Photo Credit: WKBW https://www.wkbw.com/sports/buffalo-bills/report-deal-in-place-for-pegula-to-sell-a-minority-stake-in-the-buffalo-bills#google_vignette
One of the major topics in the media over the last decade is the involvement of private equity in all aspects of life. From housing to healthcare[1], to Silicon Valley startups, and now the NFL, private equity investment is talked about as both a catalyst and an opportunity for growth, as well as a boogeyman that can cause chaos and destruction[HD1] . It is no wonder that it took the NFL this long to get on board with allowing private equity to invest in its teams.
Private equity is a class of investment in which fund managers raise capital from limited partners (LPs) and then invest those funds in private businesses for a term of years where they will try to maximize their return on investment by cutting costs and increasing revenue.[2] Usually, only accredited investors can invest in these funds and the funds are managed by General Partners (GPs) who receive carry interest for their services.[3]
On August 27, 2024 the NFL owners voted 31-1 to allow private equity firms to invest in their teams.[4] The NFL was the last of the major American sports leagues to allow for private equity investment.[5] The league is only allowing private equity investors to invest up to 10% ownership, which will leave decision-making authority with the primary owner.[6] To limit the conflicts of interest, one firm can only invest in a maximum of six teams.[7]
The NFL has preferred the single owner structure for quite a while.[8] However, the financial opportunity for investment appears to have been too much for the league to resist.[9] Some of the money coming from the investment will be spent on player salaries, allowing teams to sign the best players they can by offering them large paychecks, subject to the league’s salary cap rules.[10] However, much of this money will be used towards the construction of new stadiums across the league.[11] These projects cost billions of dollars, but will significantly increase the value of the respective teams.[12]
So what took so long and what can go wrong? One of the main concerns of the league was the private equity industry’s short investment horizon. The average time of investment for a private equity fund is approximately 5.6 years.[13] This is relatively short considering many of the teams in the NFL have been in existence for more than three decades. The main concern was that private equity investors may want to try to gain control of the decision-making authority to maximize short-term profit for an exit and make decisions that were not necessarily in the best long-term interest of the franchise or the league.
But, money talks. NFL franchise values skyrocketed from 2014 to 2024, appreciating over 4.5 times on average.[14] The thinking changed significantly once the Denver Broncos were sold at a then-record $4.65 billion.[15] Since there are a limited number of individuals with the resources to make that large of a purchase, and the current owners may want to cash out and explore other investment opportunities, an ownership structure was created to allow owners to have their cake and eat it too.[16] This also allows for a more diverse ownership group, opening the door for more minority and women owners.[17]
The Buffalo Bills were one of the first teams to open the door to private equity investors, selling a 10% stake in the team to a group of 10 investors, including former NBA stars Vince Carter and Tracy McGrady, and soccer star Jozy Altidore.[18]
As the years go on, we can expect to see more of these investments, especially if team values continue to rise at the pace that they have over the last decade. The NFL and its owners will look to capitalize on a marketable product that has captured the attention of not just the United States, but the whole world.
[1] https://www.healthaffairs.org/content/forefront/impact-private-capital-and-financialization-health-equity-response-enekwechi
[2] https://www.investopedia.com/terms/p/privateequity.asp
[3] https://money.usnews.com/investing/term/private-equity
[4] https://www.law360.com/sports-and-betting/articles/1873648/nfl-to-allow-pe-ownership-joining-pro-sports-league-peers
[5] Id.
[6] Id.
[7] https://sites.lsa.umich.edu/mje/2024/10/26/theres-a-new-player-in-the-nfl-private-equity/
[8] See supra note 4.
[9] See supra note 7.
[10] Id.
[11] Id.
[12] Id.
[13] See supra note 2.
[14] See supra note 7.
[15] See supra note 4.
[16] See supra note 7.
[17] See supra note 4.
[18] https://pe-insights.com/arctos-partners-enters-nfl-with-10-stake-in-buffalo-bills-amid-growing-private-equity-interest/