Anything too pricey for a billionaire? It turns out that the answer is yes.
A new study from Goldman Sachs called “Getting in the Game: The Future of Sports Investing” says that individual billionaires may no longer be able to afford to own sports teams.
The report said, “In general, valuation growth has outpaced the ability of high-net-worth individuals to take control ownership of teams.”
In recent years, sports teams have become more valuable, especially in the U.S. This is mostly because of the media and broadcasting deals that the National Basketball Association, the National Hockey League, and Major League Baseball have made. These deals are now worth tens of billions of dollars every year. The new media-rights deal for the National Football League is worth an unbelievable $110 billion.
As values have gone up, some billionaires have been priced out, even though the number of them is also going up. In 2001, there were only 538 billionaires in the world, but by 2023, there will be 2,640. The value of teams has gone up, though, so owning a big sports franchise “would represent a sizable portion of these individuals’ overall balance sheets.”
Anything too pricey for a billionaire? It turns out that the answer is yes.
A new study from Goldman Sachs called “Getting in the Game: The Future of Sports Investing” says that individual billionaires may no longer be able to afford to own sports teams.
The report said, “In general, valuation growth has outpaced the ability of high-net-worth individuals to take control ownership of teams.”
In recent years, sports teams have become more valuable, especially in the U.S. This is mostly because of the media and broadcasting deals that the National Basketball Association, the National Hockey League, and Major League Baseball have made. These deals are now worth tens of billions of dollars every year. The new media-rights deal for the National Football League is worth an unbelievable $110 billion.
As values have gone up, some billionaires have been priced out, even though the number of them is also going up. In 2001, there were only 538 billionaires in the world, but by 2023, there will be 2,640. The value of teams has gone up, though, so owning a big sports franchise “would represent a sizable portion of these individuals’ overall balance sheets.”
Not long ago, U.S. sports teams were bought and sold for tens of millions or hundreds of millions of dollars. These days, they’re usually bought and sold for billions of dollars. These high prices have caused most professional sports teams to sell to rich people with lots of money to spare.
Like, David Tepper paid $2.275 billion for the NFL’s Carolina Panthers in 2018. Tepper is a hedge fund manager at Appaloosa Management and has a net worth of $21 billion. The Panthers’ price tag didn’t really hurt his wealth, though.
In the same way, a management group led by Walmart’s WMT +0.12% The Denver Broncos were bought by Rob Walton for $4.6 billion in 2022. With a net worth of more than $200 billion, the Waltons are thought to be the richest family in America. They have a lot of money to spend.
Also, even though the worth of almost all sports franchises has gone up over the last 20 years, there is still some risk involved, which could make some potential buyers think twice about buying one.
The Goldman report said, “Professional sports team valuations may not be recession-proof or immune to value drops due to outside factors.” “For example, during the 2008–2009 Financial Crisis, the average NFL team’s enterprise value stayed the same, but the value of eight teams dropped by 10 percent or more.” The full 2004–2005 NHL season had to be canceled because of a labor dispute in 2004. This caused the values of all NHL teams to drop significantly.
The sports business is also being shaken up by changes in how people watch sports. “The traditional cable bundle may fall apart if people keep cutting the cord at the rate they are now.” The story went on to say that this change could make networks cut back on or stop investing in sports, which could lower the value of TV contracts.
The value of sports teams has gone through the roof, and leagues have started letting private equity companies own parts of clubs. The NFL was the most recent league to agree to this change.
Goldman wrote, “Leagues have become more open to institutional investment capital.” “Several private equity firms have announced or made investments in sports leagues and teams around the world, either in the form of equity or debt.”
Private equity funds can now own a piece of teams in the NFL, NBA, MLB, NHL, Major League Soccer, and the National Women’s Soccer League. The most they can own varies by league, but is usually between 10% and 30%. As for Europe, Pitchbook says that financial companies put $5.3 billion into the five biggest soccer leagues there last year, up from $72.1 million the year before.
The only professional sports groups that Goldman talked about were those in the NFL. However, college sports may soon get their own private equity boost. Private equity and venture capital companies, such as College Sports Tomorrow and Collegiate Athletics Solutions, want to buy shares in some of the best sports programs in the country.
Collegiate Athletic Solutions was helped to be made by RedBird Capital. The founder of that company said that his company would be willing to lend money and give advice to athletic departments in exchange for a cut of future profits.
“History shows that universities that smartly invest in their sports departments always win and do better than their peers,” said Gerry Cardinale. “At CAS, our goal is to give athletic departments a unique way to get capital when and where they need it to compete at the highest level during this unstable paradigm shift.”
