The Journal. - Private Equity Finally Can Get a Piece of the NFL

Episode Date: August 29, 2024

The world’s most lucrative sports league is allowing private equity to buy into teams. WSJ’s Andrew Beaton and Miriam Gottfried unpack why the NFL is opening up, and what it could mean for owners and fans. Further Reading: -Private Equity Ownership Is Coming to the NFL  -College Sports Is About to Turn Pro. Private Equity Wants In.  Further Listening: -Why Three Media Giants Are Betting on Sports Streaming  -ESPN’s Big Bet on an F-Bomb-Throwing YouTube Star  Learn more about your ad choices. Visit megaphone.fm/adchoices

Football is back. Next Thursday, the season kicks off with defending Super Bowl champs, the Kansas City Chiefs, playing the Baltimore Ravens. And there are some big changes coming to the NFL this season, but not on the field. We have breaking news on the NFL. Owners have just voted to approve a rule allowing a portion of NFL franchises to be sold to private equity firms.

This new rule allows owners to sell off a 10% stake in a team to private equity firms. The NFL is the last major sports league in the US to allow private firms to make investments like this. Allowing private equity firms to invest in NFL teams is a big change. The NFL is the biggest sports league in the world with close to 20 billion dollars in annual revenue. So we called up two reporters, our football reporter Andrew Beaton and our private equity reporter Miriam Godfrey.

We're talking about the holy grail of sports for these investors. This is the most lucrative league in sports and it could just be the stepping stone to even more increased and aggressive welcoming of this world that the NFL had long said no to. What are the risks to the NFL? I mean, I think any time you go from not allowing private equity to allowing it, you risk this slippery slope of owners getting too used to this free-flowing private equity money and wanting more and more of it and you risk the league becoming a private equity dominated entity. Welcome to The Journal, our show about money, business, and power.

I'm Kate Leimbach. It's Thursday, August 29th. Coming up on the show, why the NFL is opening up to private equity, and what that will mean for football. Your team requested a ride, but this time, not from you. It's through their Uber Teen account. It's an Uber account that allows your team to request a ride under your supervision with live trip tracking and highly rated drivers. Add your team to your Uber account today. Private equity firms altogether manage trillions of dollars, and they put that money to work

by buying up companies. Usually they come in, clean up a company's operations, fire workers, sell real estate, and flip those companies for a quick profit. Here's our colleague, Miriam Gottfried. In the case of most private equity investments, they're buying either the whole company or the majority of the company in order to be able to completely change the strategy of the company if needed, or to, you know to hire a new chief executive

who will move the company in a different direction. So they're really kind of getting their hands dirty and getting involved in the operations of the company typically. Private equity has used this playbook in all kinds of industries. And recently, they've been looking to invest in sports teams, buying stakes in everything from basketball to baseball, hockey to soccer.

Sports is one of the few things in this world that, you know, in a smartphone dominated world that can command the attention in real time of millions of eyeballs. And I think that private equity firms recognize the value of that. And there's a lot of things that you can sell related to that attention. So it's like a financial play, not a business strategy play. Right, which is very different from the way private equity usually operates. And the league they've perhaps most coveted is the NFL. But the NFL didn't want them. The NFL was sort of doing things in an exclusive and maybe a little bit more, you know, for

lack of a better word, like an old money kind of way. It was like a club of long time owners who had these assets in their families for a long time and have tried to preserve them and sort of be good stewards of these teams. And to the NFL, this new money, this flashy private equity capital sort of seemed like it was just something that they didn't really want to allow in. They didn't want a corporatization of the league. They wanted the teams to be, you know, sort of kept pristine as they were. Okay, so Andrew, our resident NFL expert, how would you describe your sort of stereotypical NFL owner?

The NFL owner has often looked the same. It's usually someone rather old. It's usually a guy. And they spend the game maybe a little bit on the sidelines and most of it up in their luxury box. And for a lot of NFL fans, the team's owners can be subjects of vitriol or celebrity, but in some ways more than other sports,

the owner of an NFL team feels like part of the cast of characters, like along with the quarterback, the coach, and the general manager. Like if you're a Dallas Cowboys fan, the most recognizable part of the franchise for decades has been Jerry Jones. If you're a New England Patriots fan, you know that Robert Kraft has owned and been a key part of the franchise for decades.

And don't forget the Ford family with the Detroit Lions. Exactly. That also speaks to, so many of these teams have been passed down for generations. And so owners and them being actual people and not funds or institutional investors has really been an integral part of the game's tapestry for a long time now. But in recent years, a shift has started to happen. A lot of these team owners have a huge amount of their wealth tied up in this one asset.

And while they had to be very rich to buy this team to begin with, they had to use a lot of their liquid assets to purchase it. And so if they want cash to do something else with their life, they don't have very many avenues to get it besides selling a minority stake in their biggest investment, their team. And their big investments, their teams, have been getting more valuable. Two years ago, the Denver Broncos sold for $4.7 billion. And then last year, there was an even bigger sale. Breaking news, the Washington commander's long-time owners

have officially agreed to sale. The commanders sold for $6 billion. It's the highest price tag for the sale of any North American pro sports franchise Where did that six billion dollar valuation come from? Why was it worth so much money? the NFL is an extraordinarily attractive business to buy into because of Extremely lucrative media rights deals and the fact that there's no sign of it slowing down We're looking at a league that has over $20 billion in revenue annually, a league that had 93 of the 100 most watched broadcasts on television last year.

