PE investors in sports need a great value creation gameplan

Ross Gordon, Head of Odgers Interim’s EMEA Private Equity Practice, and Bambos Eracleous, Partner for Sports, Media & Gaming, explore why sports businesses have become increasingly attractive to PE investors – and how they can create portfolio value in the sector.

Time was, when you said PE in a sporting context all it conjured up was physical education lessons at school. Dingy gym halls, muddy cross-country suffering, missing socks. Fun, fun, fun.

Now, in an era of massive Sports businesses, should anyone mention PE it is Private Equity that springs to mind. With the right deal and a sound value creation strategy in place, there are potentially stadium-sized returns to be made.

Yet doing so is far from easy. Due to the macroeconomic picture, it has been tough going in the PE space of late. KPMG figures point to a 10% decline in PE activity in the UK during 2023, while other research finds that returns from PE funds plunged to their lowest level since the financial crisis 15 years ago, with market conditions impeding exits.

None of which changes the fact that PE funds are continuing to weigh up Sports opportunities in the knowledge that there have already been blockbuster triumphs. In 2015, ‘The Guardian’ lauded CVC Capital Partners as “the biggest winner in the history of Formula One” for the returns it generated from investment in F1’s parent company – making more money out of the sport than even impresario Bernie Ecclestone, for decades the face of Grand Prix motorsport.

F1 continues to prove attractive to PE, as shown by recent investments into the Aston Martin team by Arctos Partners and Renault’s sale of a 24% stake in its Alpine team to a group of three investors: RedBird Capital, Otro Capital and Maximum Effort Investments. The latter is the vehicle of Hollywood superstar Ryan Reynolds, now also known for his investment in football club Wrexham (for more on the fascinating blurring of lines between Sport and Entertainment, read Bambos’ insightful new piece on sports-adjacent content. 

RedBird, however, is a true PE heavyweight with a hearty appetite for Sports. In 2022, it completed the acquisition of Italian footballing royalty AC Milan – which for 30 years was famously in the hands of the late controversial politician and media tycoon Silvio Berlusconi.    RedBird’s portfolio of global sports and entertainment investments includes Fenway Sports Group (Liverpool FC, Boston Red Sox, Pittsburgh Penguins), Toulouse FC, Rajasthan Royals and Indian sports technology company, Dream Sports.

According to PitchBook, more than a third (37 out of 96) European football clubs in the ‘Big Five’ leagues this season have financial backing from private equity, venture capital or private debt firms. Similarly, PitchBook found that over a third of the 153 major professional men’s sports teams in the US, those comprising the MLB, MLS, NBA, NFL and NHL, are partly owned by private equity groups.

The colossus that is NFL – incredibly, American football accounted for 93 of the 100 most watched broadcasts in the US in 2023 – has formed a special committee of five owners to consider ending a block on PE funds amid concerns over succession planning and tax liability costs faced by owning families now that team valuations have soared, as underlined by last year’s record $6 billion sale of the Washington Commanders.

Soaring values have of course piqued the interest of PE investors. We have seen the emergence of Sports-focused PE players such as Bluestone Equity Partners and Dynasty Equity, while in 2022 Ares Management announced it had raised $3.7 billion of dedicated capital focused exclusively on investing in sports leagues, sports teams and sports-related franchises, as well as media and entertainment companies. Buoyed by its success in F1, CVC subsequently struck further Sports deals including Six Nations Rugby, the Women’s Tennis Association, Spain’s La Liga football, France’s Ligue 1 football and Volleyball World.

More PE investment in Sports is undoubtedly on the way – there is no need to turn to VAR to judge the scale of the opportunity. But while Sports teams and organisations can seem like trophy acquisitions given the passions they arouse and silverware they may accrue, resting on laurels is not an option. Like all good PE transactions, success hinges on creating value during the lifecycle of the deal.

Here, the strategic use of interim talent may play a vital role, either pre- or post-investment. Delivering on value creation is the crux of achieving an exit with acceptable, or even glorious returns down the line. In Sports businesses, where supply chain optimisation is less of an issue than in others fields, that may rest on using technology to cut costs and drive back office efficiencies; building and extending brand reach, for example through sponsorship and media deals, unearthing and developing new revenue streams, perhaps through innovative partnerships; investment in facilities and in improving the fan experience; and much more besides in what can be a long list. There is without doubt an array of levers to try.

At Odgers Interim, we have a strong bench of top division talent with Sports sector and PE knowledge. We are in shape and ready for the call. Some have posited that the PE Sports boom may be a bubble, but in our view more investors will be joining the game. And playing to win.