
When US private equity firm 777 Partners decided that the world of sports would become its new playground, it went all in. Early investments included promising assets like the UK basketball powerhouse London Lions and a minority stake in the country’s basketball league, but its real speciality was football. Like a collector of old football shirts, the Miami-based firm acquired a list of fine specimens from the palette of the beautiful game worldwide, owning stakes in Genoa, Vasco da Gama, Standard Liege, Melbourne Victory, Hertha Berlin, Sevilla and Red Star in France.
Last spring it came close to acquiring Everton too, but its failure to meet the Premier League’s strict ownership conditions and trouble at 777-owned Australian airline Bonza put off the club’s owner and the deal fell through. This October, 777 Partners collapsed, leaving its football assets high and dry. “777 probably went too wide, too quickly, without sufficient intelligence on the European sporting market – investments inside and outside football,” says Rob Wilson, founder of Investinsoccer.com, a strategic sport advisory service that helps match prospective football club owners with the best sporting assets.
The great private equity attack
For all its mishaps, 777 Partners’ sporting adventure was far from an isolated case. Over the last decade, private equity capital has poured into the sports industry, lured by its global appeal as leagues with a soaring fan base like the Premier League offer immense growth possibilities for investors. Annual global investment in the sports industry has trebled to over $30bn within 15 years, according to CNBC data. In the US, the world’s biggest sports market, within just two decades average NBA team values have increased by a staggering 1,176 percent and NFL valuations by 523 percent, estimates JPMorgan Chase. Changes in the media landscape have turned sports into a golden goose for streaming platforms like Amazon Prime, massively increasing games rights. Digital technology has also transformed sports into a brave new world for marketers, with stadium sponsorships, digital scoreboards, jumbotrons and branded areas offering new opportunities.
If private equity investment in established sports has its critics, for less popular ones it’s a boon
Team owners have welcomed the sudden interest of institutional investors, which has shaken up what used to be a slow-moving and often loss-making industry. “Given the restrictions on how much private equity firms can own, it provides some liquidity and an exit to legacy owners who would otherwise hold an interest in a very illiquid market,” says Michael Rueda, head of US sports and entertainment at law firm Withers, adding: “It is not necessarily a vanity asset now – it is a real business with growth potential.”
As the world’s most popular sport, football has been a major target for investment. The pandemic deprived many clubs of revenue streams like ticket sales and TV rights, making their owners less sceptical of investors with little football expertise. More than one third of Europe’s top five league clubs had financial backing from private equity, venture capital or private debt firms in 2023, according to the financial data company PitchBook, a total of $5.4bn up from less than $71m in 2018. US private equity firms have rushed to benefit from economies of scale, as the acquisition of stakes in European clubs allows them to share resources across the Atlantic.
Ares, a firm that manages around $450bn, has invested in Chelsea and Inter Miami, while Sixth Street is a major investor in the San Antonio Spurs and Real Madrid.
“Revenues are high in several European leagues (see Fig 1) and for clubs consistently playing in UEFA competitions, but losses are common, which creates a potential for efficiency gains,” says Christina Philippou, who teaches accounting and sport finance at the University of Portsmouth, adding: “Many private equity investors come in with the idea of controlling costs and increasing commercialisation as a means to enabling the extraction of profit, particularly those that look to learning from US sport league models which are far more commercial.” Another reason why private equity investment has increased is better regulation, notably improvements in UEFA’s financial fair play rules, according to Rob Wilson: “A regulatory framework is beginning to take a firmer grip on financial sustainability. If private equity waits another five years, the assets will see higher entry value, and thus become less attractive.”
Despite the buzz all that investment has created, some scepticism remains in parts of the sports industry. Last August, the National Football League (NFL) became the last major US sports league to let private equity capital in, allowing investors to buy stakes of up to 10 percent in its teams, provided that they hold them for at least six years. It has selected six private equity powerhouses as preferred buyers on the premise that they can invest large sums from the get-go. As the world’s most lucrative league with a $110bn media rights deal under its belt, the NFL had enough leeway to keep its ownership rules stricter than those set by other leagues, which have permitted investors to acquire 30 percent stakes and in some cases even control teams.
