The NFL’s embrace of private equity in September, allowing pre-selected firms to buy up to 10% stakes in its teams, was the latest salvo in the burgeoning trend of private funds entering the professional sports arena. A less heralded part of this growing field, however, is on the debt side or hybrid plays.
Ares Capital Management is one of the firms the NFL pre-vetted and approved to buy private equity stakes in teams. The alternative investment company, which commands a $447 billion portfolio spanning debt and equity, has made several investments in sports franchises to date. It’s also in talks with the Miami Dolphins to buy 10% of the team’s parent company.
The firm, however, believes the sports investment trend will continue to grow and evolve, expanding from traditional drawdown vehicles on the equity side that have only been open to high-net-worth investors and institutions to include a variety of hybrid structures like interval funds or tender offer funds, including ones that move into preferred equity and debt as well as evergreen funds that provide access to accredited investors. (To date, Pitchbook counts 64 North American sports teams that have sold private equity stakes.)
WealthManagement.com spoke with Brendan McCurdy, managing director of Ares’ financial advisor solutions team, about the trend.
This interview has been edited for style, length and clarity.
WealthManagement.com: I understand that most of the investment to date here has been through more traditional private equity structures. So how much of this will be open to a wider swath of the private wealth audience?
Brendan McCurdy: That’s true. Looking out across the sports and media investments industry, private market firms have been launching open-end/ perpetual structures, and you will see opportunities pervade into the mass affluent space.
WM: Much of the focus on sports investment has been on the traditional private equity side. But you also see things happening on the debt side?
BM: The equity headlines stand out, but if you look at the actual capital committed and where the opportunities have been, there are some hybrid options as well, like convertible securities and preferred equity. We expect sports investments will continue to be a good mix of debt and equity, including a hybrid like preferred equity that feels more like fixed income.
WM: What can you tell me about Ares’ experience to date investing in professional sports?
BM: We have been involved in a variety of sports, media and entertainment investments. We’ve always done a bit of it through general lending over the course of the last decade-plus, but in the last five years, we’ve built out a team specifically dedicated to this sector. As we look at it, we’re trying to think about what the best structures for different types of investors are.
WM: And ultimately, you see the opportunity here not just to get access to sports as a passive investment but that you can also help bring some professional management, help franchises run more efficiently and perhaps identify new opportunities. Is that correct?
BM: If you go back through history, very often, team owners were local industrial magnates or someone who owned businesses in the market. It was more of a passion investment. With some transactions in recent years, teams have brought in more professionalization.
An example is you look in Philadelphia with Comcast and what they are building and developing to make it a live/work/play area. In Denver, there are plans for new towers around where the Avalanche and the Nuggets play. In Tampa, they are thinking about the area around the Lightning’s arena.
We’re seeing a lot more programming as well, so rather than being a stadium that’s used once a week or only for certain months, they are active five or six nights a week, hosting different events, meetings, etc.
And, of course, teams are doing more to grow audiences internationally. That impacts the value of media rights, sponsorships, concessions, merchandising, etc.
WM: In the past, that has been one knock on sports as the center of development. For much of the week or year, you might have a facility that is dormant, which means the traffic for other businesses around stadiums can ebb and flow rather than be consistent. You say that people are doing a better job of programming these venues throughout the year.
BM: That’s right. We are seeing cities capitalize on the capacity athletic stadiums are built to hold throughout the year, using the stadiums as concert venues and hosting multi-sport events drawing large crowds. So even the way stadiums are being constructed has this in mind.