From Billionaires to Billion Shares

The Future of Sports Ownership

In 48 hours, the European Super League came crashing down. Protests raged across Europe as fans, players, and managers banded together to push back against an attack on football traditions. Players wore “Football is for the Fans” shirts. Fans came in droves to demand the ousting of team executives involved in the creation of the league. Even politicians chimed in, with Britain’s Boris Johnson and France’s Emmanuel Macron voicing their displeasures. Conversely, owners of 12 of the most cherished football clubs in Europe watched as their hard work, collaboration, and, most importantly, prospective profits disintegrated in a mere two days.

The European Super League debacle is another chapter in the rollercoaster relationship felt between fans and owners around the world. Both parties have a stake in the team they cheer for, albeit on different ends of the spectrum. For fans, sports are a source of escape from the regular hassles of everyday life. Owners’ financial interests in their teams mean decision-making extends beyond what the best move is for on-field performance—a perspective that often frustrates loyal supporters.

The relationship has hastened as Wall Street financiers have warmed up to the idea of sports teams as a potential asset class. Traditionally, sports teams were viewed as an illiquid purchase for select individuals looking for a trophy asset. That mentality began to change in the early 2000s as institutional money infiltrated the deregulated European football scene. Storied clubs Juventus and Manchester United were both listed publicly on their domestic exchanges in the mid-2000s, and to date, private equity firms own clubs in all major European soccer leagues (e.g., Premier League, Serie A, Ligue 1).

Here in North America, institutional ownership is becoming more attainable. Major League Baseball (MLB) and the National Basketball Association (NBA) have booth recently loosened ownership restrictions, granting institutional money the ability to purchase minority stakes in multiple teams. Dyal HomeCourt Partners was the first to capitalize on the amendment, having purchased stakes in the Phoenix Suns (NBA) and Sacramento Kings (NBA) in the past year.

The appeal and accessibility of ownership could not be higher. For more than a year, leagues suffered their worst revenue drawdowns on record. Teams turned to credit facilities and political lobbying to stay afloat. As leagues begin recovering from a year of empty stadiums, the opportunity to purchase into leagues or specific teams has never been a riper for the taking. At the same time, the scarcity and unique branding of teams are appealing—almost always ensuring the price tag will appreciate significantly when it comes time to sell.

What Next?

Moving forward, the industry is positioned to capitalize on major trends in adjacent industries. The wave of betting legalization across North America will open up lucrative profit sharing and partnership campaigns with betting companies. The competition for broadcasting rights has increased dramatically with the introduction of streaming services. The likes of Amazon Prime and DAZN offer steep competition to traditional cable companies. The heightened competition and continued growth of pro sports will undoubtedly lead to large contracts—the industry’s largest revenue stream.

Yet, the most important asset of any team is their fanbase. The unique passion supporters feel toward their team is a valuable commodity. It translates into supporters spending thousands on tickets, hundreds on apparel, and organically spreading team brands around the world. This passion stems from the emotional connection many fans feel toward their favourite team.

Coincidentally, this emotional connection is what institutional investors crave at the best of times and despise at the worst of times. It was that emotional connection that crumbled the Super League and forced apologies from the teams who joined. It is that emotional connection that creates the loudest critics during the worst of times and expects change at the sight of any speed bump. Ultimately, it is that emotional attachment that despises institutional investment in sports.

The Paradox of Ownership

The relationship between fanbase and ownership is representative of a greater conundrum sports leagues are facing. New institutional ownership views teams less as a trophy assets and as more of a business. This is leading to the commercialization of the product and pushback from fans who value the tradition and pageantry of sports.

As Wall Street-backed teams become more common, their administrations will have to navigate the relationship with fans delicately. While maximizing returns should be the top priority, fans introduce a unique stakeholder that many traditional companies do not have to contend with.

At the same time, fans need to be more open to change. COVID exposed weaknesses in a traditional sports team’s business model. The over-reliance on ticket sales and broadcasting led to tense moments for teams globally. The introduction of Wall Street should bring with it the introduction of financially savvy decisions, long-term planning, and, for fans, a better experience.

A Reason for Fan Optimism

Investors will undoubtedly look to appeal to the new generation of fans who value comfort and convenience over the historical significance of long-held traditions. Notably, sports are one of the only forms of entertainment that prioritize the in-house experience over the at-home viewing experience. The COVID-19 sports viewing experiment proved the importance of prioritizing the fan at home while demonstrating the ability of leagues to adapt swiftly. Leagues implemented unique camera angles to enhance the at-home experience while teams found creative ways to maintain fan interaction. These moves are only the beginning on the road to deepening the lucrative emotional attachment fans feel. Ted Leonsis, Washington Capitals owner, hinted at the future of sports viewing, noting that “at some point, Fortnite might be the best place to stream real sports,” after referencing the virtual Travis Scott concert that drew 27 million users watched on the platform.

Wall Street ownership—even minority interest—can spearhead this change in the industry. With a profit-seeking mentality and a limited time horizon relative to traditional owners, the investment-oriented perspective will force teams to get creative by enhancing the experience for fans to drive new revenue streams. While fans are a necessary watchdog to ensure the on-field product remains up to their standards, they should be collectively excited about the next-generation viewing experience.