The NFL’s introduction of private equity in September, allowing pre-selected companies to buy up to 10% of a team’s stock, is part of a burgeoning trend of bringing private money into professional sports. It was the latest salvo. However, a lesser-known part of this growing area is the debt side or hybrid play.
Ares Capital Management is one of the companies pre-vetted by the NFL and approved to buy private equity stakes in teams. The alternative investment firm, which boasts a $447 billion portfolio of debt and equity, has made several investments in sports franchises in the past. The team is also in talks with the Miami Dolphins to acquire a 10% stake in the team’s parent company.
However, the firm believes that trends in sports investing will continue to grow and evolve, moving from traditional drawdown vehicles on the equity side, which are only available to high-net-worth investors and institutions, to a variety of hybrid structures such as interval funds. I think it will expand to include this. It also includes funds that transition into preferred stocks and bonds, as well as tender offer funds such as evergreen funds that provide access to accredited investors. (To date, Pitchbook counts 64 North American sports teams that have sold private equity.)
WealthManagement.com spoke to Brendan McCurdy, managing director of Ares’ Financial Advisor Solutions team, about this trend.
This interview has been edited for style, length and clarity.
WealthManagement.com: I understand that most of your investments to date have been through more traditional private equity structures. So how much of this will be made available to the wider private wealthy class?
Brendan McCurdy: That’s true. Looking across the sports and media investment industry, we see private market firms launching open-ended/permanent structures and opportunities penetrating the realm of the mass affluent.
WM: A lot of the focus in sports investing has been on the traditional private equity side. But do you see that there are also problems on the debt side?
BM: Equities are in the headlines, but if you look at the actual capital invested and where the opportunities are, there are also some hybrid options like convertible notes and preferred stock. We expect sports investing to remain a good mix of bonds and stocks. This also includes hybrids like preferred stocks that are similar to bonds.
WM: Can you tell us about Ares’ past experience investing in professional sports?
BM: We have been involved in a variety of sports, media and entertainment investments. Over the past 10 years, we’ve done some of that through general lending, but over the past five years we’ve built a team that specializes in this area. We’re looking at that and trying to figure out what the best structure is for different types of investors.
WM: And ultimately, the possibility of not just accessing the sport as a passive investment, but bringing in professional management, helping franchises operate more efficiently and perhaps identifying new opportunities. We believe there is an opportunity here. Is that correct?
BM: If you go back in history, team owners were very often local industrial figures or people who owned businesses in the market. It was more of a passionate investment. Several trades in recent years have brought more specialization to the team.
As an example, look at Comcast and Philadelphia and see what they’re building and developing to make it a live/work/play area. Denver has plans to build a new tower around where the Avalanche and Nuggets will play. Tampa is considering the area surrounding the Lightning’s arena.
The program is also more extensive, operating five to six nights a week and hosting a variety of events, conferences, etc., rather than a stadium that is only used once a week or during certain months.
And of course, each team is working harder to increase their audience around the world. It affects the value of media rights, sponsorship, concessions, merchandising, etc.
WM: In the past, that was a huge blow to the sport as a center of development. Facilities may be closed for most of the week or year. This means that traffic for other businesses around the stadium is not constant and can wax and wane. You said people are programming these venues better throughout the year.
BM: That’s right. We’ve seen cities take advantage of the capacity of athletic stadiums built to accommodate year-round events, using stadiums as concert venues and hosting multiple sporting events that draw large crowds. Therefore, the way the stadium is built also has this in mind.
