(Bloomberg) -- The National Football League, one of the most valuable entities in professional sports, is finally letting institutional investors enter its rich ranks. Thanks to a recent vote that changed the league’s rules, private equity firms will now be able to buy 10% stakes in NFL teams. While these are ultimately small stakes, they nonetheless allow owners to sell pieces of their teams to silent partners. The MLB and NBA already allow similar arrangements.
1. Why did the NFL make this change?
There’s a myriad of reasons. For some owners, they simply want liquidity. Others want to renovate old stadiums, or to build new ones that can cost upward of $2 billion. If they don’t have enough money to fund such an expense, or if a city denies a public-private partnership, selling 10% of a team might help. But the biggest issue of all is probably estate taxes. Many NFL owners are older and want to pass their teams to a younger generation, a transfer that the US government taxes. Selling a piece of the team reduces that bill, potentially by hundreds of millions of dollars.
2. How does this impact NFL clubs?
For owners who have no interest in selling to private equity, this change will have little to no impact. For those who are interested in selling a stake, private equity firms can now become passive investors — meaning they have no say in a team’s operations, just in its finances. In the past, if owners sold to a wealthy individual, they might worry about that person wanting to have input in a team’s everyday decisions.
3. Which PE firms did the NFL approve?
The league selected private equity firms that have experience investing in sports: Arctos Partners, Ares Management Corp., Sixth Street Partners and a consortium that includes Dynasty Equity, Blackstone, Carlyle and CVC Capital Partners. (Hall of fame running back Curtis Martin brought the group together to form the consortium.)
4. Why is PE interested in the NFL?
The NFL’s business has shown no signs of slowing down. The average franchise valuation is larger than in other sports, and the league has a $100 billion media deal, which is large and lucrative. Also, the league is just beginning to grow its international presence. If you’re an investor, all of this looks like a goldmine.
5. Which owners are likely to sell first and why?
A number of NFL sources expect that, now that the floodgates are open, transactions will start to happen quickly. The Los Angeles Chargers, Buffalo Bills, Philadelphia Eagles and Miami Dolphins are among the teams being discussed. The Chargers’ minority owner Dea Spanos-Berberian, for example, has had a 24% stake on the market for more than a year. She’s in the midst of suing her brothers, Dean and Michael Spanos, over allegations that the two were “misogynistic,” “self-dealing,” and had repeated “breaches of fiduciary duty,” according to the lawsuit. The Bills’ Pegula family is selling a 25% stake in the team due to their new stadium being more expensive than anticipated. Bloomberg has previously reported the Eagles and Dolphins are both exploring a stake sale. But because there’s so much money up for grabs, other teams may yet surface.
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