In the heyday, captains of industry rushed to put their fortunes in sports franchises. Part of the motivation was the chance to join an exclusive club and win a trophy. But investments have also done well, as TV and digital rights for games have soared.
Now that stock markets are falling and interest rates are rising, potential buyers are likely to be more risk averse. Either way, two top American sports teams brave the environment. The basketball Phoenix Suns have been put up for sale by their owner after his involvement in a workplace misconduct scandal. The Anaheim Angels baseball team also announced it was looking for a buyer after 20 years of ownership.
The two have paid hundreds of millions of dollars and will likely receive multi-billion dollar payouts. Earlier this year, the Denver Broncos sold for a record $4.6 billion while Chelsea Football Club changed hands for £4.25 billion. These records may not be broken for some time.
Several American sports leagues have recently auctioned off their media rights for vast fortunes. An American college football conference has signed a deal with several networks to broadcast games for $1.1 billion a year, more than double the previous rate.
A similar increase has been recorded in American professional football. S&P expects sports television network ESPN’s annual cash flow to fall 60% by 2025, largely due to the increase in rights fees it owes.
Multi-billion dollar price tags have naturally narrowed the universe of buyers, although the billionaire class is growing. The scarcity of sports teams may support their resale valuations. Institutional capital from specialist private equity funds such as Dyal Capital and Arctos Sports Partners has transformed teams into a more mainstream standardized asset class. But creating such an asset class requires economic returns beyond vanity. This creates a potential disconnect between buyers and sellers.
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