Private Equity in the NFL
Overview of the vote that opened the doors of NFL ownership to Private Equity
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Introduction
On Tuesday, August 27th, 31-32 NFL ownership groups voted in favor of allowing private equity investment directly into franchises. Many had been anticipating this decision as the NFL was the last major US sports league that prevented investment from private equity groups.
This post discusses the key points of the agreement and explores the implications for the three primary stakeholders in this decision: the fans, the owners, and the incoming private equity investors.
Key Points
Why Now?
The NFL is the last major US-based professional sports league to open its doors to private equity. The MLS, NBA, and NHL did so as early as 2019. The experiment with the other leagues has been successful with little to no downside, so in many ways, it was inevitable that the NFL would eventually adopt similar rules.
In addition to league conformity, NFL franchise valuations have escalated to a point that the pool of individual investors who could realistically afford to own a team has shrank considerably. In Sportico’s 2024 valuation of NFL Franchises, the Dallas Cowboys set a landmark $10B valuation, with the average falling around $5.93B. CNBC estimates a slightly higher average valuation of $6.49B.
Recent transactions also highlight the sheer size of these organizations. Josh Harris led a consortium of investors to acquire the Washington Commanders in 2023 for $6.05B, and the Walton-Penner family-led ownership group bought the Denver Broncos in 2022 for $4.65B.
Whether it’s due to the lack of diversification, with existing owners having a significant percentage of their total net worth tied up in illiquid NFL franchises, a chance to partially cash in on the sky-high valuations, or potential estate tax liabilities incurred as teams pass from one generation to the next, ownership groups desired to expand the pool of qualified and capable investors once again and open up a new source of partial liquidity.
Structure
The specifics of this ruling were very different from those of other major professional leagues. Private equity can only buy 10% of the ownership interests of any individual team, regardless of whether those interests are held with one fund or multiple. If selling interests to multiple funds, each individual stake must represent at least 3% ownership.
In addition to size constraints, the NFL wanted to limit private equity's operational involvement by mandating that no ownership interests come with voting rights and imposing a limit on access to information for funds with multiple team stakes.
At the private equity fund level, funds can hold stakes in up to 6 teams, but each individual investment comes with a minimum 6-year hold period.
What has not changed is that the controlling owner must maintain at least 30% ownership of the team, and any team cannot have more than 25 Limited Partners.
Approved Investors
Another interesting element of the NFL vote is they’ve specifically outlined the private equity firms that will be allowed to invest in NFL teams. They are:
And a consortium of Blackstone, Carlyle, CVC, Dynasty Equity, and Ludis.
Collectively, these institutions manage more than $2T in assets and represent some of the largest and most reputable private equity shops.
Excluded Investors
On the flip side, the NFL has specifically excluded direct investment from Sovereign Wealth Funds and Pension Funds. These groups can still gain exposure indirectly through passive investments in the above-mentioned funds, but even then, they cannot represent more than 7.5% of the underlying vehicle.
Unique Considerations
Finally, what I thought was one of the most unique considerations was that the NFL will take an undefined percentage of carried interest in the event of a team sale, which will be split evenly among all NFL franchises. To my knowledge, the NFL is the only major league to impose such a stipulation. The thought is that only a few owners will take advantage of this rule/or, in reality, need the extra personal liquidity. The carry share will still provide a benefit to the remaining ownership groups who don’t end up selling any equity to a private equity buyer.
Implications for Fans
How will the introduction of private equity investment impact the experience of the average fan? In my opinion, it won’t. Immediately after the ruling, I saw numerous memes and tweets about how private equity would destroy the sport they love and how jerseys would soon be a walking billboard as teams looked to optimize advertising real estate. I don’t think this is the reality. Private equity groups will own such a small percentage of an individual team and exert little to no influence over day-to-day operations that I doubt we will see any change in the business of football or the on-field product.
Similar to the NBA, MLB, and MLS, it will make news whenever a private equity group invests in an NFL team, but they will quickly fall back into the shadows, and very few fans will actually know the makeup of the ownership group of their favorite team, aside from the managing member. If I were to ask an avid NBA fan who the owner of the Golden State Warriors is, they would most likely say Joe Lacob and Peter Guber. In reality, Lacob and Guber are just the face of a much larger ownership group with numerous partners, including private equity firm Arctos Partners. This relationship is how it will ultimately settle out in the NFL.
Implications for Investors
Aside from the publically owned Green Bay Packers, this ruling unfortaunetly does not change the chances of owning part of an NFL team for the vast majority of retail investors. As discussed above, the NFL has a pre-approved list of institutional investors who can deploy capital into an NFL team. These institutional groups generally aren’t taking on retail investor money; rather, they are typically investing on behalf of large asset allocators such as university endowments, sovereign wealth funds, pension plans, and high-net-worth individuals.
Retail investors aside, this is a huge win for the investment industry. This ruling has opened up investment exposure to this unique asset, which has historically only seen appreciation.
Implications for Ownership Groups
For ownership groups, the vote opens the door to a partial liquidity event without having to give up control of a team, aka access to hundreds of millions of dollars. Some ownership groups will seek capital to access the operational expertise of private equity funds, perhaps as it relates to important auxiliary revenue sources such as stadium-adjacent real estate development, but ultimately, I think the biggest advantage will be the access to new capital, and these private equity groups will be silent partners.
Conclusion
What's important to remember is that the rules that were decided in this initial vote almost certainly won’t be the rules forever. I predict that as time passes and the NFL gets more comfortable with the private equity passive owners, they will continue to open their doors to more approved investors, along with increasing that 10% limit to come more in line with other leagues. There will be a day, most likely through fee-intensive fund of fund structures or derivative products, when a retail investor can own a piece of the action as well, but for now, the NFL will focus on this small group.
In conclusion, I believe this is a net positive for the league and an inevitable outcome. Fans won’t be drastically affected, institutional investors will get exposure to a unique asset class, and NFL ownership groups will be able to tap into a new capital pool. I believe before the year is over, we will hear the start of the rumbling of the first private equity-led transactions in the NFL.