The private equity industry has historically been known for buying struggling companies and attempting a turnaround. But the handful of firms investing in professional sports teams have mostly taken a different approach so far, buying up minority stakes in franchises with successful track records.
The latest example came Tuesday when Dyal HomeCourt Partners, a division of Dyal Capital Partners dedicated to backing NBA teams, announced it had purchased a stake of less than 5% in the Phoenix Suns through a deal that values the NBA franchise at approximately $1.55 billion.
The Suns beat the Milwaukee Bucks in Game 1 of the NBA Finals on Tuesday night. Oddsmakers have pegged The Suns as favorites to win the first championship in the franchise’s history.
Private equity investing in sports is still in its infancy as an alternative investment strategy, but it’s clear many investors have opted to back some of the NBA’s top teams rather than go looking for discounts at struggling franchises.
Earlier this year, Arctos Sports Partners agreed to acquire a 5% stake in the Golden State Warriors, valuing the perennial championship contender at around $5.5 billion, according to Sportico. And last month, San Francisco-based investor Sixth Street teamed up with billionaire software entrepreneur Michael Dell to buy a stake in the NBA’s San Antonio Spurs, another multi-time champion. The deal values the team at $1.8 billion, with Sixth Street owning 20% of the franchise and Dell the other 10%, according to CNBC reporter Leslie Picker.
In January, the NBA loosened its rules to allow owners to sell to investment funds and other institutional investors, with Dyal Capital and others are now allowed to buy stakes in multiple NBA franchises.. Under revised league rules, funds can own no more than a 20% stake in any individual franchise.
Dyal acquired its stake in the Suns from a handful of the team’s minority investors, with majority owner Robert Sarver opting to keep his interest. The firm, which completed a $12.5 billion merger with direct lender Owl Rock Capital earlier this year, is reportedly raising around $2 billion to back individual teams, and has around $52.5 billion in total assets under management. Dyal Capital parent company Blue Owl Capital is publicly traded.
Dyal is no stranger to making minority investments. The firm was one of the original champions of LP stakes investing, buying passive, minority positions in private equity firms including Vista Equity Partners, Silver Lake and Clearlake Capital.
Like other investors, Dyal saw an opportunity when the NBA’s revenue plummeted during the COVID-19 pandemic as fans were barred from attending games. That created a cash crunch for owners after a run of years in which valuations skyrocketed. But potential buyers were limited, in part because of the expensive price of franchises.
For Dyal, the chance to earn revenue from the league’s television contracts and sports gambling opportunities makes backing NBA teams attractive, according to a person familiar with the deal. And the firm expects to look at a wide range of teams regardless of their place in the standings.
PE’s sports investing push hasn’t been limited to the NBA. Earlier this year, RedBird Capital Partners agreed to acquire a more than 10% stake in Fenway Sports Group, according to reports. FSG owns the Boston Red Sox, Liverpool FC and other entities.
And last week, Los Angeles-based Ares Management announced it had invested more than $1 billion in the sports, media and entertainment industry, including credit facilities for the San Diego Padres and the NHL’s Ottawa Senators. The firm also invested in La Liga front runner Atletico Madrid and F1’s McLaren Racing.
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