SPORTS CAPSTONE: BUYING A SPORTS TEAM
BUYING A SPORTS TEAM IS MORE THAN JUST A ‘PRESTIGE PLAY’ OR ‘TROPHY ASSET’ FOR UHNWIs.. PRIVATE EQUITY IS GETTING IN ON THE ACT…
Written by Simon Pavitt at the 2019 Milken Institute Sports Leaders Retreat and the Goldman Sachs Alternative Investment Conference 2020
Private Equity is now seeing sports teams and rights as an asset class and becoming competition for UHNWIs and Billionaires when acquiring sports properties...
Sports teams have traditionally been a family-owned business. 109 billionaires own the top 140 global sports brands. But 2019 was the year that PE houses and investment groups made it clear sport is firmly on their radars for alternative investment.
Silver Lake recently grabbed attention by buying a stake in City Football Group for $500m valuing the company at $4.8bn.
The deal caps a busy year for investment groups and private equity in sport. Whether it’s Kosmos activating the new format for the Davis Cup in 2019 after acquiring the rights and planning to spend $3bn for 25 years around the 119-year-old competition to CVC looking to increase their positions with rugby- with negotiations on going around a £300m package with the Six Nations to complement their existing holdings in the Gallagher Premiership. Sport is hot property. These groups are now competing with the billionaires and UHNWIs that have traditionally bought sports properties as their capstone projects. Billionaire Meg Whitman recently announced she was investing $100m for a 20% stake*). There was competition with not only other UHNWIs but with institutional investors.
When you look at the figures, the unprecedented returns in recent years you can see why investors are looking more and more at sport.
In the National Basketball Association (NBA), the average franchise value has increased by 300% or more over the past five years. In the National Football League (NFL), team values have increased 8X over the past two decades, yielding an annual rate of 11.6%—7.1% more than the S&P 500's performance over the same period. In Europe, the 20 most valuable football clubs are worth an average of $1.69 billion, representing a 14% increase over the past year alone and a 74% increase over a 5-year period. Europe's most highly valued clubs (the likes of Manchester United, Real Madrid and FC Barcelona) have nearly tripled in value since 2010. The sports industry continues to grow at a rate of 6.4% a year. An investor has never lost money from an NFL team in the history of team ownership.
Sports teams are considered now much more than a trophy asset. Yes, there is room for egos, prestige, politics and pure fandom. Many billionaires do buy sports teams because they are super fans, for nostalgia or to fulfil a promise to themselves (or their family) when they were younger that ‘when they made it, they would buy their favourite team’...
But people and institutions are making a lot of money from buying and selling on teams so they can’t just be seen as a whim or a pure passion play.
Here are some of the reasons why sports teams are considered interesting investments- firstly 11 reasons why sport:
1) People read the back pages of a newspaper before they read the front. Why is that? Because people want to read about winners, winning, human stories that are often positive rather than negative on the front pages
2) Sport is culturally magnetic: people, families, communities, strangers even bonding over a shared passion for a team or sport. It’s tribal. It’s in human nature to want to belong to tribes and communities. Sport encourages patriotism, unity within a country (we’ve all seen how a country comes together over the World Cup football, the Olympics etc)
3) Sport provides a common purpose to support and follow. Clear goals (win a match, league, competition) where you see regularly where you are at in terms of winning/ losing
4) We all need sport in this day and age we need to find wins in life, we need to attach ourselves to winning (and experience losing)
5) Watching sport and supporting a team is a visceral experience, it reminds us about our feelings, it can help our immune system, it gets the blood flowing. There is jeopardy and instant feedback on whether we have won or lost
6) With an increasing population, larger audiences = growth. Increased middle classes (in most markets) = more affluent fans to engage and monetise
7) More automation may well create a two-tier society, but an optimist could also say that with more automation, people will value creativity and entertainment more. Perhaps people may look at life balance and think 4-day week, going to watch more sport and having more entertainment in their life is important…
