The NFL’s team owners voted Tuesday to approve a measure allowing investments into franchises by private equity funds.
It is a major change to the league’s ownership rules, which had been widely regarded as the most restrictive in pro sports.
Here is what’s involved in the change.
What is private equity?
The U.S. Securities and Exchange Commission calls a private equity fund “a pooled investment vehicle where the adviser pools together the money invested in the fund by all the investors and uses that money to make investments on behalf of the fund. Unlike mutual funds or hedge funds, however, private equity firms often focus on long-term investment opportunities in assets that take time to sell with an investment time horizon typically of 10 or more years.”
The SEC says on its Investor website that a private equity fund “is typically open only to accredited investors and qualified clients” including “institutional investors, such as insurance companies, university endowments and pension funds, and high income and net worth individuals. The initial investment amount for a private equity investment is often very high.”
Why had the NFL not previously allowed private equity in ownership?
The NFL has preferred to deal with individuals as owners and limited partners. It had, until now, prohibited ownership in franchises by private equity firms, public corporations or sovereign wealth funds. It has been highly successful with this ownership model. But as franchise values have continued to increase to the point that very few individuals can afford to “write a check” to be the principal owner of a team – requiring at least a 30 percent equity stake – the NFL began to consider loosening its restrictive ownership rules. Its move to allow a team to sell up to 10 percent of its ownership to private equity is a conservative first step.
How do other North American pro sports leagues handle private equity?
Other leagues are far more permissive. According to Sportico, the NBA, Major League Baseball, the NHL, Major League Soccer and the National Women’s Soccer League each allow a franchise to sell as much as 30 percent of its ownership to private equity funds. A single private equity fund can own as much as 20 percent of a team in the NBA, NHL and MLS and as much as 15 percent in MLB and the NWSL, according to Sportico. The NWSL reportedly allows a private equity firm to own as much as 100 percent of a team if it is not invested in other teams in the league. The firm Sixth Street Partners is the principal owner of the Bay FC franchise.
What would be the first practical impacts of allowing private equity in the NFL?
Current owners could receive an infusion of cash by selling minority ownership stakes to private equity firms. The pool of bidders could be increased for future franchise sales, given the additional sources of available funding.
How many franchises would be likely to seek out private equity?
It is not known how many teams will move quickly to sell minority ownership stakes to private equity firms. But it is believed that at least a handful of franchises will explore the possibility in the foreseeable future. Some within the league speculated privately that the Buffalo Bills, Miami Dolphins, Los Angeles Chargers and Philadelphia Eagles could be among the teams to give immediate consideration to that prospect.
Will every investment have to be approved?
Investments into NFL teams by private equity funds will be limited to the firms already approved by the league – Arctos Partners, Ares Management, Sixth Street and a consortium of Blackstone, Carlyle, CVC Capital Partners, Dynasty Equity and Ludis, a platform founded and led by former NFL running back Curtis Martin. As with any other ownership sale, any proposed transaction would have to be ratified by at least 24 of the 32 owners leaguewide.
The new rules limit a team to selling no more than 10 percent of its ownership to private equity. A fund can hold ownership stakes in as many as six NFL teams. It must purchase at least 3 percent of any team in which it invests, and it must hold that ownership stake for at least six years. The fund’s minority ownership of a team will give it no voting rights. An owner of an NFL team could be an investor in a private equity fund that purchases part-ownership of another franchise; in that case, the owner and his or her immediate family members could own no more than 3 percent of the fund.
How will this move impact team valuations and sale prices?
Given the additional sources of available funding and the prospective expansion of the pool of bidders whenever a team is for sale, NFL franchise values should increase. Some within the league believe that the Washington Commanders might have sold for more than $6.05 billion last year if there had been a larger pool of bidders. The average NFL team is worth $5.1 billion, according to the 2023 franchise valuations by Forbes. The Dallas Cowboys are the most valuable franchise with an estimated worth of $9 billion. There has been speculation that the Seattle Seahawks could be sold in the coming years by their de facto owner, Jody Allen, the sister of late owner Paul Allen, who is the trustee of her brother’s trust.
What are sovereign wealth funds, and how will the NFL treat them?
Investopedia calls a sovereign wealth fund “a state-owned investment fund” composed of “money generated by the government, often derived from a country’s surplus reserves.” Popular sources of funding for sovereign wealth funds, it says, include “surplus reserves from state-owned natural resource revenues, trade surpluses, bank reserves that may accumulate from budgeting excesses, foreign currency operations, money from privatizations, and governmental transfer payments.”
The NFL continues to bar direct investment into teams by sovereign wealth funds. But under the new rules, a sovereign wealth fund could be an investor in a private equity fund that purchases part-ownership of an NFL team. No single investor can own more than 7.5 percent of a private equity fund that buys an ownership stake in a franchise.
Why has the NFL not previously allowed sovereign wealth funds in ownership?
In addition to the NFL’s long-standing reluctance to deviate from its restrictive ownership rules while dealing with individuals as owners, any move to allow ownership by sovereign wealth funds such as Saudi Arabia’s Public Investment Fund (PIF) would involve public-perception considerations. Some of those funds have been accused of “sportswashing,” or attempting to use involvement with sports to burnish a country’s image or distract from its human rights record.
According to a November 2023 Washington Post-University of Maryland poll, roughly half of American sports fans said they would be uncomfortable with Saudi Arabia, Qatar or the United Arab Emirates making a large investment in their favorite team.
How do other North American pro sports leagues handle sovereign wealth funds?
The PIF launched LIV Golf in 2022 as a new professional golf league and has been in extended talks with the PGA Tour about a partnership. The only teams in the four biggest North American pro sports leagues that have taken on sovereign wealth fund money are the NBA’s Washington Wizards and the NHL’s Washington Capitals, whose owner, Monumental Sports & Entertainment, sold a 5 percent stake to the Qatar Investment Authority in July 2023. Monumental also owns the WNBA’s Washington Mystics. MLS club New York City FC is majority controlled by Sheikh Mansour bin Zayed al-Nahyan, a member of the royal family of Abu Dhabi.