There is more than one way to bet on the Kansas City Chiefs or the Boston Bruins.
People who really want to have a stake in professional sports can invest in a team, as well as putting a side bet on a favorite.
Historically, investing in professional sports franchises has been limited to the very wealthy, but that situation is changing, according to Dylan Kremer, co-chief investment officer of Certuity, a $4 billion RIA based in New York City that specializes in investing in professional sports.
“Investing in pro sports teams provides growth opportunities that are uncorrelated to the rest of the market and can be an attractive diversifier for portfolios,” Kremer said in an interview. Although the investment requires weighing different factors than those involved in a more traditional investment “there are tangible drivers that support the [increasing] valuation trends over the past decade, such as larger media rights deals, rising game-day revenues, and asset scarcity.”
Within the U.S. there are 150 major sports teams with four major sports leagues, Major League Baseball, the National Hockey League, the National Basketball Association, and the National Football League. Not all teams or leagues permit public investing and, even when they do, there are strict and differing rules that need to be adhered to. And there is more to be considered than just the star power of the players. The assets of a major franchise can include media rights, merchandise and real estate.
When those issues are taken into consideration, investing in professional sports can provide rare opportunities, Kremer said. For instance, the NFL’s Green Bay Packers are famously fan-owned. The team is the only community-owned team in the U.S. with 360,584 stockholders. None of the stockholders is allowed to hold more than 200,000 shares, or about 4%, of the total 5,011,557 shares.
Over the past 25 years, the growth in returns for the four American sports leagues has outpaced the S&P 500 by roughly 5%, Kremer said in a recently released white paper, “Professional Sports Market Insights: The Top 6 Things Investors Should Know.”
Since 2007, the four major U.S. sports leagues and European soccer have all shown positive results. The NBA is the clear winner, with valuations growing by just under 8% due to its global presence, prominent player base, institutional-friendly investor guidelines, and attractive media assets, but the others also have grown, according to the white paper.
The professional sports market is diversified, attracts substantial capital, and may provide attractive investment opportunities, including potential access for high- and ultra-high-net-worth investors, family offices, and institutions. As investors continue to seek diversified investment opportunities that extend beyond traditional asset classes, the realm of sports presents an attractive prospect, Kremer said.
“As investors continue to seek diversified investment opportunities that extend beyond traditional asset classes, the realm of sports presents an attractive prospect. The projected continued influx in capital and activity should lead to more investment opportunities,” he added. “Understanding the market requires a comprehensive understanding of the intricate dynamics that drive value for the sector, leagues, teams, and ancillary businesses.”
The holding companies that make up the franchises also manage such things as the broadcasting rights, merchandise sales, arena operations, licensing agreements and real estate ventures.
Kremer warned that investing in professional sports can carry more challenging barriers to entry than many traditional businesses.
At the same time, “an investment in professional sports may provide private equity-like returns, while reducing risk by, among things, increasing portfolio diversification. This means that the performance of sports investments tends to be less influenced by market fluctuations, providing a ballast against economic uncertainties,” Kremer explained.
An investor exploring the opportunities of putting some of his or her money into professional sports has to be willing to tie the money up for the long term – at least seven years.
“Other significant barriers include accessing deal flow, meeting investment minimums, dealing with cross-ownership provisions, and complying with league-specific ownership regulations,” he said. “It is critical to evaluate an operating group's expertise and skillset in managing a sports franchise effectively, considering the complexities.”
Professional sports investing also is subject to the risks inherit in any live event, as was made evident during the Covid 19 pandemic, when limited live audience were permitted.
In addition to conducting the fundamental research needed for any investment, “it is critical to understand the underlying investment structure,” Kremer warned. “For instance, investing in an unprofitable team may necessitate investors to contribute additional capital annually. Due diligence is key, and includes not only market risk factors, but research into specific sports leagues or teams of interest in order to understand the associated risks.”
But in the end, “the professional sports market presents a blend of financial opportunity, portfolio diversification and emotional connection” not found in more traditional investments, the sports firm executive said.
While the allure of being associated with storied sports franchises and celebrated athletes is obvious, understanding this market requires a comprehensive understanding of the intricate dynamics that drive value for the sector, leagues, teams, and ancillary businesses, Kremer said.
“It is difficult to make a recommendation about how much of a portfolio an investor would want to put into a sports franchise, but under 5% might be prudent," he said.
“From an investment perspective, this type of commitment is not for vanity,” Kremer said. “It is just a good investment opportunity for those who understand the market.”