Private Equity Is Coming To Professional Sports

Arctos Sports Partners has acquired a 5% stake in the Golden State Warriors, valuing the team at $5.5 billion — but what does this mean for the future of professional sports ownership?

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Friends,

When a group led by Joe Lacob and Peter Guber paid an NBA record $450 million for the Golden State Warriors in 2010 — outbidding billionaire Larry Ellison in the process — a majority of the sports world was left scratching their head.

Now, no one is laughing.

Arctos Sports Partners, a private equity firm with about $1 billion in assets under management (AUM), purchased a 5% minority stake in the Golden State Warriors last week — a deal that values the team at $5.5 billion.

That represents a 23.2% annualized return for Joe Lacob, Peter Guber, and the rest of the Warriors ownership group since 2010.

After drafting Stephen Curry in 2009, the Golden State Warriors saw their fortunes turn. The bay area team made the playoffs for nine straight years, participated in the NBA Finals five straight times, and won three world championships in the process.

That success led to financial expansion.

The Warriors now rank among the top of the league in home-game attendance and saw their revenue skyrocket accordingly. At $440 million last year, no team in the NBA brought in more revenue than the Warriors.

Here’s how the Warriors revenue has trended over time:

  • 2010 Revenue: $139 million

  • 2019 Revenue: $440 million

After seeing their on-court performance translate into multiple championships and league-high attendance numbers, the Golden State Warriors opened the Chase Center in 2019 — a brand new $500 million arena in downtown San Francisco.

Even better?

Unlike their in-state rival Los Angeles Lakers, the Warriors own, operate, and even act as landlords to corporate partners like Uber on the property.

That’s only added to their status as a top-3 most valuable NBA franchise.

For me, Arctos Sports Partners buying a minority stake in the Golden State Warriors represents a larger shift in institutional capital allocation.

With the average professional sports organization across the NFL, NBA, MLB, NHL, and Premier League, increasing over 500% during the last decade, professional sports teams have proven to be premium, scarce assets with a strong history of price appreciation.

Combine that with the fact that there is a shrinking pool of billionaire investors willing to write a $100M+ check for minority ownership — where they get tickets to every game but rarely have control over anything else — and we are about to see a fundamental shift in the ownership structure of U.S. professional sports.

What do I mean?

Institutional investors want in.

While it’s true that institutional funds have strategically invested in professional sports teams & leagues in the past — think CVC Capital partner’s ownership of Formula One — we are about to see a shift like never before.

After the NBA changed its rules, now allowing institutional investors to purchase minority stakes in multiple NBA franchises, we’ve already seen several institutional funds start to raise capital.

In addition to Arctos Sports Partners, names like Dyal Homecourt Partners, Galatioto Sports Partners, and others have raised billions of dollars collectively. As professional sports teams continue to be diversified investments with a strong record of price appreciation, more funds will look to join the party.

The other part no one is talking about?

Minority stakes in professional sports teams historically trade at a ~30%-40% discount due to various factors, including a lack of liquidity, but if more institutional players get involved, that discount should theoretically shrink — potentially increasing the number of minority owners willing to sell.

Ultimately, Arctos Sports Partners buying a 5% stake in the Golden State Warriors is just the start. I’m more interested to see what happens next.

For example, does an increase in institutional involvement mean more teams will become publicly traded?

Time will tell, but my guess is yes.

Have a great day, and we’ll talk tomorrow.

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