Today’s guest columnist is Steve Horowitz, the co-founder of Inner Circle Sports.
There is an old joke that goes, “If you want to become a millionaire, be a billionaire and buy a sports team.”
While this may have been true once upon a time, the world of sports is drastically different today. With extended labor peace, exploding media rights, a globalized fanbase, and real estate and technology booms, the sports market has come a long way. A thoughtfully purchased team can be an investment that supersedes any other investment for a family over a long period of time.
That said, team investments are far from risk free—industry trends are overwhelmingly positive, but not all individual opportunities will be. At Inner Circle Sports, we tell clients in our first meeting: Owning a team can be fun, but managing the financial condition can be a high-wire act. For this reason, we often engage with our clients on why not to make a particular team investment. Matching objectives to the right opportunities is critical, and prospective owners must pick their spots. Sports investing today must be driven by the realities of the landscape (which are different for each league and region), and new owners must have a long-term plan and a team in place to execute, so at the sale’s closing, a year later, and five years after that, clients are still happy. While that may sound obvious, sports investing has not always been as analytically driven as it is today.
In the 1970s, team ownership was often a labor of love, and often a financial burden. Many of these “mom and pop” operators collected cash from tickets, parking or concessions in brown paper bags, kept receipts in shoe boxes, and yearly losses were only ever recouped (if at all) from capital appreciation, rather than ongoing cash flow.
This paradigm began to shift over the following 20 years, as the value of sports rose in the ever-expanding television and media markets, leading the way for executives from a variety of industries to begin purchasing teams outside of their home markets. The clearest example of this can be seen in the U.K.’s Premier League, where there are only four teams controlled by residents of England. In the States, many owners are from the same communities but certainly not all.
As it turns out, these have largely been good investments, and the appreciation of franchise values can easily be tracked alongside the rise in global media rights. Take Steve Ballmer, for example—when he bought the Clippers for $2 billion in 2014, many thought the price was astronomical. However, with the NBA media contracts tripling shortly thereafter, the deal looks like a winner today.
This, however, does not tell the whole story. With more sophisticated capital entering sports in the form of both equity and debt, investors and operators began to look for ways to generate more consistent (and financeable) cash flow and returns. Beginning in the late-1990s this was reflected in the massive (and continuing) boom in private investment in stadia and arenas, with a focus on in-game experience and fan engagement. This allowed teams to unlock financial returns from dependable sources they controlled. Cash flow from areas such as sponsorship, club seats, corporate hospitality and other long-term contractual sources became a vital part of team operations. On-field performance was no longer enough.
When my partner Rob Tilliss (who previously ran the sports practice at JPMorgan for 15 years) and I kicked off Inner Circle Sports in the mid-2000s, we witnessed this evolution. In the U.S., league commissioners foresaw the increasing value of sports content, found a happy place for big market/small market discourse with revenue sharing, and for the most part made long-term labor peace with the players.
With this newfound stability and continued meteoric revenue growth, the leagues opened the door for more sophisticated capital. Throughout this time, we have had the privilege of working with extremely savvy ownership groups. They have looked to maximize all aspects of their business by investing in areas like infrastructure, data analytics, sports science, management, complementary technology (sometimes esports) and services companies, as well as ancillary real estate development, all of which help the bottom line and position their teams to win.
So what do we expect from sports ownership in the next 10 years? It’s clear management of teams will only become more sophisticated as the business lines diversify. The broader legalization of gambling will be a major driver of revenue from sponsorship, increased stickiness around viewing, and of course, betting itself. The most recent NFL deal has again shown us the resiliency around media rights; every time people have said traditional TV rights can’t go higher, they do. Streaming, international and domestic rights continue to show no boundaries, and current and future players like Amazon, Apple, Facebook, Snapchat and Twitter seem positioned to play larger roles. Beyond media rights, thoughtful investment in the in-stadium experience and surrounding entertainment destinations can increase and diversify fan engagement, as can technology such as blockchain and NFTs. These are just a few examples of what teams, leagues and investors must consider if they hope to grow in the future.
Combine these factors with historically low interest rates, liquidity in the markets, and newly allowed institutional investment in team ownership, and there are a lot of reasons for the continued excitement around investing in sports. While there are plenty of risks, and losing money still isn’t fun, under the right circumstances, owning a team today sure can be.
Horowitz, a former agent at ProServ, joined with Rob Tilliss to start NYC-based Inner Circle Sports—leading bankers focused on team, media, technology and stadium/arena finance in the sports industry, with a client list that includes the owners of the Philadelphia 76ers, Milwaukee Bucks, Fenway Sports Group and most recently Wrexham AFC. Horowitz also serves as co-chair of the board of the Business of Sports School, a sports-themed public high school in New York City.