The infusion of capital through private equity investment is all the rage in sports. The PGA Tour recently accepted an investment from SSG through the creation of PGA Tour Enterprises and a number of teams and franchises have similarly accepted private equity investments. The Big Ten Conference is now considering creating Big Ten Enterprises and accepting a private equity investment from the University of California pension system. Although private equity is nothing new in business, providing capital and leadership to some of America’s greatest companies, private equity capital infusions in sports is a new concept.
In professional sports, the major leagues, i.e., MLB, MLS, NBA, NFL, and NHL, place restrictions on private equity ownership including limiting such ownership to minority ownership (although the NWSL allows private equity to hold controlling stakes in teams). The maximum equity ownership permitted by the major leagues ranges from 10%-30%. Additionally, some of the leagues permit private equity ownership only when the funds are approved by the league.
As college conferences start reviewing the infusion of capital from private equity to offset the rising costs of operations and compensation to athletes, the following are some matters to consider:
Pros
- Private equity can provide immediate capital infusions that can support facilities projects, payments to athletes, and even financial protection for Olympic sports.
- Private equity firms often have skilled and experienced business leaders who can inject new thoughts and revenue streams. Private equity firms often use advanced data analytics that are not commonly seen in college sports.
Cons
- There is a potential for misalignment of missions between colleges (and conferences) and private equity. Colleges (and conferences) are mission driven institutions focused on educational missions. Private equity, however, is focused on driving profits, expanding business opportunities, and potential sale.
- Private equity investments typically come with rights of control and board seats. Conferences will likely have to relinquish the control (or at least some control) and the autonomy that is commonplace.
- What is the exit timeline for a private equity firm? Typical exits are in the 5-10 year range (this can vary substantially based on the investment). There will be an aggressive push to monetize or increase monetization of assets and opportunities. It is highly unlikely that a for-profit conference arm would go public, thus the ways for private equity to exit the investment are not as vast as typical business options.
For any questions, feel free to contact Christian Dennie at cdennie@denniefirm.com.
