The last twelve months saw a record £3.2bn of sports team acquisitions by private equity funds, almost treble last year’s total, as they targeted football, rugby and Formula 1 teams, according to new data shared with City A.M. this afternoon.
Last year saw an all-time high of 11 PE purchases of stakes in sports teams worldwide, including football teams Inter Milan, Atletico Madrid and Burnley as well as Formula 1 teams Williams and McLaren, according to data from auditing giant BDO.
In recent years, PE funds increasingly zoomed in on football and rugby competitions across Europe, along with professional skateboarding and American football leagues in the US.
The firm says that as PE funds seek to deploy large amounts of capital, they are increasingly looking towards new and previously untapped markets for acquisitions.
Sports teams have often historically been regarded as being less consistently profitable and higher risk as an industry segment, as well as being susceptible to specific dynamics such as relegation and promotion.
However, some institutions believe that is because many teams are still commercially underdeveloped, offering an opportunity for them to add significant value.
A route to increasing the value of sports teams can be through expanding global presence, sponsorships and other commercial partnerships.
“For PE funds, a deal for a sports team makes more sense now than ever before. The pathway to commercial success for teams is much clearer and funds have a great deal of capital to make these acquisitions,” Harry Stoakes, Partner at BDO, told City A.M. this afternoon.
“A lot of sports teams have not yet reached their commercial potential and a growing number of PE funds see that as an opportunity.”Harry Stoakes, partner at BDO
While many sports teams still rely on one major shirt sponsor, the most commercially successful football teams may now have more than 50 commercial partners, ranging from airlines to official wine, car tyre and bedding suppliers.
The biggest clubs now have multiple tiers of global and regional partners, and linkages with other academies, clubs and sports brands around the world, allowing them to monetise the team’s popularity around the world.
By combining these commercial partnerships with the traditional, predictable and recurring revenues from TV deals, tickets and team merchandise, PE funds believe that the sports team business model can now be made more profitable and sustainable in the long term.
Adding to this the capital, connections and expertise PE institutions have can be transformational to sports businesses. This has brought more funds to the sports team market as potential acquirers.
While some sports teams may now be more financially sound, there is still risk for PE funds seeking to make acquisitions in the sector, Stoakes said.
The deep-rooted nature of team loyalty means that owners who are not seen to engage with fans in good faith about the direction of the team can become deeply unpopular, damaging the value of their investment, he explained.
“Acquiring a sports team remains a risk-reward proposition for PE funds. The passion and loyalty of fans is unlike anything PE funds are likely to have experienced even when investing in the highest-profile consumer brands.”
“Funds must ensure that they bring the fans along with them when they make changes to sports teams they own. There is significant risk for investors who take fans lightly,” Stoakes concluded.