Private Equity relies on booming professional sport

The sports and live entertainment industries are booming, with global sports revenues projected at $ 64 billion this year and live entertainment is expected to generate $ 35 billion.

And private equity professionals are no strangers to the game of finding undervalued assets and unlocking potential. Tom Gores, the founder of Los Angeles-based Platinum Equity, became one of the first private equity barons to buy an NBA franchise when, with Platinum Equity, he paid $ 325 million in 2011 for Palace Sports & Entertainment Partners, the owner of the Detroit Pistons and related real estate assets. In fact, private equity fund executives currently own over a quarter of all NBA franchises.

In November 2019, Silver Lake bought a 10% stake in City Football Group (CFG), which owns the English Premier League’s Manchester City Football Club and Major League Soccer’s New York City Football Club, for $ 500 million. dollars.

In the wake of the deal, CVC Capital Partners, a large private equity firm, is in talks with FIFA to fund a new Club World Cup.

While the founders of private equity funds, on an individual basis, now own many professional American sports teams, private equity funds themselves have largely been left out as team owners due to the rules. of the league imposing control individual ownership and limiting debt leverage.

These rules can change over time. For example, Major League Baseball recently announced a rule change that allows private equity funds and other private equity groups to buy minority stakes in professional baseball teams such as the Chicago. Cubs, valued at over $ 3 billion.

Outside of team ownership, private equity investors acquire businesses in all ancillary aspects of the industry, from artist and athlete management and broadcast rights to main and secondary box office, the site development, ownership, etc.

It’s an all-out blitz and it’s unlikely to end anytime soon.

For these ancillary sports and entertainment activities, partnering with a private equity firm offers the potential of an initial cash injection or full or partial cash flow for existing majority or minority owners.

In addition, private equity can help professionalize these businesses with a focus on efficiency, cash flow, and growth through acquisitions, three areas that are often overlooked in family businesses or other businesses. private. Private equity’s focus on profitability and eventual liquidity creates a mindset focused on growth and exit.

By leveraging their contacts and experience in the industry, private equity can have a big impact in areas such as technology, especially as sports and entertainment have moved so aggressively into the mainstream. video on demand and live streaming.

Private equity has taken a keen interest in leading artist and athlete talent agencies, investing billions in Hollywood agencies such as William Morris Endeavor and Creative Artists Agency, which are now majority owned by private equity funds. investment, sovereign wealth funds and other institutional investors.

As another example, last November, RedBird Capital, a New York-based private equity fund, worked with the National Football League Players Association and the Major League Baseball Players Association to form OneTeam Partners to help athletes maximize performance. value of their name, image and likeness rights.

In the live event ticketing space, GTCR, the Chicago-based private equity firm, bought a controlling stake in Vivid Seats, an online ticket marketplace, in 2017 for $ 575 million.

There are also actions around the ownership and management of the sites. In 2018, Onex, a Toronto-based private equity firm, acquired SMG, one of the world’s leading managers of convention centers, stadiums, arenas, theaters and performing arts centers. Then last October, SMG merged with AEG Facilities to create ASM Global, a stand-alone entity jointly owned by Anschutz Entertainment Group and Onex with a global portfolio of 300 managed sites.

There is no doubt that private equity views these ancillary sports and entertainment assets as high cash flow companies which, although mature, are still experiencing extraordinary growth. This kind of profitability is hard to find in many asset classes today.

Either way, change is on the horizon. Private equity is great at buying companies, growing them, and unlocking new profits.

This model works in all industries, but the opportunity in sports and entertainment is now the new growth market. Expect to see a lot more of this activity.

Mark Kurtenbach is Co-Head of Sports and Entertainment at Hogan Lovells

From MarketWatch

Sara R. Cicero