This is just by far the biggest center of gravity that everything else rotates around in the sports world. So the Washington commander sells for $6 billion and this may have influenced the NFL to start rethinking its position on private equity and institutional ownership. I don't think it's a coincidence to think about that happening right on the heels of the Washington commander's getting sold for $6 billion. That was an eye opening number for a lot of people. And so I think you have this kind of combination of the NFL had been thinking about this, but all of a sudden we're

seeing team values balloon to unprecedented numbers. I think that really put all this on the fast track. So a year ago, the NFL formed a committee of owners to look at the question of allowing private equity money into the owner's box. And I think what the NFL has been trying to study and understand is, is there a way to bring in some of this new money, but in a way that won't damage the product for fans

so that a private equity firm isn't coming in and saying, oh no, we're paying our quarterback too much money or we should trade away this guy or we need to raise the price on season tickets. What the NFL came up to let in private equity. But there are some pretty strict rules. First, only a select group of pre-approved private equity firms can buy stakes, those stakes can't be bigger than 10%, and they can't sell those stakes for at least six years. Why set these limits? I think with private equity there is always this fear of are these corporate raiders going to come in and strip this thing down so that it is the most profitable vehicle

for them. I think that, you know, there are certain things about the practices of private equity that are really jarring to the NFL and they're trying to mitigate what they perceive as negatives. You know, the NFL wants long term ownership of its teams. It doesn't want people going out there flipping their stakes in teams. And I think that they don't want what is perceived to be the most negative about private equity, which is that they go in and push everyone around, fire the CEO, kick out the employees, change up the quarterback because he's not doing a good job.

Change the coach? Yeah, change the coach. This would be a nightmare from the standpoint of the NFL, from the standpoint of fans. The league wants to avoid these perceived negative stereotypes about private equity. And so not giving private equity governance is a way of preventing these firms from truly taking over the strategy of the team. The private equity firms agreed to these terms and now can start trying to buy stakes in up to six NFL teams each, though there is one team that's out of bounds, the Green Bay

Packers, which has a unique community-based ownership structure. After the announcement, Aries Management, one of the approved private equity firms, said it is, quote, excited to support the continued growth of NFL teams. What does this mean for football fans? Will the NFL change? Will we see a change for fans overnight? No, but if you want to think about what a fan's fear

might be about private equity involvement, it might be that a firm takes a look at this and says, you know, we could actually be selling our ticket prices for 20% more and still drawing the same number of fans. And to be clear, we're not at that point. Part of this plan is clear that the firms prices for 20% more and still drawing the same number of fans. And to be clear, we're not at that point. Part of this plan is clear that the firms have no say in the governance of the team. And I think the other sort of broader concern would be, as these firms get more and more entrenched in the sports world,

do you have teams that are vying to have the most successful bottom line or the most successful season on the field that year because When you have people as owners if you ask Dallas Cowboys owner Jerry Jones How many billions of dollars he would pay for to win another Super Bowl? he would probably answer some ungodly number and because he cares about winning more than he cares about And because he cares about winning more than he cares about making a few bucks from the Cowboys. But if you had a private equity firm owning the Dallas Cowboys, would they feel the same way? Would they prioritize a Super Bowl ring over that type of wealth?

Maybe not. And so when you start thinking about the logical end games of how these institutional investors get more and more entrenched, that might be what people are afraid of. Do you think that for private equity that they're like playing a long game? Like they'll take this little restricted slice today in the hope of getting a bigger one tomorrow? It's a great question. And if my many years of covering private equity is any guide, I would say yes. If there's any crack where their money can start to flow in to an industry, the money

will flow. The money will flow. They will find the crack, they will weave their way in, and they will try their hardest to achieve their goal of growing this ownership stake, and potentially maybe even achieving some level of control. And those cracks might already exist. There are already owners within the league who think the 10% number is too low,

and that it should be 20%. So I think the feeling is that this 10% might just sort of be the test balloon and see how it goes. So should we be keeping an eye out for big deals and big sales here? There's been such an eagerness for this to happen that I think there's an expectation that talks are going to go quickly, especially because there is going to be a little bit of competition among the teams to get these deals done. And so everyone's going to be in a little bit of competition among the teams to get these deals done. And so everyone's going to be in a little bit of a race for it.

I'm sure there are some teams that are going to sit back and wait to see what the market looks like, but I'm sure there are others that might have more of an eagerness to get cash or more of an eagerness to be a first mover that we're not talking years here. We're probably talking weeks or months. And what teams do you think we're going to see? That's like asking me to predict the Super Bowl. Your guess is as good as mine. So by the end of this 17-week season, you think there will be a deal already?

I'd be really surprised if at the end of this regular season we didn't see at least one, if not multiple of these. Okay, I like predictions. But none of this is going to matter next Thursday when... Bum-bum-bum-bum! The Chiefs and the Ravens play. That's correct. None of this will matter next Thursday night

when the Chiefs and Ravens play, but it's also kicking off a kind of new era that might look like nothing before. Kicking off a new season, if you will, for the NFL ownership. It's off a new season, if you will, for the NFL ownership. It's definitely a new season for that. That's all for today, Thursday, August 29th. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts.

We're out every weekday afternoon. Thanks for listening. See you tomorrow.