Sports industry negotiations: Capitalizing on the next significant opportunities
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The world of professional sports and esports is witnessing a surge in private equity investment, driven by a combination of factors that promise growth, profitability, and exit opportunities.
On December 11, 2024, the Buffalo Bills and Miami Dolphins sold minority ownership shares to private equity firms, marking just one example of this trend. The formation of Enthusiast Gaming and its US$20 million term loan are other examples of esports joining the world of sports-focused dealmaking.
Strong revenue growth and profitability in sports properties attract private equity. For instance, TKO’s reported 75% EBITDA growth and new lucrative media rights deals, such as the WWE-ESPN agreement, demonstrate robust financial performance and expanding cash flows, making sports assets appealing targets for investment.
Increasing media rights values and streaming partnerships create new monetization opportunities that enhance returns. Sports organizations partnering with major broadcasters and streaming platforms improve visibility and revenue, enticing private equity.
Technological innovation and integration of AI and digital platforms have transformed both traditional sports and esports, broadening fan engagement and revenue streams. Companies like Sportradar use AI-driven data and premium content offerings to accelerate growth and margins, appealing to investors focused on scalable digital assets in sports.
Growth in esports and cryptocurrency gaming sectors with evolving regulatory clarity and advanced technologies offer new high-growth investment frontiers. Institutional investors are attracted to the innovative use of blockchain, crypto betting, and Web3 integration in gaming that diversify portfolios and offer risk-adjusted returns.
Consolidation and M&A activity in sports and fitness sectors reflect private equity’s strategic moves to scale operations and extract value in an expanding market. Notable large deals reinforce confidence in the sector’s growth prospects and operational leverage.
In Europe, franchises are becoming increasingly popular with overseas fans and investors. NFL owners recently allowed private equity to acquire ownership stakes in individual franchises, breaking with historical ownership requirements. Three of the five most prominent private equity sports deals last year involved Europe's top soccer leagues. Arctos Partners acquired a minority stake in the French soccer club Paris St-Germain for US$4.3 billion last year.
Canada has also been a destination for sports-focused dealmaking. The Calgary Sports and Entertainment Corporation recently advised on the development of a new CA$800 million arena in downtown Calgary. The recently announced CA$4.7 billion acquisition of BCE Inc.'s ownership stake in the Maple Leaf Sports and Entertainment franchise by Rogers Communications is one of Canada's largest transactions for 2025.
Enthusiast Gaming, a publicly listed esports franchise in North America, was formed and advised on a US$20 million term loan. Dealmaking activity in professional sports reached a total value of US$25 billion in 2023, with private equity funds spending a total of US$5.4 billion on gaming deals, the highest deal value since 2016.
The gaming market was a roughly US$184.4 billion industry in 2022, with continued growth expected. Ares Management acquired a minority stake in the English soccer club Chelsea FC for US$500 million last year, illustrating the global nature of this investment trend.
Investment in professional sports has entered the global arena. CVC Capital Partners acquired a majority stake in the Formula 1 franchise in 2006, marking the start of private equity investment in professional sports. NBA and MLB teams are the top private equity targets, but investors are branching out to other sports.
The increase in private equity investment in professional sports and esports is a testament to the industry's potential for growth and profitability. As regulatory clarity emerges and technological advancements continue, we can expect this trend to continue.
The authors would like to thank Patrick Lajoie for his significant contribution to this article.
References:
- ESports Business
- Pitchbook
- Sportradar
- CoinDesk
- BCG
- Investors are eyeing the real-estate-like potential in the rapidly growing esports market, as the formation of Enthusiast Gaming and its US$20 million term loan show, following the trend set by professional sports.
- With the rise in private equity investment in professional sports and esports, it seems that finance opportunities in sports properties, fueled by robust financial performance, advancing technologies, and new monetization strategies, are becoming increasingly attractive for investors.
