Sixth Street Partners is a 13-year-old global investment firm with more than $60 billion in assets under management. But it wasn’t until January 2021 that it made its first investment in sports, when it bought a controlling share of Legends.
Sixth Street has since invested in the San Antonio Spurs (June 2021), Real Madrid (May 2022) and FC Barcelona (June 2022). Each of the four deals is different in nature, which is indicative of the firm’s flexible approach. But they have one thing in common—in each case, Sixth Street opted to back a premium franchise (its partners in Legends are the New York Yankees and Dallas Cowboys). A source familiar with the firm’s thinking explained that its model works best when applied to top-tier, globally relevant teams. Sixth Street declined to comment on its recent sports investments.
JWS’ Take: Sixth Street invests in 15-25 themes across multiple industries at any given time. It could be avocados. It could be wind farms or real estate. But once it has a theme, the firm pretty aggressively pursues it—as evidenced by the three sports deals completed in a 13-month period.
Sixth Street’s sports thesis began with the premise that the hardships brought on by the COVID-19 pandemic, coupled with shifts in consumer behavior, have forced teams to think about their businesses in a multi-channel, 365-day-a-year fashion. To be fair, some have thought about their business in that manner for a long time; the Cowboys and Yankees decision to form Legends over a decade ago is proof.
Hungry to recoup revenues lost to the pandemic and to diversify their businesses in its wake—and having seen others successfully achieve those objectives—many more teams are now exploring the prospect of converting traditionally seasonal businesses into year-round enterprises.
Additionally, franchises that did not really need or want outside investors prior to the COVID-19 sports hiatus have since come to view access to capital and the capabilities that come with institutional investment as an attractive avenue.
Another catalyst for Sixth Street’s sports theme development was league-level rule changes, which permitted investment funds to buy stakes in teams. As soon as the NBA authorized institutional investors, the firm approached the Spurs about buying into the franchise; it believes the five-time NBA champions have the biggest value creation opportunity in the league.
The rise of digital media has helped to raise the TAM for sports teams, making them more attractive to institutional investors. Thirty years ago, the business was largely local; now clubs can think about partnerships on a regional, national or global basis.
Sports teams have historically been limited in their ability to monetize fans abroad. The league controls international media rights and all merchandise sales outside the venue, so sponsorship has largely been the only lever to pull. But that has changed over the last decade or two as digital media technology has evolved. Teams can now engage with fans, bringing them more personalized and intimate experiences through direct-to-consumer channels that reach beyond the local market.
Because Sixth Street’s sports thesis is largely built around the idea of accelerating the transition from local, seasonal businesses into all-year, global brands, the firm has focused on investment opportunities associated with the top teams in the top leagues (think: brand value, organizational quality, competitiveness). The logic is simple: It believes those organizations have a much higher probability of being a global business than the bottom 25.
Former Goldman Sachs partner Eric Grubman believes that focusing on the top of the pyramid is a wise approach to take considering the current market conditions. “In any industry—not just sports and entertainment—properties that have attractive markets, with well-structured economic models, that are profitable and are not over-leveraged—those properties can withstand tough markets. Things that lose money or are over leveraged–on those, I would be much less sanguine.”
Sixth Street can be a passive investor or more involved, if the situation arises. The firm’s $380 million investment in Real Madrid’s Santiago Bernabéu stadium is an example of the latter. In coordination with Legends, Sixth Street will, among other things, help the club turn the stadium into a year-round destination. The renovated venue will host non-soccer sporting events as well as concerts, corporate events and live entertainment programs. The investment firm is entitled to participate in the proceeds generated by the stadium for the next 20 years.
The ability to combine Sixth Street capital (think: ability to fund future initiatives) with Legends’ capabilities and expertise was seemingly a differentiator for the firm in that deal. A Real Madrid spokesman said, “The Club has been relying on Legends’ experience during the last years and therefore the partnership Sixth Street-Legends-RMCF made a lot of sense.”
Sixth Street’s investment in FC Barcelona (it bought 10% of the club’s media rights for the next 25 years for $215.6 million and rumors suggest it will acquire an additional 15% next week) is largely a bet on the brand, the league and the value of premium sports rights. The firm believes the secular changes brought on by the evolution of streaming have given live sports even greater utility in a streaming world than they had in a non-streaming world. And that the evolution is just at the beginning. For reference, LaLiga recently sold its domestic package in a five-year deal for $5.59 billion dollars.
The data collected from streaming should open up additional forms of revenue for the club and enable it to make smarter decisions. If Barcelona is operating at a higher level on and off the field, presumably the value of its media rights will continue to climb. Dan Cohen (EVP global media rights consulting, Octagon) confirmed that would be the case. “Big brands attract big eyeballs and big eyeballs attract contractually obligated revenue streams (media rights, sponsorships, data and betting). Tier 1 properties will only continue to grow and when weighing returns in this down stock market against brands like Barca and others—it’s a no brainer.”
Reports have suggested Barcelona may not be “around in one or two years’ time.” If true (a question considering the claims came from a rival club), it would seemingly make a 25-year deal with the team a risky endeavor. But Sixth Street has no concerns about the LaLiga club’s balance sheet and believes its nine-figure investment puts FC Barcelona in a position where it can reset and then continue to grow.
While Sixth Street’s last two investments were in European football clubs, its pipeline includes assets from around the globe. Expect some additional sports-related announcements from the firm within the next six months.