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“It’s very difficult to buy a sports team and lose money,” David Rubenstein, co-founder of Carlyle, said recently in an interview for a CNBC podcast.
Historically, this supposed advantage has only benefited the richest of the rich. But most major U.S. sports leagues have — in just the past few years — changed their ownership rules to allow private equity firms to have minority stakes. Major League Baseball was the first to open its coffers to private investment funds in 2019; many other leagues followed, including the National Basketball Association, Major League Soccer, and the National Hockey League.
Since the start of 2019, more than $120 billion in private equity and venture capital funds have been pumped into the sports industry, according to PitchBook. One of the major participants is Sixth Street Partners, a $74 billion giant historically known for its direct lending and growth prowess, and which has made big inroads into the sports world in recent years, with several billion dollars of investments.
The company recently co-founded Bay FC, part of the National Women’s Soccer League, alongside several retired players, as well as Sheryl Sandberg. Sixth Street also invested in the broadcast rights of FC Barcelona’s LaLiga TV and has a majority investment in Legends, a sports and entertainment experiences company. In June 2021, Sixth Street led a strategic investment with Michael Dell in the San Antonio Spurs basketball team. Last year, the company also invested in the legendary Spanish football club Real Madrid.
Alan Waxman, the company’s CEO and co-founder, spoke exclusively to the Delivering Alpha newsletter – in his first-ever television interview – about the company’s vision in what has become an increasingly crowded industry . He said technology streaming and social media are changing the team-fan dynamic.
“Instead of just interacting with your fans in this local market, this has opened the doors to being able to interact with your customers around the world,” he said.
Waxman said that in 10 years, fans will be able to put on a headset from their couch and be virtually transported to a game across the world.
Historically, investing in sports has paid off. Between 2002 and 2021, the average return on stakes in the NFL, MLB and NBA exceeded the S&P 500, with the NHL lagging slightly behind, according to PitchBook. But the research firm notes that “returns will likely be lower than the current 20-year period.”
And although minority stakes are typically sold at a discount – due to lack of control – that gap could narrow as more institutional firms raise dedicated sports funds. This competition is likely to drive up prices.
So how does this change the dynamic of whether or not someone can lose money investing in sports?
Waxman says that in any investment, you have to protect yourself from even the most unlikely scenario. For example, no one saw COVID coming.
“So I would go as far as saying you can’t lose money in sports? For a normal investor, I wouldn’t say that,” Waxman said. “What I can say is that the way Sixth Street looks at things, we are usually able to create opportunities and custom solutions that suit whatever that particular sports team is looking for, but also a manner that protects our investors’ capital.”