Private equity deals are coming to Major League Soccer.
Last year, MLS owners voted to change the league’s ownership rules to let institutional investors buy small minority stakes in franchises, a change similar to one made by the NBA during the pandemic. No team has closed a deal yet, but they’re on the horizon, according to commissioner Don Garber.
“I think you’ll see a number of deals happen over the next 12 months for sure,” Garber said in an interview, which will be part of Sportico’s MLS Valuations 2021 event on Thursday.
The new ownership rules have some restrictions. No firm, for example, can own more than 20% in a single MLS franchise.
That’s similar to what the NBA put in place last year—firms are allowed to buy up to 20% of NBA clubs and can’t own stakes in more than five franchises (Dyal HomeCourt Partners, which has a separate agreement with the league, can exceed some of those limits). A handful of NBA teams—including the San Antonio Spurs, Golden State Warriors and Phoenix Suns—have already cut deals of various sizes.
This influx of institutional money may be one of the enduring legacies of the COVID-19 pandemic in U.S. pro sports. Disrupted seasons and fanless games led to major revenue shortfalls in all leagues, and owners have limited options for covering those losses. In additions to loans and capitals calls on existing LPs, some have chosen to sell small pieces of equity to access capital. The pool of potential buyers widens significantly when private equity firms are included.
These investments are now allowed in the NBA, MLS, MLB and NHL. The NFL does not permit them.
“There’s so much money in the marketplace right now, and to be able to get some of the really smart people in the business to invest without a path to control, without anything other than capturing the appreciation—and there’s been a lot of appreciation, particularly in Major League Soccer—makes sense,” Garber said. “I’m a big fan of it. I love the guys that are talking to us, and I think it will be good for our clubs.”
The change comes as MLS valuations soar. The league’s most valuable club, Los Angeles FC, is now worth $860 million, according to numbers Sportico released earlier this month, with two other teams (Atlanta United and the LA Galaxy) worth more than $800 million. The average MLS franchise is now worth $550 million, more than any Premier League team outside of the “big six.”
While it is new for MLS clubs, institutional money is already fairly common in other parts of the soccer world. Many European clubs have private equity backers, and top domestic leagues like Italy’s Serie A and Germany’s Bundesliga have considered selling off equity in their media rights to groups like CVC or KKR.
Back in 2012, MLS sold a 25% stake in Soccer United Marketing, its media and marketing arm, to PE firm Providence Equity Partners. Five years later, it bought that stake back.