8) Sport spans generations, incomes, social classes. It is the fabric of routines and rituals for many people (whether that’s a weekly event to watch a game with the family to take your family to the game each year). Whether that’s to sit down together on a Sunday afternoon to watch the F1 or make sure that you watch a World Cup football match all together. For many it’s a weekly routine, this is predictable behaviour of a consumer that can be monetised
9) Sport provides the potential for social impact- uniting local communities, direct access at grassroots, inspiring kids to get more active. Sports teams can have real impact in communities. They are often deeply seated relationships e.g. Liverpool, Everton, Man City football clubs have amazing community links and really are at the heart of the fabric of their local community
10) Sport is content and content is king. You are buying part of the content. You are buying eyeballs, attention and passion. 13% of google searches in the UK are football-related...sport is part of people’s everyday lives and entices their attention
11) Sport reminds us we are human: evoking strong emotions: passion, loyalty, nostalgia, happiness, sadness. It allows us to be in the moment
EIGHT REASONS WHY UHNWIs LOVE BUYING SPORTS TEAMS (AND WHY IS PRIVATE EQUITY NOW FOLLOWING):
1) There is the anecdote about being in Moscow for dinner with 14 oligarchs. Not one wanted to talk about their day to day businesses (energy, oil, gas, materials), they were all uninspired by that, they were all talking about the sports teams they wanted to buy…
2) The top sports properties are finite. Where there is limited supply there is often increased demand (wine, rare art, limited edition cars or anything). There will always be a limited number of NFL teams, premiership football clubs, and Olympic medals.
3) They love winning or the thrill of the chase of the win. They get to see the results immediately through winning games and trophies.
4) Winners want to create winners, they want to take something and take it to higher performance levels
5) They often look for outsized returns, they want to create a dollar out of 15 cents. The belief is that there is still a much larger upside and ways to create intrinsic downside protection (contractual cash flow, rights holder assets etc)
6) Many see underperforming assets that they believe they can find ways to create more value – from the property and retail around building a new stadium to merchandise, to removing layers of culture within that have been resistant to change
7) Data- sport has so much data now- from highly engaged fans that are happy for their favourite team to have their data if they believe it brings them closer to their passion. There is more data in one batter at home plate in baseball than an entire season once upon a time. The shift has been that people believe now you can go from a computer and algorithms to coaching to improve performance. Ask Billy Beane… many believe there are still analytical advantages in something like European soccer where money can be made trading players and 1000s of opportunities to transact
8) The longevity of the assets: any family offices are looking at 40-year investments. They are patient. Sports teams (in franchise terms are guaranteed), in sports teams obviously there is the threat of relegation but most sports teams are expected to be around in the longer-term future – the same can’t be said about all businesses… it’s likely Manchester United will be around in forty years’ time, can you say the same for Yahoo?
Many enjoy the buzz of watching something they own in a live environment where you can watch success and failure happen right before your very eyes. In business rarely can you literally sit on the sidelines and watch in real-time winning. This is immediate and visible- that you share with others. It’s difficult to recreate such a win or thrill from standing on the sidelines watching a business or an investment…
Much of the above was captured when Wingman Founder Simon Pavitt recently hosted a panel at the Milken Institute London Summit’s Sports Leaders Retreat. The panel consisted of Zak Brown CEO of McLaren Motorsport, David Webb CEO of CSM Brands and Stuart Lakin of Head of Partnerships Mercedes FE and F1 teams. Milken Chairman Mike Milken then provided an overview of why sport is a fascinating speech to inspire the 100 invite-only sports team owners and leaders at the retreat.
*assuming the team is worth $500m, up from $285m value estimated by Forbes
WINGMAN IN THE PRESS:
FANTASY F1 TEAM IN THE PADDOCK MAGAZINE:
http://www.thepaddockmagazine.com/fantasy-f1-team-simon-pavitt/
WHY IT’S ALL IN A NAME FOR MANOR F1 TEAM IN FORBES:
BUILDING PRODUCTIVE RELATIONSHIPS:
http://www.thepaddockmagazine.com/building-productive-relationships/