The NFL permits investment by Private Equity
Co-authored by Rebecca Bell, Trainee Solicitor
The NFL permits investment by Private Equity
On 27 August 2024, the NFL announced that it would permit Private Equity (PE) to invest in its teams, having been the last of the major sports leagues in the US to prohibit its involvement.
NFL ownership rules
Until the NFL owners’ vote to approve PE investment, the league had stood apart in prohibiting PE stakeholders in its teams, with each of the MLS, MLB, NBA, NWSL and NHL welcoming PE investment. Although the decision to alter the NFL rules and permit such funding marks a step change in approach, the entry of PE funds will be highly regulated, with the NFL itself describing it as “a measured first dip in the pool”.1 Not only that, but the rule change has been subject to extensive consideration. In 2023, the NFL appointed a special committee on ownership policy, with the mandate to consider PE involvement in the sport, which put forward several proposals to the NFL owners to unlock this source of investment.
The NFL has drawn up a list of “permitted funds” which may hold stakes in league teams, each of which it has “vetted”: Arctos Partners, LP; Ares Management Corporation; Sixth Street; and a consortium group including Blackstone, Carlyle, CVC, Dynasty Equity and Ludis. What the vetting process involved, or whether the NFL intends to vet other funds for inclusion on the permitted list in the future, is unclear. Sovereign wealth funds and pension funds remain barred from direct investment, although they may indirectly participate through a maximum 7.5% ownership of a permitted fund. Funds wanting to invest in NFL teams will have to commit to at least six years before exiting, a requirement designed to encourage longer term investments.
Minor players?
The NFL has the tightest restrictions on the scale of PE investment of any of the major US leagues, capping the permitted percentage of PE ownership of a team at 10% (the NBA, MLB and NHL cap this at 30%, with between 15-20% permitted to be held by a single fund). Multiple funds may make up the 10%, but their individual stakes may be no smaller than 3%. Therefore, whilst the recent NFL rule change has opened the door to PE participation, such participation is still more restricted than in other US sports.
European football entities have taken a more accommodating approach to PE. Several English Premier League (EPL) teams are held by funds or consortiums, including Chelsea, which is largely owned by American Clearlake Capital (read our 2024 report into EPL ownership trends: Premier League ownership report reveals trends shaping the future of the game | Global law firm | Norton Rose Fulbright). French Ligue 1 teams are permitted to be held by PE funds outright, as are those competing in Italian Serie A, whilst Bundesliga participants may be backed by PE so long as the league’s unique 50+1 rule, whereby members of the club itself must hold at least 50% plus one of the voting rights, is upheld.
Private Equity’s love of sport
Despite such strict regulation, PE funds’ appetite for sports investment may well extend into any new offerings by the NFL. Sports investments are often touted as being uniquely insulated from wider market downturns in a way that more traditionally PE-backed industries are not. Despite often complex governance arrangements that must be conformed with, including potential exit restrictions that can delay or impact profit realisation, PE continues to show its love of sport even through minority holdings. Arctos Partners’ purchase of a stake in Aston Martin F1’s holding company, AMR Holdings GP Ltd, at the end of 2023 reportedly does not offer the fund decision-making sway over the team,2 but rather exposure to the rapidly growing motorsport and the profit potential offered by the myriad of media opportunities associated with it. For governing bodies it is, however, a balancing act between offering a sufficiently enticing investment prospect, and preserving the essence of the sport itself for participants and fans alike.
Looking forward
The NFL’s rule change may have seemed inevitable against the backdrop of the ever-increasing team valuations, with the 2023 sale of the Washington Commanders breaking $6 billion,3 but time will tell as to whether the NFL’s initial regulation of PE investment has struck the right balance.
1. https://www.nfl.com/news/nfl-owners-vote-to-allow-private-equity-funds-to-buy-stakes-in-teams
3. https://www.nfl.com/news/nfl-owners-approve-sale-of-washington-commanders-to-josh-harris-group