Ever dreamed of owning stake in the sports team or league that you play for or work for? That is beyond the means of most of us. But what if you could invest in a team as an accredited investor, would you do it? Now may be your chance. Over the last ten years or so team valuations, salaries, and athletes’ own brands have grown tremendously, but not everyone has the ability to capitalize on this. That may be about to change. Specifically because the professional athletes themselves want to share in this equity upside and are pushing for ways to do that.
Throughout the past two decades sports entertainment, in particular, has become big business. In turn, team valuations have skyrocketed. For example, 25 franchises had a $1 billion valuation in 2010. Fast-forward to today, and 32 franchises are worth at least $3 billion. For example, at least six franchises in the Premier League, NFL and NBA have doubled in value over the last eight years. A few key factors are driving this increase in valuations most specifically: the 1) top line revenue numbers (numerators) are improving; and the 2) valuation multiples (denominators) are improving too.
In terms of 1) revenue growth, the advent of new technologies has played a large part. Sports have become a cornerstone of the digital age, captivating audiences worldwide. As digital platforms reshape entertainment, live sports events continue to dominate viewership. The entry of tech giants into sports broadcasting has unlocked new revenue streams for leagues and teams, enabling them to expand their reach globally. Revenues have increased commensurately.
The rise in valuations is also due to 2) the higher multiples of revenue being paid for teams. For example, the NFL’s Washington Commanders recently sold for $6.05 billion, at a multiple 11 times revenue. Prior to that Denver went for $4.5 billion, or nine times revenue. The NBA’s Phoenix Suns were purchased for $4 billion at 13 times revenue. The valuations of Formula One teams have also risen a staggering 276% from four years ago, with the average multiple for the series’ ten teams up to 4.9, from 2.3 when Forbes last released valuations in 2019. The owners and co-owners, like World Series winning LA Dodgers owner Mark Walter, are getting wealthier by the day.
But the athletes and team and league employees are generally prohibited from investing directly into the franchises they work for. For example, the NBA’s most recent collective-bargaining agreement allows the players’ association to invest in NBA teams on behalf of all NBA players - through select private equity funds - but it prohibits active players from investing directly into the franchises. The idea for a "sports sponsor portfolio" allegedly came about when a Morgan Stanley client who works for a league asked if the company could put together a custom portfolio of sponsors of the league for him to invest in.
In response to this need, Morgan Stanley just launched a new investment product that allows high-net-worth sports fans to invest indirectly in their own teams and leagues. The so-called "Parametric Custom Core Sports Leagues Strategy" provides access to a curated index of companies with strong ties to the most prominent sports leagues. This innovative new approach enables investors to align their financial goals with their passion for sports. By investing in these companies, individuals can participate in the growth of the sports industry generally, without directly owning a stake in a team, which is against the rules. This Sports Leagues Strategy product is a portfolio of holdings made up of publicly traded companies that e.g. sponsor specific sports properties and companies with significant exposure to professional sports leagues. The result is a curated index of companies with strong sponsorship, media and advertisement ties to the most prominent sports leagues. e.g. the portfolio invests in companies involved with the NBA, NFL, MLS, MLB, PGA, NHL, US Open Tennis, F1, amongst other leagues.
Right now the minimum investment requirement for this strategy is $250,000, so it not exactly accessible to everyone, it is more tailored to high-net-worth sports professionals. But, by introducing this new product to its athlete clients for starters, Morgan Stanley is playing the long game. The rise of sports as a lucrative asset class has driven increased interest from those astute investors that are looking for new investment opportunities that are non-correlated with traditional equity portfolios. This new product seems to be a unique way for athletes to capitalize on this trend and, at the core of it, invest in themselves. Eventually, as the market develops and the demand grows, every investor will have this as an option, not just high-net-worth individuals.
The convergence of factors that is currently reshaping the sports landscape means that there are new exciting opportunities for investors beyond traditional team ownership. If a Morgan Stanley sponsored highly diversified return on sports investments is not your thing, then there are many other ways to invest in early stage companies like this sports fintech startup. But remember, with higher potential returns, comes higher risk of loss. If you want to make a sports investment, I would suggest contacting your financial advisor. For a full list of firms that have advisory teams focusing on professional athletes see this page.
Welcome to the future of sports investing.
