In recent years, ownership in sports teams has opened up to a wider array of investors.
Traditionally, ownership opportunities in Major League Baseball (MLB), the National Basketball Association (NBA), the National Football League (NFL), and the National Hockey League (NHL), known as the “Big Four,” was restricted to a select group of ultra-high-net worth families.
However in 2019, the MLB loosened its ownership rules to allow private equity firms as limited investors. The NHL and NBA followed in 2021. The NBA has recently allowed sovereign wealth funds, pension funds, and endowments to become investors, according to Sportico. The NFL remains closed to private equity.
According to Pitchbook, 20 of the 30 teams in the NBA have PE connections, valued at an estimated $74.2 billion. Across all the leagues, 63 sports teams, valued at $234.3 billion, have PE connections.
Dylan Kremer, chief investment officer at Certuity, a $4 billion RIA that specializes in investing in professional sports, sat down with RIA Intel to talk about what investors and advisors should know.
Responses have been edited for clarity and length.
Why is Certuity interested in sports investing?
We’ve been really focused on uncorrelated growth opportunities that aren’t traditionally available, even within the alternative space. And pretty high on that list is professional sports.
Sports is unique because a lot of the leagues have not allowed institutional capital in yet. We partnered with a private equity group and were part of that initial capital group into the NBA in 2021. But it’s still kind of tricky from an access standpoint because not every league is the same, and not every strategy is the same. So, you really have to do the due diligence on each league, team, and strategy.
What is an uncorrelated growth opportunity and how do sports fit within that?
For us, what that means is: Can an investment give you returns that are not correlated to stocks and bonds and have different return drivers outside of that? I think post-COVID in 2021 and 2022, people started searching for uncorrelated growth because stocks and bonds started to move in the same direction. So, the reason professional sports is uncorrelated in our view, is that there’s a huge media asset behind each one of these leagues. Let’s use the NBA for example. They have 250 nights of unique content, and their media rights are coming up next year. So, they’re going to redo the media rights for the whole NBA. So, you’re now talking about live sporting events and media versus stocks and bonds and the economy.
What are the pitfalls of investing in sports or team ownership?
Access is probably one of the top considerations for sports investing because there’s only a limited universe of teams. The second is liquidity. The transaction frequency is much less compared to a lot of other asset classes. Investors are not buying and selling teams every week or every month, so it’s tricker on the liquidity side. This is a longer duration, growth asset.
The investment minimums are also quite high. So, if I wanted to write a check directly to an NBA team, it might be a $30 million minimum check. But it depends on the investor. On the institutional side, it can be a lot lower than that.
There are also different rules like you can’t own multiple teams within certain leagues.
But on the risk side, I would say the risk is lower than your average private equity investment. The big four leagues in the U.S. are very strict on debt and ownership regulations. They also have very good financials, and they have natural moats, which make them a high-quality asset. They’re borderline monopolies; it’s not like there is an immediate threat to replace the NBA.
Do you think the leagues will continue to expand access? The NFL is still closed.
Yes. Let’s say 20 years ago I invested $1,000,000 into the Knicks. That’s probably worth 20 million today. But if I wanted to take some chips off the table, it’d be difficult to find an individual to buy a $10 million or $20 million piece. A big reason for institutions to come in is that they allow minority investors to take some chips off the table and get liquidity. NFL owners are getting a lot older, and they probably want to do a lot of estate planning. They want to be able to get their minority investors liquidity and institutional capital allows for more liquidity at the league level.