Inclusive Ownership
How the Sports Industry Is Opening Up to New Investors
The sports industry is undergoing a significant transformation, with new opportunities emerging for investors to participate in team ownership. Traditional barriers to entry, such as exorbitant costs, are being challenged, paving the way for a more inclusive ownership landscape. This trend is not only democratizing investment opportunities but also encouraging community engagement and diversity. In this blog, I’ll dive into the reasons for and the opportunities resulting from this change.
What’s Led to the Change?
The traditional notion of sports team ownership being exclusive to billionaires is being challenged by the emergence of venture capital firms and diversified funds that are actively investing in the sports sector. This transformation can be attributed to several key factors:
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- Evolving Regulations: Regulations across various sports leagues are undergoing changes, allowing for increased participation from private equity firms and institutional investors. For instance, the MLB, NBA, NHL, and MLS have started allowing private equity investments in their teams, albeit for minority stakes.
- Lower Barriers to Entry: Lower barriers to entry are attracting more investment in global sports brands, making it more accessible to a broader range of investors. For the average investor, outright ownership of a sports team may be unattainable. However, opportunities for fractional ownership of sports teams are emerging through investment in the corporate entities that own the teams or through investment in exchange-traded funds (ETFs) or mutual funds that focus on sports-related assets.
- Private Equity Involvement: Private equity investments in professional sports teams have surged in recent years, with an increasing number of private equity firms dedicating funds to sports team investments. This trend has been driven by the unique stability and growth potential of sports as an asset class.
- Diversification of Investment Focus: Emerging sports are further diversifying the investment landscape in the sports industry. Esports, surfing, pickleball, and the Drone Racing League are examples of sports offering early investment opportunities for private equity outside of the traditional major leagues.
What Sports Ownership Looks Like
For many years, people could invest in the Green Bay Packers, Real Madrid, and many other major sports, but that was not full ownership — maybe a representative democracy. MyFootballClub experimented with true fan ownership of Ebbsfleet United in 2008, but that failed. Fan Controlled Football recently canceled their third season to focus on other opportunities and licensing.
While these examples did not work, or offer very little in terms of ownership beyond name, emerging sports and minor leagues see many instances of individual owners or syndicates. Multiple Minor League Baseball teams, United Soccer League (USL), professional pickleball teams, and even professional golf events have successful individual owners and syndicates. I have a small stake in two minor league baseball teams and a new professional golf event. My friends have ownership of USL teams, pickleball franchises, and many other teams.
What’s in It for Investors?
With the widening opportunities, investing in sports teams can offer several benefits, making it an attractive option for a diverse range of investors. Some of the key benefits include:
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Potential for Significant Returns
Professional sports teams are valuable properties, often worth billions of dollars. Revenue streams from ticket sales, merchandise, broadcast rights, and marketing deals contribute to the value of a franchise, offering the potential for significant returns on investment. - Home
Diversification and Unique Investment Opportunity
Owning a stake in a sports team can provide a unique and exciting way to diversify an investment portfolio. It offers an opportunity to invest in an industry with a global fan base and strong cultural impact, which may not be correlated with traditional financial markets. - Home
Stable and Growing Industry
The sports industry is considered less prone to recession, with stable and growing returns compared to other sectors — though they can be prone to economic shock. This comparative stability can make it an attractive investment option for those looking to diversify their portfolio. - Home
Inclusive Ownership Opportunities
The evolving regulations and the involvement of private equity firms have made sports team ownership more inclusive, offering opportunities for a wider array of investors to participate in the industry. - Home
Potential for Cash Flow and Value Appreciation
Many sports teams have associated businesses that can generate significant cash flow, such as commercial broadcast rights and merchandising rights. Additionally, the value of franchises has shown consistent appreciation over the years, presenting opportunities for investors to benefit from both cash flow and value appreciation.
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Risks and Benefits
While sports ownership has many benefits, it’s not without risk. There is always the potential for losses — even total investment loss. One of the owners of the Phoenix Rising USL team says that every year his wife points out how much additional money they would have if they just purchased season tickets and didn’t own a big chunk of the team. On the other hand, the appreciation in value can offset the annual costs in the long run.
It’s important for investors to conduct thorough due diligence, understand the financial health of the team or franchise, and have a clear investment thesis to make informed decisions about their investment.
As for the teams and sports, non-billionaire owners and syndicate investors provide some benefits. There are additional ambassadors of the team as the owners are more likely to attend the games and encourage others — increasing the fan base and spreading some of the operational risks. Bayern Munich is 75% fan-owned and supported feverishly. Being in the Chicago area, I only follow Phoenix Rising to support a friend and get interesting questions about the club magnet on my car. For the happily invested fan, it’s a case of passion meets potential profit.
In summary, the opening up of sports teams to new investors is a result of evolving regulations, lower barriers to entry, the emergence of fractional ownership opportunities, increased private equity involvement, and the diversification of investment focus within the sports industry. That adds up to a more inclusive and diverse ownership landscape, providing opportunities for a wider array of investors to participate in the exciting world of sports team ownership.
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This communication is from Alumni Ventures, a for-profit venture capital company that is not affiliated with or endorsed by any school. It is not personalized advice, and AV only provides advice to its client funds. This communication is neither an offer to sell, nor a solicitation of an offer to purchase, any security. Such offers are made only pursuant to the formal offering documents for the fund(s) concerned, and describe significant risks and other material information that should be carefully considered before investing. For additional information, please see here. Venture capital investing involves substantial risk, including risk of loss of all capital invested. This communication includes forward-looking statements, generally consisting of any statement pertaining to any issue other than historical fact, including without limitation predictions, financial projections, the anticipated results of the execution of any plan or strategy, the expectation or belief of the speaker, or other events or circumstances to exist in the future. Forward-looking statements are not representations of actual fact, depend on certain assumptions that may not be realized, and are not guaranteed to occur. Any forward-looking statements included in this communication speak only as of the date of the communication. AV and its affiliates disclaim any obligation to update, amend, or alter such forward-looking statements, whether due to subsequent events, new information, or otherwise.