“They want to benefit from institutional investors, but in a way that doesn’t change the makeup of the game and the way it’s governed,” says George Pyne, founder of the private equity fund Bruin Capital, which invests in the sports sector, adding: “With just 10 percent the investor has no rights. For the owners, not giving up those rights is important to the integrity of the game.” The league is also aware of public scepticism over private equity’s priorities, says Roy Lockhart, managing director at the global consultancy Stax, who specialises in private equity: “NFL owners still want to project the image of long-standing family ownership as the typical model, and where that has been the case, winning has always been a priority in addition to financial success. By including these restrictions as they open up franchises to private equity investment, they are able to maintain this illusion while preparing for a future where franchises are treated more as investment vehicles than passion projects.”
An own goal?
The massive inflow of capital has sparked fears that there is already a bubble in parts of the sports sector. In the case of football, it has led to “massively inflated” valuations based on “facile notions” about growth, warned Gerry Cardinale, owner of AC Milan, at a business summit last September. “The problem with my crowd is they are asset managers. They just want to buy stuff, and that is not great for intellectual property based businesses,” said the founder of the private equity firm RedBird Capital Partners.
Cardinale’s statement echoes a broader concern over the financial sustainability of European football. Many of its iconic clubs are mired in a spiral of growing debt; in 2023, Europe’s top five leagues owed a total of over €10bn. A 2023 report commissioned by the UK government found that many English clubs are “run in unsustainable ways” and rely on owner funding and underwriting of losses, which increases the possibility of insolvency.
A major risk is that inflation of club values may price future investors out, argues Philippou from the University of Portsmouth, co-author of the report: “This is good for owners short-term, but poses a potential problem in the long run if valuations are pushed too high to enable clubs to find buyers, particularly if the financial landscape where loss-making is the norm continues, which may lead to insolvency events.” As an example of what could go wrong, she points to the English rugby league, which saw three top-tier teams going bust last year. For the clubs, the main concern is that debt-fuelled deals involving private equity firms that are looking for quick returns could eventually leave them high and dry, as in the case of 777 Partners. Last October, Moody’s warned that an increasing number of private equity groups struggled under heavy debt, with Chelsea co-owner Clearlake being singled out as one of the firms with the highest leverage ratios.
It is not necessarily a vanity asset now – it is a real business with growth potential
Another worry is that private equity firms are not equipped with the patience needed to thrive in a relatively illiquid industry that is smaller than their traditional targets and requires long-term investment. “One challenge is that sports teams are not necessarily high cash flow conversion investments. They are investments that are challenging to put down, which is the opposite of what classic private equity is all about,” says Bruin’s Pyne.
A particular problem US firms face when investing overseas is differences in regulations and sporting cultures. European football clubs need steady investment to avoid relegation and enter competitions like the Champions League, while US franchises are less risky and offer an opportunity for underdogs to sign promising young athletes through the yearly draft system. What’s more, measures that in other industries are accepted without any problems, like cost-cutting and pursuing new commercial opportunities, can cause a fierce backlash in sports if fans perceive them as a threat to their team’s history and identity. Protests that involved German football fans throwing chocolate and tennis balls on the pitch forced the Bundesliga to abandon its plan to sell a stake of up to eight percent in its media rights business to a private equity firm.
All in the game
If private equity investment in established sports has its critics, for less popular ones it’s a boon. The explosion of women’s sports, for example, can be partly attributed to the recent inflow of private capital. Sixth Street entered the game last year by becoming the main investor in Bay FC, the latest entry in the increasingly popular US National Women’s Soccer League. “An increasingly common consideration for investors in European football is the ability to invest in two markets with a single purchase: the mature men’s market and the effectively start-up but high-growth women’s football market,” says Philippou. Sports like lacrosse and pickleball also have an opportunity to attract a bigger audience through investment that creates a virtuous circle of growth. “With income growth there is a role for private equity to play as league values grow and the need for capital increases,” says Rueda from Withers. “It’s the only way to grow a business.”