David Rubenstein, co-founder of The Carlyle Group, highlights the significant shift in sports team ownership, noting that valuations have skyrocketed to the point where few individuals can afford to buy teams outright. He cites NFL franchises, now valued at over $10 billion, as an example. This has led to leagues increasingly allowing minority investments from private equity firms and sovereign wealth funds, with Rubenstein suggesting full control by such institutions could eventually happen in U.S. major sports.
Rubenstein, who recently purchased the Baltimore Orioles for $1.725 billion, emphasizes that for many owners, the primary motivation is not financial profit but the competitive drive to win, a sense of civic responsibility, and personal identity. He bought the Orioles partly to contribute to the revival of his hometown, Baltimore, acknowledging that while financial results haven't fully matched his hopes, he enjoys the experience.
Publicly traded sports companies like Atlanta Braves Holdings, Madison Square Garden Sports Corp., and Manchester United plc show high enterprise values ranging from $4.25 billion to $10.69 billion. These companies trade at high EV/sales multiples, from 5.01x for Manchester United to 9.26x for MSG Sports. Despite these high valuations, their cash generation can be weak, with some, like the Atlanta Braves, even consuming free cash ($94.86 million).
Analysts still recommend buying shares in these companies, with implied upsides ranging from 10.84% for Manchester United to 19.42% for MSG Sports, but coverage can be thin. The "scarcity premium" of these assets continues to support their values, even amidst risks like rising player costs and stadium expenses that can impact shareholder returns. Rubenstein notes that ownership has become a visible and enjoyable experience, further fueling demand among the ultra-wealthy.
The growing interest in live television programming has boosted media rights deals, and an exponential increase in wealthy individuals and institutional capital from public pension funds and sovereign wealth funds has driven up team valuations. The emergence of large sports funds from private equity investors also provides crucial capital, though these funds typically maintain passive minority ownership stakes.
