"Barbarians at the Ticket Gate": Private Equity's Arrival in American Sports Leagues

Abstract

The year 2020 will stand out for many reasons in the world of American sports, but one of the most impactful developments may be also be one of the least discussed: the arrival of private equity into the United States’ major sports leagues. For decades, private equity firms have been barred from taking equity stakes of any kind—minority or majority—in most of the top-tier leagues. The few exceptions to this rule have been just that. Now, rule changes to several leagues’ bylaws allow for a new influx of private equity capital with more changes likely on the horizon. In this article, I make the case for why U.S. sports leagues should not only welcome the current inflow of private equity investment but also make additional permanent changes to league bylaws in order to encourage and expand future investment. Specifically, leagues should expand private equity investment to include opportunities for majority ownership. Welcoming private equity into American sports promises a number of broad benefits to current franchise owners and league executives: First, competition for teams’ minority ownership stakes will increase as bidding on those stakes is opened to up to the significantly larger pool of buyers represented by private equity funds. This, in turn, will lead to higher team and league valuations, benefitting current owners. Second, broadening the pool of potentials owners ensures that those allowed to buy in will be better fits with the franchises they join. Third, increased involvement with private equity funds will lead to innovation in deal structures, creating value in a historically inefficient industry. Fourth, private equity’s involvement will improve governance and structure across American sports leagues. And, lastly, opening doors widely to private equity will reduce the threat that funds interested in sports might decide to compete directly with existing organizations. There are, of course, potential downsides to increasing funds’ involvement in sports. Most probable is public backlash against fund-led ownership groups, which the public are likely to perceive as being involved solely for the money as opposed to being in it for the love of the game. (And certainly funds will be in the game with a focus on profits.) This backlash could lead to increased calls for financial disclosures from team and league stakeholders. However, for reasons this article discusses, increased disclosure as a result of public ownership and trading of franchises seems likely to be in the cards regardless of whether private equity has a seat at the table. The article is organized into three main sections. The first section begins by exploring how private equity has both interacted with and been perceived by sports leagues in the United States prior to current developments. It then details the specific ways leagues’ recent organizational changes are inviting private equity investment and how managers of private capital have sprung into action to take advantage of these relaxed regulations. The role of the COVID-19 Pandemic in hastening and necessitating these changes is also briefly explored. The second section illustrates how private equity’s much more active involvement in European sports provides specific evidence that it is a positive development for sports leagues and teams generally. Finally, in the last section I lay out how private equity developments in the European market are a basis both for predicting future changes to American sports leagues and for arguing why American leagues ought to allow for expanded participation by private equity firms.<br>