Investing in professional sports, a relatively new pursuit of private equity firms, appears to be gaining adherents in the LP community.
Nearly 20 percent of North American LPs are invested in dedicated sports funds, Coller Capital’s Winter 2024-25 Global Private Capital Barometer found, with an additional 14 percent saying they plan to commit capital in the next few years.
The trend reflects notable LP interest in sports and entertainment strategies. Almost one in five global investors is either committed to sports, music or gaming funds or plans on doing so soon, the survey found. Of the three areas, sports is the most popular.
Coller’s survey results track a recent acceleration in sports investing. Since 2021, unprecedented billions of private equity dollars have poured into acquisitions of stakes in teams, leagues, assets (for example, media rights) and multi-asset holding companies on a global basis.
Many of the largest deals have been majority buyouts in European soccer leagues, such as the 2022 acquisition of Chelsea FC led by Clearlake Capital and Eldridge’s Todd Boehly for $3.1 billion. There has also been considerable minority investing in North American leagues, enhanced by this year’s decision by the NFL to open up to private equity.
Juiced fundraising
Interest in sports from North American LPs investing may be helping to juice fundraising.
In 2024, Arctos Partners raised $4.1 billion for Arctos Sports Partners Fund II, while RedBird Capital Partners, a pioneer in the space, closed RedBird Capital Partners Fund IV at $3.3 billion. Both vehicles exceeded the sizes of prior funds.
Arctos was a beneficiary of the NFL’s decision to admit external capital. Pre-approved to become a minority owner in league teams, the firm this month invested in the Buffalo Bills. Another pre-approved shop, Ares Management, acquired a stake in the Miami Dolphins.
The Miami Dolphins deal was possibly done by Ares Sports, Media & Entertainment Finance Fund, closed in 2022 at $2.2 billion. Ares is now developing new products around the strategy, chief executive officer Michael Arougheti said in a Q3 2024 earnings call, including “both open- and closed-end products for institutional and retail investors.”
Perhaps reinforcing Coller’s survey results, Arougheti said Ares’ sports-focused initiatives respond to “significant demand” from LPs.
What about the risks?
But while some LPs are showing an appetite for sports and entertainment strategies, most are signaling caution about the potential risks, the Coller survey found. More than four-fifths of investors say risks, such as high or unproven valuations, are “simply too great.”
Other risk factors identified by the survey are unproven track records and unclear value creation plans, as well as the perception that underlying investments are often “trophy” assets.
In the case of sports, these concerns are understandable given the nascency of investing and the industry’s complex and unfamiliar dynamics. A Deloitte report this year pointed to the “unique risks and challenges” of sports transactions, which “differ from traditional investments.”
Among the risks, the report said, is the “limited control” private equity firms have over investments once made. This refers in part to deals in North American leagues, where passive non-control investments tailored to long-horizon ownership structures is the norm.
However, none of this is dulling the “allure” of investing in professional sports, which “remains strong,” the report concluded.
