Embracing the NFL private capital in September, allowing pre-selected firms to buy up to a 10% stake in its teams, was the latest twist in the growing trend of private funds entering the arena of professional sports. A less heralded part of this growing area, however, is on the side of debt or hybrid plays.
Ares Management is one of the firms the NFL pre-vetted and approved to buy private equity stakes in teams. The alternative investment company, which owns a $447 billion portfolio that includes debt and equity, has made several investments in sports franchises to date. He is also reportedly 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 equity-side fundraising vehicles that have been open only to high-net-worth investors and institutions to include a a variety of hybrid structures such as interval funds. or tender offer funds, including those that switch to preferred equity and debt, as well as evergreen funds that provide access to accredited investors. (Until today, Pitchbook counts 64 North American sports teams who have sold private equity shares.)
WealthManagement.com spoke to 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 section of the private equity audience?
Brendan McCurdy: This is true. Looking across the sports and media investment industry, private market firms have launched open/permanent structures and you will see the opportunities that permeate the massively rich space.
WM: Much of the focus in sports investment has been on the traditional private equity side. But you see things happening on the debt side as well?
BM: Equity securities stand out, but if you look at the actual capital committed and where the opportunities have been, there are also some hybrid options, such as convertibles and preferred equity. We expect sports investments to continue to be a good mix of debt and equity, including a preferred hybrid equity that feels more like fixed income.
WM: What can you tell me about Ares' experience in investing in professional sports to date?
BM: We have been involved in a number of sports, media and entertainment investments. We've always done some of it through general lending over the last decade plus, but in the last five years, we've built a team specifically dedicated to this sector. As we look at it, we're trying to think about what the best structures are for different types of investors.
WM: And ultimately, you see the opportunity here not only to have access to the sport as a passive investment, but that you can also help bring in professional management, help franchises run more efficiently and maybe identify new opportunities. Is this correct?
BM: If you go back in history, very often the team owners were local industrial magnates or someone who owned businesses in the market. It was more of a passion investment. With several transactions in recent years, the teams have brought more professionalism.
An example is you look at 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 Nuggets play. In Tampa, they're thinking about the area around the Lightning's arena.
We're also seeing a lot more programming, so instead of being a stadium that's used once a week or only for certain months, they're active five or six nights a week, hosting different events, meetings, etc. .
And, of course, the teams are doing more to increase the international audience. This affects the value of media rights, sponsorships, concessions, merchandising, etc.
WM: In the past, this has been a knock on the sport as a development center. For most of the week or year, you may have a facility that is dormant, meaning traffic for other businesses around the stadiums may ebb and flow rather than be steady. You say people are doing a better job of programming these places year-round.
BM: That's right. We are seeing cities take advantage of the capacity of athletic stadiums that are built to hold year-round, using the stadiums as concert venues and hosting multi-sport events drawing large crowds. So even the way the stadiums are being built takes this into account.