On August 27, 2024, the NFL made a significant move by allowing private equity firms to invest in its teams. This decision marked a shift in the league’s traditionally conservative approach to ownership. While other major U.S. sports leagues have been more open to private equity involvement, the NFL's decision introduces new dynamics in team financing, ownership structure, and league governance. Here’s a breakdown of the key points of the NFL’s decision and how it compares to the other major leagues:
Key Points of the NFL’s Decision
Ownership Rules Relaxed: The NFL had long maintained strict ownership rules, favoring individual or family owners with deep pockets. By allowing private equity firms to acquire minority stakes, the league is easing the financial burden on traditional owners who may need capital due to the exponentially growing valuations of their teams, but do not wish to relinquish full control.
Minority Stake Limitations: While private equity can now buy into NFL teams, there are still limitations. They can own up to 10% of a single team, and this 10% can be split among multiple funds. However, each fund must own at least 3% of the team, allowing them to invest in multiple teams at once – up to six teams. This preserves the NFL’s historical preference for stable, long-term ownership.
Investor Qualifications: The NFL is instituting strict guidelines for private equity firms to ensure financial stability and long-term commitment. The current list of league approved funds are: Arctos Partners, LP; Ares Management Corporation; Sixth Street; and a consortium group including Blackstone, Carlyle, CVC, Dynasty Equity and Ludis. Sovereign wealth funds and pension funds are not permitted. The funds that invest will be required to hold their investment for a minimum of six years.
Revenue Sharing and Team Valuations: With private equity involvement, there is potential for increased team valuations, especially for franchises that need capital to upgrade facilities, marketing, or operations. However, the NFL’s strong revenue-sharing model will likely remain in place, ensuring competitive balance across the league.
Long-Term Impact on Governance: The introduction of private equity may influence the league’s decision-making processes over time. With investors looking for returns, there could be pressure on the league to pursue more aggressive growth strategies, including expanding international markets, increasing media rights deals, and monetizing digital assets, but for now with the league only allowing such a passive investment these changes will likely not be seen in the near future.
Comparisons with Other Major Sports Leagues
NBA: The NBA was one of the first major sports leagues to embrace private equity investment. Since 2020, the NBA has allowed private equity firms to own up to 20% of a team, with a cap on total private equity ownership at 30%. This has resulted in increased liquidity for owners and higher team valuations. The NBA has been more flexible in its approach, with some teams welcoming multiple private equity investors, allowing for more diversified ownership structures.
MLB: Major League Baseball has also opened its doors to private equity in recent years. Like the NBA, MLB allows minority stakes to be sold to private equity, but with tighter restrictions. MLB’s approach is more conservative, focusing on maintaining control within traditional ownership groups. This has helped stabilize teams financially but limits the influence of private equity on day-to-day operations. MLB permits teams to sell up to 30% to funds, and the maximum equity a fund can have in a single team is 15%.
NHL: The NHL began permitting private equity firms to buy minority stakes in teams starting in 2021. The NHL’s ownership model is similar to MLB’s, with a focus on ensuring that private equity investors do not gain significant control over team operations. The NHL permits teams to sell up to 30% to funds, and the maximum equity a fund can have in a single team is 20%. The NHL has used private equity as a way to provide financial relief to struggling franchises, allowing them to remain competitive without forcing ownership changes.
MLS: Major League Soccer has been equally as flexible as both the NBA and NHL when it comes to private equity involvement. MLS franchises have allowed private equity firms to take additional stakes in teams, often providing essential capital for stadium development and expansion efforts. The league’s newer structure and focus on growth have made it a more attractive option for private equity investors compared to the more established leagues.
Distinctions in Private Equity Involvement Across Leagues
Control and Governance: The NFL’s decision to limit private equity ownership to minority stakes is the strictest of the major sports leagues to ensure control is carefully guarded by traditional owners. In contrast, the NBA, MLB, NHL and MLS have been more open to shared control, with multiple private equity investors holding stakes in several teams and allowing these investors to own a greater percentage of those teams.
Financial Impact: Private equity’s influence on team valuations has been most pronounced in the NBA, where the league’s global popularity and lucrative media deals have made teams attractive investment vehicles. The NFL, with its established media dominance and high franchise values, may see similar effects but at a slower pace due to its more restrictive ownership rules.
Operational Influence: While private equity in the NBA and MLS often has a more hands-on role in driving growth strategies, the NFL’s approach is likely to keep operational influence limited. The NFL’s governance structure prioritizes long-term stability over short-term financial gains, which could curb some of the aggressive growth strategies typically favored by private equity.
Conclusion
The NFL’s decision to allow private equity investment marks a significant shift in the league’s approach to ownership and financing. While the move brings the NFL in line with other major U.S. sports leagues, the restrictions on ownership stakes and control will ensure that the league maintains its focus on stability and competitive balance. As private equity firms begin to invest in NFL teams, the long-term impact on team valuations, operations, and league governance will be closely watched, with lessons likely to be drawn from the experiences of the NBA, MLB, NHL, and MLS, which all allow for more private equity involvement than the NFL.
Michael Perlo is an Associate Attorney at Woods Oviatt Gilman LLP and writes and speaks frequently about the legal issues related to sports. He can be reached on LinkedIn at https://www.linkedin.com/in/michael-perlo/