The National Basketball Association is willing to play ball with sovereign, pension and endowment funds, provided those investors pass the money.
NBA owners recently voted to allow increasingly greedy institutions to buy relatively small and passive stakes in league teams, sports publication Sportico reported Thursday. The league had previously authorized investments by private equity funds.
New entrants will operate on similar terms, whereby minority investments are approved by the league on a case-by-case basis and do not allow the funds to have a say in running the business. Private equity funds cannot own more than 20% of a single team, and no team can sell more than 30% to a combination of these investors.
Key points to remember
- NBA owners have voted to let sovereign wealth funds, pensions and endowments buy minority stakes in league teams.
- The league already allows private equity stakes, limiting them to 20% for a fund and 30% in total per team.
- The NBA is following the money as fund flows to alternative investments soar.
- The sale of the team’s holdings to some sovereign wealth funds risks sparking controversy over countries’ human rights records.
NBA team holdings are among the alternative investments that have been all the rage: the asset class was valued at $13 trillion at the end of 2021 and is expected to reach $23 trillion by 2026. Portfolio allocations to alternative investments by state and local public pension funds have risen to 34% this year, from 9% in 2001, according to one estimate.
Since alternative investments traditionally have less correlation with those of public equity and bond markets, they have reduced the volatility of portfolio returns.
NBA teams, like North American sports franchises in general, have a particularly lavish record of recent performance as investments. Team values have quintupled in a decade, bringing the estimated value of the average NBA team to nearly $2.6 billion.
The league’s increasingly lucrative long-term television contracts insulate it from the effects of economic downturns.
The popularity of the NBA also increases the risk that minority investments in its teams will be used by sovereign wealth funds to legitimize repression by the governments that run them. The English Premier League drew criticism last year after it let Saudi Arabia’s Public Investment Fund acquire 80% of football club Newcastle United.
Manchester City in the same league is owned by the Abu Dhabi Royal Family Investment Group in the United Arab Emirates (UAE). Qatar’s sovereign wealth fund has owned French football club Paris Saint-Germain since 2011 and now markets a minority stake in the team.
NBA commissioner Adam Silver avoided concerns about the UAE’s human rights record and anti-LGBTQ laws by announcing NBA exhibition games in the country earlier this year.
The NBA has also found itself embroiled in political controversy in China. League games were banned from Chinese television for nearly three years after an NBA team executive tweeted his support for Hong Kong protesters demanding democracy.
