With their sights on the long game, private equity firms completed a record $11bn in sports buyouts last year, as the increasing digitization of the industry continues to attract investors
With their sights on the long game, private equity firms completed a record $11bn in sports buyouts last year, as the increasing digitization of the industry continues to attract investors
In August, Dorilton Capital made a historic foray into the world of Formula One. The New York-based private equity firm purchased multiple Championship-winning outfit Williams Grand Prix Engineering Limited from Williams Grand Prix Holdings PLC for approximately $180mn, ending 43 years of control by the Williams family.
While private equity firms’ interest in professional sports is not new, investor appetite is rising. Previous investments continue to bear fruit, with rumors of funds taking stakes in teams, competitions, and leagues regularly circling the media. In fact, investment in competitions, and leagues in particular, is the new favored avenue for investors to combat the risk of potential relegations and a team’s failure to meet performance targets. And while COVID-19 may have temporarily rocked the world of professional sports, it has accelerated the digital consumption of sports – a trend that is increasing the opportunities available to private equity firms operating in this sector.
As seen in the chart above, private investment in the professional sports industry peaked in 2019. Eleven buyout deals were made that year for an aggregate value of $11bn, a 1,800% increase on the previous year. So far in 2020, there have been eight such deals for an aggregate value of $2.7bn.
In March 2006, CVC Capital Partners acquired a majority stake in Formula One Holdings, the holding company responsible for the commercial development of the FIA Formula One Grand Prix Championship, for approximately $1.7bn. In January 2017, Liberty Media bought a controlling interest in the company for $4.4bn. The success for this deal has helped generate further interest in the sports industry, with London-based CVC itself at the forefront.
CVC’s ambitions extend beyond Formula One, too. The firm is looking to reshape global rugby, aiming to become the biggest commercial player in one of the world’s most popular sports with a planned $300mn investment in the Six Nations Rugby Championship for a roughly 14% stake. The deal would take CVC’s total investment in rugby to more than £600mn.
Aligning with the interests of many investors, investments in sports clubs are tied to longer-term, performance-related aspirations. Historically successful clubs or teams can be easy for LPs to research. A number of appealing commercial and legal factors also come into play: media rights can be lucrative, and reforms by competition organizers and regulatory bodies to allow for increased commercial involvement and profit opportunities are anticipated.
The consumption of sports is evolving as our world becomes increasingly digital. With lockdowns globally preventing fans from attending sports events, technology has played a larger role than ever, paving the way for broadcasters to partner with sports organizations to create new and innovative customer experiences, enabling fans to capture viewership across multiple devices. PwC’s 2019 Sports Survey found that while 94% of sports leaders worldwide recognized the importance of transformation and innovation, just under half are implementing concrete innovation strategies in the industry.
Private equity firms are well positioned to promote further innovation with their expertise in digital technology. And with a 94% increase in Premier League viewership in June compared to the 2019/2020 season average, the digitalization of sports consumption will only increase investment opportunities in the sector, particularly in sports-related media.