Tsunami of takeovers in sports swells deal values by record 433 per cent with private equity leading the pack
The value of M&A and major stake-building in the sports industry has increased 433 per cent in the last year, rising from £1.8bn last year to £9.6bn this year, according to fresh data shared with City A.M. this morning.
As more private equity, sovereign wealth funds and other institutional investors pursue deals in the sports sector, valuations are getting to be stretched, according to the the data from law firm RPC.
In fact, the total number of deals into the sports industry has increased 28 per cent from 29 to 37 in the past 12 months. 24 of these were M&A deals, involving a change of owners.
With the economic slowdown, the future value of TV rights that underpin some of these deals may come under pressure.
The value of global sport broadcasting rights increased 16 per cent to $52.1bn in 2021, with a wave of long-term deals being signed following a pandemic slump.
Jeremy Drew, Head of Sports at RPC, however, explained to City A.M. this morning that many of the deals that are now taking place are not just based on a gradual increase in income from TV rights, but on more radical transformation of a club or sport’s income streams.
There has also been an increase in private credit funds lending to sports teams, secured against future revenue from TV rights.
Josh Charalambous, Senior Associate at RPC, added: “Investors in the sports industry view many sports, leagues and individual teams as being commercially underdeveloped and ripe for growth.”
“This presents the opportunity for institutions like PE houses to use their expertise to significantly enhance a club’s business model and transform the businesses’ long-term returns,” he noted.
“The balancing act requires investors to achieve that without alienating the core, traditional fanbase of that sport or club,” Charalambous continued.
“After the backlash against the European Super League, financial institutions investing in sports are very conscious that they need to bring existing fans with them.”Josh Charalambous
Sports teams can increase their value by expanding their geographical reach of their fanbase and by attracting a wider range of high-value sponsorships.
Sponsorships in football have expanded past more traditional sectors to reflect new technologies and more niche categories: such as official blockchain partners, fan token providers, official wine partner, vaping partner and official mattress and pillow partner.
Other sports are looking to replicate at least some of this expansion of sponsorship income.
Some sponsorship deals – including those involving NFTs and fan tokens – are being structured as revenue sharing agreements which offer the clubs a higher potential upside.
Sponsors are willing to pay more for deals where they can build up a longer-term relationship with fans, for example in areas like financial services.
The last year has also seen a bounce back in deals worth over £1bn with four deals exceeding that valuation, compared to no deals over £1bn last year.
These acquisitions mainly involved the football industry, such as the sales of Chelsea, AC Milan and investments into La Liga.
Drew said that there is also an increasing interest in investment into boxing, which has seen numerous new broadcasting deals being signed, including DAZN and Channel 5.
“We are seeing much more interest in the boxing industry, with high profile deals taking place to host and broadcast fights. The deal to take the recent Usyk v Joshua rematch to Saudi Arabia reportedly saw the state pay £65m to stage the fight,” Drew explained.
Women’s sport – most notably football, but also rugby and netball – is being seen as an area of particular growth which more institutional investors are turning their attention to.
The rise of broadcast viewership and the increased exposure is adding significant value to deals across Europe, Drew concluded.