Private Equity’s Latest Target: Live Sports

Some might think the glamor and competition of owning a sports team has attracted investors like Silver Lake, CVC Capital Partners and Clearlake Capital Group.

Instead, it’s the value of live sports content, and its rights, that has helped spark interest in the sector.

This week,

Ares

Management (ticker: ARES) announced its first dedicated fund focused on investing in sports teams, leagues and franchises, as well as media and entertainment companies.

Ares spent 18 months marketing the pool, which raised $3.7 billion, including $2.2 billion in equity commitments and $1.5 billion in early leverage and transaction vehicles related, according to a September 15 report. statement.

“We felt like no one was doing what we were looking to do,” said Mark Affolter, Ares partner and co-head of US direct lending. “We will invest from top to bottom of the balance sheet.”

Ares has several different businesses. It is one of the largest private lenders to US and European middle-market businesses. It also has a private equity business that takes majority stakes and invests in distressed situations, as well as real estate and infrastructure divisions. In 2021, Ares launched a wealth management business that targets high net worth retail investors and financial advisors.

Shares of the company, down 8% this year, traded Friday at $74.64, down 2%.

With its Sports, Media and Entertainment, or SME, fund managed from its direct lending business, Ares will seek to invest in European and American soccer clubs, Affolter said. It will also target Major League Baseball, the National Hockey League, rugby and other sports.

In media and entertainment, Ares will focus on music catalog rights and songwriters; companies that provide lighting, grips and accessories to studios across North America; as well as companies that own media-related assets, he said.

“Our view is that there is incredible growth in these areas. It’s really driven by the ratings given to the original content,” Affolter said.

The company will provide loans — senior, junior and mezzanine loans — to teams and businesses, Affolter said. Ares will also seek to take minority stakes, making co-investments in preferred and common stock, he said. (With preferred stock, investors are superior to common stock, but inferior to debt.)

The fund has completed 19 deals so far, including investments in Atlético football clubs de Madrid and Inter Miami CF, the San Diego Padres and McLaren Racing. About a quarter of the pool has been invested, according to the statement.

Private equity firms have been investing in sports teams for years. Executives highlighted the value of live sports content as a draw. The sale of broadcast and media rights is now the primary source of revenue for most sports organizations, world intellectual property organization.

The NFL in 2021 has signed media rights agreements with

SCS
,

NBC, Fox, ESPN and

Amazon

which were collectively worth around $110 billion over 11 years, the

New York Times

reported. Media rights for sports teams are an example of how clubs generate recurring revenue streams, including sponsorship revenue, which attract investors, Affolter said.

Streaming has also increased the value of premium content, with live sports among the most sought-after assets. In June,

Apple

off hook a 10-year contract to broadcast all Major League Soccer matches live.

“We have witnessed significant demand for new and original content among fans, streaming platforms and networks, which has led sports-related businesses to demand flexible and scalable capital to help fuel this secular growth. “Affolter said in a statement.

So far this year, private equity firms have made 221 sports investments, valued at $31 billion, as of Sept. 9, according to PitchBook data. That compares to 440 deals, totaling $58.4 billion, in 2021, which is considered a peak year for mergers.

Recent deals include CVC Capital Partners $2.4 billion investment in LaLiga, a professional football league in Spain, last year. This year, Todd Boehly, co-owner of Clearlake Capital and the Los Angeles Dodgers, led a consortium to to buy Chelsea FC for 2.3 billion pounds ($2.6 billion). Silver Lake in 2022 also increased its stake in Manchester City FC, becoming its second largest shareholder, Bloomberg reported.

Ares, however, is one of the few with a dedicated sports fund.

Dyal Capital, a unit of

Blue Owl Capital

(OWL), has a dedicated pool that makes minority investments in sports teams. Offers include the Phoenix Suns, Sacramento Kings and Atlanta Hawks.

There is also Arctos Sports Partners, which makes minority passive investments in professional sports franchises. Arctos, who raised $2.1 billion with his first fund, invested in the Golden State Warriors, Tampa Bay Lightning, Chicago Cubs and Real Salt Lake.

Write to Luisa Beltran at [email protected]

About Kristina McManus

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