, and found a promising asset that offered opportunities for enhanced returns with reduced risk. At the time, however, none of the American leagues allowed institutional capital to own equity in their clubs, so it wasn’t an executable strategy. Fast forward to 2021, other American leagues followed the MLB, and Arctos Sports Partners debuted their first fund in 2021, raising $2.9bn. With this inaugural fund, Arctos secured minority stakes in multiple NBA teams, including Golden State Warriors (c. 5% stake for $275mn) and Sacramento Kings (17% stake for $1.8bn).
“We could not replicate the performance of North American sports assets using all of the data available to us.”
- Ian Charles, Managing Partner of Arctos Sports Partners
CVC Capital Partners continues to be a main player in sports-focused investments. The Luxembourg-based firm invested £265mn in Europe’s Six Nations rugby tournament in 2023, a stake which aims to capitalise on the opportunity to become the sport’s dominant commercial player. The deal follow’s CVC’s previous rugby-related acquisitions including 27% stake in English Premiership Rugby for £200mn in 2018 and a 28% share of Pro14Rugby, an annual international tournament, for £120mn in 2022. Aside from rugby, CVC backed the Swiss-headquartered International Volleyball Federation, injected $3.2bn into Spain’s La Liga soccer league, and purchased an expansion cricket franchise in the Indian Premier League for $736mn.
Sixth Street Partners is another PE firm diversifying into sports investments with a 30% stake in the San Antonio Spurs basketball team and a 25% share of FC Barcelona’s La Liga television rights. In 2022, Sixth Street partnered with Real Madrid FC & Legends (a premium experiences company for sports and live venue organizations), investing $360mn to drive a range of business activities to elevate the club’s Bernaneu Stadium.
Closer to home, Chelsea FC is looking to further attract capital - an example of a club which has moved towards a more investment-oriented strategy. Clearlake Capital backed Todd Boehly’s £4.25bn takeover of Chelsea FC in 2022 and after a year of spending the club is reportedly looking for further investment, approaching investors, including US-based Ares Management, to raise $500mn of capital.
Is the interest mutual?
On one hand, private capital investment provides teams and leagues with an often much needed injection of liquidity where their net worth is typically tied up in their franchises or long media contracts. On the opposing team, fanbases can be hesitant to extend their support - with PE firms focused on value creation, sports fans and executives are critical of a profit-only approach, fearing that private equity investment will result in cost-cutting measures with the intention to sell within a few years for maximum profit, threatening the brand of both the club / league and sport more generally in the future.
“We often think of "sports" as being its own industry, but it's really more of a cultural touchstone with direct ties to other sectors.”
- Kendall Baker, author of Axios Sports
Compared to other sectors, the emotional value of sports introduces an elevated risk associated with the level of customer engagement of fans with their preferred sports. A risk that is crucial to acknowledge. Tyler Brewster, senior director at EY-Parthenon, points out: “For most fans, they are highly passionate [about] these products. A level of passion you’re not going to see even in consumer products where you may have a connection to the brand.”
With PE motivated to invest in sports businesses, the most successful deals involve a collaboration between sporting bodies and private equity investors, operating in sync towards a shared vision of sustainable growth. Day-to-day decision making remains with the teams and leagues, and funds are able to provide both a cash injection, whilst adding longer term strategic value including relationships in media, content creation, technology, and data monetisation amongst others. Over the past few years, funds have developed a track record, demonstrating that they can add value outside of a financial contribution, and this seems to be building confidence in the role of private equity in sports.
“Look at what Formula 1 has been able to do with their Netflix series in gaining popularity that way. That’s really where a partner can add a lot of value beyond just being a financial sponsor in helping with cash flows or investing for growth. Someone who can add value through the technology, media, data connections – those are the ones who really succeed in this space.”
- Tyler Brewster, senior director at EY-Parthenon
Next season
Entering the playing field of sports investments seems like a no-brainer but as the sector becomes more crowded, PE firms are having to hone their game plans. The next play seems to involve increasing investment in women’s sport. In a first step towards raising the profile of women’s tennis, the Women’s Tennis Association (WTA) announced a strategic partnership with CVC Capital Partners in March 2023. CVC invested $150mn for a 20% stake, with the aim to increase the commercial growth of women’s tennis and bring the sport global reach, experience, and connections from its previous sports & media deals.
Women’s football in particular is increasing in popularity - the final of the women’s European Championship last year was the most viewed programme of any kind in 2022 at the time of broadcast in July with 17.4mn viewers on BBC One and a further 5.9mn on digital platforms. The upward trend continued with the Women’s 2023 FIFA World Cup and the final attracted record number of television viewers (12mn on BBC One, 14.4mn on ITV) as well as a total of 1.9mn fans at stadiums across the tournament.
Another area that private equity investors are scouting is college sports. In August, Florida State University drafted JPMorgan Chase to explore bringing on institutional investors for the school’s athletic department. Sixth Street Partners could possibly lead the capital raise and if the deal concludes, it would mark the first time institutional money has been injected into college sports, marking investor interest into one of the last untapped opportunities in sports.
“In a world where everyone is consuming highly customised and individualised content, there's only one form of content that will be communal… That's live sports.”
- Ian Charles, Managing Partner at Arctos Sports Partners
If you’re interested in hearing Ian Charles’s journey to co-founding Arctos Sports Partners, I’d recommend his interview with Hugh MacArthur on the Dry Powder podcast. 👇
And finally… The Petcash Pod
Andrew Petcash chats to Ian Goldberg, CEO & founder of iSports360 about the impact of private equity on the youth sports landscape.
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