Private Equity's Time on the Bench Is Over: NFL Owners Allow Private Equity Fund Investments

Private equity funds have been patiently waiting on the sidelines for their chance to invest in the NFL, and they have finally been called off the bench to show what they can do.¹ Every NFL team owner except for one has voted to allow private equity fund investment in NFL franchises.² But, it looks like the NFL is slowly integrating private equity fund investments – it is currently allowing only a relatively small number of preapproved funds to make investments and has set other investment limits and criteria.³ The just-ended prohibition on private equity funds getting into the NFL was the outlier, not the norm. Private equity funds were already able to make investments in the NBA, MLB, NHL, Major League Soccer (MLS) and National Women's Soccer League (NWSL), pursuant to the terms shown in the below table, which shows the new NFL investment criteria for comparison:⁴

However, not all sports franchises limit investments like the structure shown in the above table. For example, Endeavor Group Holdings owns Professional Bull Riders,⁵ and Liberty Media – the owner of Formula 1 – recently announced that it would acquire a majority stake of MotoGP, a motorbike racing organization, by the end of 2024.⁶

Investing in NFL Franchises: A Few Key Advantages

Now that private equity funds have broken into the NFL, there needs to be room for investment returns that are great enough to justify not investing in other markets. There are plenty of reasons this likely won't be a problem.

1. NFL team valuations have a lower correlation value when compared to other assets such as stocks, commodities, mortgages and other commercial investments.⁷ That is, even if the stock market goes down and markets across the board start to sag, the value of an NFL team can usually weather the storm.
2. Contrary to the fundamental theory that every economics major learns in undergrad, sports markets are mostly irrational. Fans usually will show up rain or shine, feeling high or feeling low, to support their favorite team expecting an upset against insurmountable odds.⁸
3. There are a number of sources supporting the conclusion that sports teams have outperformed the S&P 500 over the past 20 years.⁹
4. Every NFL team is profitable (leading to teams selling at higher multiples when compared to other sports franchises),¹⁰ and this profitability is projected to continue growing because the NFL is guaranteed more than $100 billion from television deals over the next decade.¹¹
5. The prior investment restrictions lead to a small pool of buyers who could reasonably bid on NFL franchises,¹² but the addition of new buyers should drive up demand and push prices even higher, helping to ensure return on investment.

Other benefits could be detailed here, but the overall picture is clear: There are major advantages to investing in NFL teams.

Though the NFL has lifted its prohibition on private equity fund investments, the market is currently unexplored, so there may be twists and turns coming in the future that further shake up the NFL landscape. For the time being, do not expect to see any major differences on Sundays. Current investment criteria have been established to ensure decision making and influence are retained by a team's owner, and private equity fund investment is designed to be passive.¹³ This truly is a new era in the NFL as team owners get a taste of the substantial liquidity private equity funds can provide, and it will be interesting to watch how investment parameters continue to develop in the coming years.

Notes

¹ Judy Battista, "NFL Owners Vote to Allow Private Equity Funds to Buy Stakes in Teams," NFL.com, Sept. 1, 2024.

² Josh Sim, "NFL Owners Vote to Allow Private Equity Investment in Franchises," SportsPro (accessed Sept. 1, 2024).

³ Battista, supra note 1.

⁴ Sim, supra note 2.

⁵ Brendan Coffey, "Sports Grow from Private Equity Afterthought to Booming Market," Sportico (accessed Sept. 1, 2024).

⁶ "Formula 1 Owner Liberty Media Announces Takeover of MotoGP Parent Company Dorna," Sky Sports (accessed Sept. 1, 2024).

⁷ Coffey, supa note 5.

⁸ Brian DeChesare, "Sports Private Equity: Bright Spot in a Trouble PE Landscape or an Emerging Bubble?," Mergers & Inquisitions (accessed Sept. 1, 2024).

⁹ Id.

¹⁰ Kurt Badenhausen, "Every NFL Team Sees More Profit Than Any Premier League Club," Sportico (accessed Sept. 1, 2024).

¹¹ Mike Ozanian, "Why the NFL Could Reap More Than $126 Billion in TV Money by 2033," Forbes (accessed Sept. 1, 2024).

¹² Battista, supra note 1.

¹³ Battista, supra note 1.