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The National Football League (NFL) has officially opened the door to private equity investments, a decision that has been years in the making. This move follows the lead of other major sports leagues, such as Major League Baseball and the National Basketball Association, which began welcoming private equity firms as investors in 2019.
“This is something that we’ve been considering as a league for five years, when some institutions started investing in other sports leagues. We just felt it was the right time for the NFL," said Kansas City Chiefs owner Clark Hunt as qouted by CNBC.
In recent years, NFL team valuations have surged, partly driven by increasing media rights deals. According to CNBC's Official NFL Valuations, the average NFL franchise is now valued at $6.5 billion, outpacing the NBA's average franchise value of $4.4 billion, as reported by Forbes.
“A lot of teams in the NBA have been at a cash-loss position every year, some in a nine-figure cash loss. But the valuations have increased much more than that. It has been a way to create liquidity without having to borrow money and without having to do capital calls."
Chronology to historic decisionIn August, NFL owners approved a significant policy change, allowing private equity firms to buy small stakes in teams. While this marks a shift in ownership rules, it is unlikely to lead to any visible changes in how teams are managed or operated. This is because private equity funds will only be purchasing minority stakes, with no control over day-to-day decisions. It is expected that the influx of capital will provide financial stability for teams, but it won’t change how the game is played or how franchises are run.
"This won't change a thing, This is 10 percent of a team. All it is is a silent position that would allow access to capital for those teams that wish to offer 10 percent of their team. They will not be in any kind of decision-making influence in any way," NFL Commissioner Roger Goodell told reporters.
The Ground Rules
The NFL has spent five years deliberating on the inclusion of private equity, accelerating the process over the last year with the creation of a special committee to explore the idea. The outcome is a cautious first step into the world of institutional investment.
Private equity firms are now allowed to own up to 10 percent of an NFL team. The league has already approved a select list of firms that can engage in these transactions. These firms include Arctos Partners, LP; Ares Management Corporation; Sixth Street; and a consortium that features Blackstone, Carlyle, CVC, Dynasty Equity, and Ludis, which is led by Hall of Fame running back Curtis Martin. However, sovereign wealth funds and pension funds are prohibited from directly investing in teams, though they can participate in the private equity funds backing the investments, and even then, their stakes are capped at a small percentage.
Each private equity firm can own no more than 10 percent of a team, with a minimum purchase size of 3 percent. A single firm can hold stakes in as many as six teams. The NFL has also implemented transparency rules for firms that own shares in multiple teams.
The Passive Nature of the Investment
The investment structure is designed to be entirely passive. Private equity funds will have no voting rights or influence over team operations, and all existing ownership rules will remain in effect. The controlling owner of each team must still hold at least 30 percent of the franchise, and no team can have more than 25 owners, including the controlling owner, limited partners, and private equity firms.
Additionally, private equity firms that invest in teams must hold onto their shares for a minimum of six years before selling, meaning they won't be able to flip these investments quickly for profit.
