Barbarians at the Pitch: Private Equity and the move into the NFL

Ian Whittaker, Twice City AM Analyst of the Year writes about the recent decision of the NFL team owners voted to allow a select group of private equity firms to acquire up to 10% of teams as valuations rise in recent deals.

Private Equity – or PE as it is shortened to often – is often viewed with mixed feelings by many, a source of well-needed discipline and finance to some, a ruthless money generating machine with no regard for past traditions to others. One only has to look at what has happened in the European football leagues to see both contrasting signs of the coin, as well as mixed successes. However, last month none of this deterred the owners of the National Football League (NFL) in the US from voting to allow PE firms to invest in the franchises. 

I would argue this is probably one of the most fundamentally important announcements when it comes to sports rights globally. 

The agreement may not look much at first sight, given the stringent conditions. The NFL will allow PE firms to buy up to 10% stakes and no more. Moreover, such stakes will be in common equity and not in so-called preferred shares, which often give such holders special rights or privileges. There are only a select – and small – number of PE firms (and one consortium made up of several entities including retired NFL player Curtis Martin) that have been approved to invest and each approved investor has committed to investing at least $2bn in the league, which can be spread across teams. Investors will have to hold their stakes for at least six years and will be capped at investing in a maximum of six teams. 

However, it is more the principle that counts rather than the actual terms. There may be a question of why PE is so interested in expanding its exposure to sports rights given the issues that have arisen in Europe and the financial problems that several of Europe’s football leagues are facing. The simple reason for that is, unlike the European football clubs, the financial stability of NFL clubs has never been stronger.  In Europe, the football clubs are reliant on traditional Pay-TV operators who are now facing major challenges to their business models and who can no longer afford to pay ever increasing amounts for the rights. Crucially, Tech giants have not stepped into the fray because the economics of buying expensive football rights just do not work for these players. 

That is not an issue in the United States. The appeal of the NFL for advertisers is that the NFL dominates live TV viewing in the United States – of the top 100 most watched live TV programmes in the US in 2023, 93 were NFL games. And, with the Tech giants such as Amazon and YouTube looking to seize TV advertising money, the ownership of NFL games has never been more valuable. To put it simply, the economics of paying out considerable amounts of money for live US sports rights work in the United States because of the size of the advertising market. Magna estimates that national US linear TV advertising will generate $38bn in revenues in 2024 despite its structural problems, with another $18bn sitting in local TV.  All this means that NFL franchises are likely to remain very lucrative properties for a long time to come. 

Where does this end? Now the principle has been agreed i.e. that PE firms be allowed to invest in the NFL rights, the PE firms are likely to agitate – over time – for changes to the rules, especially around the stakes. My guess is over time that the caps will be raised and that PE firms will become more active players in the market. This may take a considerable number of years to come through and I do not think it will lead to PE firms owning franchises any time soon (there are also regulatory issues to consider). However, the trend of travel looks clear. 

As usual, this is not investment advice.