A “record” £3.2bn of sports team acquisitions was secured by private equity funds in the year ending 31 August 2021, almost treble the prior year’s total, according to BDO LLP.
It found that private equity funds have increasingly targeted football, rugby and Formula 1 teams, and in the last year, there have been 11 private equity purchases of stakes in sports teams worldwide, including football clubs Inter Milan, Atletico Madrid and Burnley as well as Formula 1 teams Williams and McLaren.
In recent years, the funds have also acquired football and rugby competitions in Europe as well as professional skateboarding and American football leagues in the US.
BDO said that as PE funds seek to deploy large amounts of capital, they are “increasingly looking towards new and previously untapped markets for acquisitions”.
It added that sports teams have historically been seen as “less consistently profitable” and higher risk as an industry segment, as well as susceptible to relegation and promotion.
However, it noted some institutions believe that is because many teams are still “commercially underdeveloped, offering an opportunity for them to add significant value”.
It advised that the value of sports teams can be increased through expanding global presence, sponsorships and other commercial partnerships. It added that the biggest clubs now have multiple tiers of global and regional partners, and linkages with other academies, clubs and sports brands around the world.
According to BDO, by combining commercial partnerships with traditional and recurring revenues from TV deals, tickets and team merchandise, the sports team business model can be made more profitable and sustainable in the long term.
Nonetheless, it warned there is still risk for PE funds seeking to make acquisitions in the sector, noting that the “deep-rooted nature of team loyalty means that owners who are not seen to engage with fans in good faith about the direction of the team can become deeply unpopular, damaging the value of their investment”.
Harry Stoakes, partner at BDO, said: “For PE funds, a deal for a sports team makes more sense now than ever before. The pathway to commercial success for teams is much clearer and funds have a great deal of capital to make these acquisitions.
“A lot of sports teams have not yet reached their commercial potential and a growing number of PE funds see that as an opportunity.”
He added: “The passion and loyalty of fans is unlike anything PE funds are likely to have experienced even when investing in the highest-profile consumer brands. Funds must ensure that they bring the fans along with them when they make changes to sports teams they own. There is significant risk for investors who take fans lightly.”