Last week, ex-NBA executive Bobby Sharma made waves when he announced the launch of his new private equity firm, Bluestone Equity Partners, that will invest in sports and media entertainment.
Bluestone’s inaugural fund, capped at $300 million, was oversubscribed, with investments solely from institutions, not the family office and high-net-worth investors that typically populate the space.
Just two months prior, investment firm Manhattan West launched a sports fund of its own, with under $100 million in assets dedicated to tackling cash-flowing assets in the industry.
The two firms have caught on to the generational, cultural, and legal shifts that have made investing in sports more attractive in recent years. But according to experts, the competition hasn’t yet caught up.
“If anything, there’s a huge shortage of private equity in the industry,” said John Moag, a longtime investment banker and advisor in the sports industry. “Only five years ago, as I talked to private equity firms and larger investment houses, they were scratching their heads. They couldn’t get their arms around it. It’s a very opaque, quiet business.”
Both Sharma and Manhattan West private equity director Matt Gibbons report that their investment deal pipelines are overflowing — each said they could likely invest all of the capital in their funds in the next 18 months or so.
So where are there opportunities? Gibbons’s team is looking at niche areas of sports, like surfing or ultimate frisbee, which can produce dividend-like cash flows. “We aren’t the shiny penny investors, even though we’re in the shiny penny sector,” he said. “We’re very focused on the nice boring elements of businesses that create money.”
Sharma, meanwhile, said his team is aiming to take advantage of a generational shift of capital, from baby boomers to millennials and Gen Z. This has prompted a shift in sports consumption, as with the advent of streaming services, fewer people are watching sports using cable. But some leagues are behind the curve — as beleaguered National Hockey League fans can attest. This leaves many games unavailable to streaming native audiences.
“I think generationally there’s a shift right now in terms of not just content distribution and consumption, but also in terms of the demographics that consume it,” Sharma said. “In the largest sports leagues, the audience is shrinking. That’s what has made e-sports such an attractive space to invest in.”
But the e-sporting sector is highly fragmented, and shifts in gaming trends make it hard to choose the right players or games to invest in at the right time. “The tricky part is that there’s still a lot of unproven areas of how the ecosystem will pan out,” Gibbons said.
Cultural shifts within leagues have made it easier to invest in teams themselves. While leagues like the NBA, NHL, and NFL have long had outside owners, they were reticent to involve institutional investors like private equity firms. In 2020, though, the NBA shifted its rules to allow private equity firms to invest in teams, at first extending an exclusive offer to Blue Owl Capital, then allowing other firms to join in.
Something similar is happening in Europe, as soccer teams are developing into official businesses ready for investment.
“We have been playing football for more than 100 years, but the industry or business of football is starting right now,” said MAPFRE AM equity portfolio manager Luis Garcia, noting that the interested investors are primarily based in the United States and the Middle East. MAPFRE AM, the asset management arm of the global insurance provider of the same name, invests in soccer team equity stakes via its behavioral finance fund.
This, according to Gibbons, is one area of the market that has already gotten a lot of attention, especially stateside.
“If you are trying to do team ownership, whether it’s minority or majority, I think it’s pretty competitive,” he said. “If you want a slice of the team, that’s a lot harder because it’s pretty saturated in terms of the competition.”
Legal changes in the U.S. have also opened up opportunities for sports investing. Some states have passed laws allowing sports gambling via online gaming platforms, which can be highly profitable for investors.
“Gambling didn’t exist like it does now,” Moag said. “That has probably taken the largest chunk of new money coming into the sports arena now.”
Beyond shifting sector trends, Moag noted that sports generally will be an attractive area of investment, even amid a bear market and projected recession.
“Sports is for all intents and purposes recession-proof,” he said. “That includes spending money on tickets. During a bad recession, you may not take your family down to a beach for a week, but instead, you may take your kids to the ballpark several times. it has always withstood the pressure of a recession extremely well.”