Private Equity funds have jumped into the sports world. Rising valuations and growing opportunities for media rights and sponsorships make professional sports teams an attractive investment. Deloitte published a private equity playbook in sports and here are few of the highlights.
The Power of the Pre-Deal Analysis: The first step into entering into a deal in sports is understanding the playing field: Asset Valuation, Risk Assessment, Cash Flow Dynamics, and Tax Structure.
Evaluating the Private Equity Fit: As majority and non-controlling stakes become open, it is imperative the find the balance between financial gain and maintaining autonomy.
Capturing Value Beyond the Scoreboard: Sports Investments represent a distinct type of investment requiring a longer hold period. They offer private equity firms a chance to diversify their holdings and tap into a growing industry. One appealing aspect is the potential for uncorrelated returns. Sports is shielded from market volatility and allows for appreciation of teams based upon league economics. Growth can also be tied to new and future media deals and enhanced fan experiences.
Game Plan Dilemmas: Control, complexity, and competition: One significant challenge PE firms take on within sports is the limited control once an acquired stake in sports takes place. Firms can do little to influence decision making decisions at any level of a sport franchise leaving little control in the firm’s exit strategy. Complexity rises due to the holding period. Sports teams typically require a longer commitment period such as 10 years where firms exit strategies are 1-7 years. Lastly, because there is so little inventory in sports. I.E. each league has a set number of teams and only a few become available each year. The competition is challenging for PE firms to understand and evaluate valuations and anticipate PE like returns.
For more on this playbook and insights into Deloitte’s PE sports playbook. You can Find the playbook here.