Page 51 - FON Spring Issue

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clubs and continue to increase valuations. With valuations increasing to such high levels in recent years and strict debt rules, owning a team requires significant levels of equity. Allowing PE funds into the potentially acceptable investor pool will bring considerable liquidity to the market, which will continue to drive up the value of franchises. Another benefit of bringing in a PE Firm is that it can also provide a strategic institutional partner with operating and business experience to drive growth. Private equity funds typically bring some expertise to the table, whether it be in the form of media rights, digital content or other strategic initiatives. Having them on the cap table can be beneficial in driving value and revenues for the team(s).
What role do PE Funds like Arctos Sports Partners or Dyal Capital seek to fill in the sports?
I believe they fill a very important role not only for their own investors, but for the teams and leagues. With regard to the PE fund’s own investors, which are typically comprised of institutional investors and family offices, they provide access
to otherwise privately held, highly sought after assets that historically are difficult to mine. Professional sports teams that are on the market, unless purposely leaked to the press, usually are marketed on a quiet basis through a very small network of individuals “in the know” and are almost never known to the broader public until after closing or a press release. This is especially true of limited partnership interests. Specifically, in the cases of investors selling their limited partner or minority stakes, private equity funds provide an avenue and funding mechanism for a clean and defined exit strategy. As previously mentioned, private equity funds typically bring some operating expertise and business acumen to the teams. For example, Arctos Sports Partners possesses strong operating and business experience with ex- executives from Madison Square Garden and the Chicago Cubs. Lastly, from the league’s perspective, PE funds provide a new buyer group and added liquidity which will continue to strengthen interest and drive valuations higher.
Can you speak to the explosive growth in Sports SPACs being announced and what is their outlook?
Wow, this is a very interesting dynamic. I believe at last count we’ve identified nearly 45 sports related special purpose acquisition companies (“SPACs”) in the market. It seems like you have almost every investor, influencer and operator racing to capitalize on this trend and identify a distressed or a below value sports asset. We believe that SPACs or blank check companies can make a lot of sense and be very compelling investment propositions. The sports industry is a massive market with considerable growth potential and a need for institutional type funding. For example, DraftKings is probably the most famous and successful SPAC to hit the market in the past year. In my opinion, DraftKings was an ideal SPAC candidate given its business model, scalability and growth potential. However, that doesn’t necessarily translate into SPACs being the appropriate vehicle for investment for all sports assets. We believe that SPACs will have a very difficult time if the investment objective is to target North American professional sports assets. League rules and governance are strong, restrictive and place a premium on investor disclosure and financial support of owners. With the exception of the Green Bay Packers and Atlanta Braves with Liberty Media, U.S. professional sports leagues are not set up for public ownership. We believe that sports-related assets, health and wellness, sports media companies, sports memorabilia collections, sports tech and even on a select basis overseas sports assets like European Football clubs can be very suitable assets for SPAC acquisitions. This is particularly true if you have the right operators to improve operations and bring specific expertise or influencers that can help scale a brand or open an entirely new market to the company.
Thank you for your time and insight.
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