Sports Investment Boom confronts danger from escalating Climate Risks
Asthe value of sports soars, escalating environmental crises are gaining attention among investors. Climate risks, with their potential to jeopardize operations and returns, are being factored into the decision-making process by shrewd investors.
The global allure of sports, coupled with lucrative media rights and potential for substantial returns, is drawing in private equity firms, sovereign wealth funds, institutional investors, celebrities, and athletes. no longer just trophy assets, men's and women's sports offer viable investment opportunities.
Investors remain optimistic, even amidst economic challenges. Mark Cuban, Rashaun Williams, and Steve Cannon have launched a sports-focused private equity fund, aiming to raise $750 million for investments in NBA, MLB, and NFL teams. Rory McIlroy and TPG, alongside Standard Chartered, have also announced sports investment funds in recent weeks.
The Climate Crisis and its Impacts on Sports Investments
The lure of financial prospects is strong, but the intensifying climate crisis poses risks for sports investments. By 2050, corporate exposure to climate risks could triple, potentially putting more than $1.14 trillion in market value at risk for companies on the world's largest stock exchanges.
Particularly vulnerable are sports organizations, which rely heavily on physical infrastructure and scheduled events. As climate hazards vary geographically, investors must contemplate how exposed their portfolios are to physical climate risks, as confirmed by Daniel Keir, climate resilience specialist at Zurich Resilience Solutions. Risks might include flooding, wildfires, extreme heat, storm surges, and other severe weather events; for instance, NFL stadiums could face an estimated $11 billion in climate-related losses by 2050.
Beyond direct impacts on infrastructure, sports face financial risks stemming from the climate crisis. Organisers might face increased insurance premiums and revenue disruptions from ticketing, sponsorship or broadcast if events are cancelled or altered. Misaligned values could lead to missed revenue from potential sponsors with a strong sustainability ethos, while partnering with unethical or polluting organisations could cause reputational risks.
Navigating ESG and Climate Risks in Sports Investments
Despite growing awareness of these issues, ESG considerations are not yet central in every sports investment decision. "If the internal rate of return doesn't stack up, ESG won't save the deal and if the IRR is strong but there are climate risks, the investment can still go ahead," explains Michael Broughton, founder of Sports Investment Partners LLP.
Climate risks may eventually rise to prominence when they could have a tangible impact on forecasted cash flow, and they are already a consideration. The United Nations-supported Principles for Responsible Investment encourage investors to incorporate ESG issues into their analysis and decision-making processes.
The significance of these considerations might be more pertinent for smaller sports clubs, as a more direct link can be drawn between climate-related issues and core revenue drivers like match-day viability and income.
Beyond financial risks, which are naturally the focal point of investments, reputational risks also demand attention. Given the heightened media attention and scrutiny in sports, addressing "changing consumer preferences regarding transparency and ethical behavior" is crucial, asserts Philip Cronje, business unit manager of Aon South Africa's sports, recreation, and entertainment division.
Capitalizing on the Opportunities and Mitigating the Risks
The integration of climate risk and ESG factors in sports investments is evolving quickly. As the financial implications of climate change become increasingly clear, investors are likely to place greater emphasis on sustainability and scrutinize risk more closely. Although climate risk or sustainability may not yet be deal breakers in many sports investments, investors should consistently engage on these issues when considering any opportunity in the sector.
Aligning investment strategies with this engagement can safeguard and future-proof assets, and it can also unlock upsides through fan trust and sponsorship appeal. In the turbulent sports investment landscape and accelerating climate crisis, prioritizing climate risk and sustainability is not just a box-ticking exercise. It is a strategic imperative that is fundamental for success. Austin Clack encapsulates this sentiment well: "Investors should recognize that climate risk is not a distant concern but an immediate financial reality that must be factored into investment strategies immediately."
- In the sports investment realm, climate risks, such as flooding, wildfires, and extreme weather events, concern investors due to their potential impact on infrastructure and financial returns, with over $1.14 trillion at risk for companies on global stock exchanges by 2050.
- Organizations in the sports industry, relying heavily on physical infrastructure and scheduled events, are particularly vulnerable to climate hazards, and investors are urged to evaluate their portfolios' exposure to these physical climate risks.
- Sustainability considerations, though growing in importance, are not yet central in every sports investment decision, yet they could have a tangible impact on forecasted cash flow, necessitating closer scrutiny.
- Recognizing climate risk as an immediate financial reality, investors should prioritize mitigating these risks, align investment strategies with sustainability efforts, and engage in discussions on climate change and ESG factors in the sports sector to safeguard assets and unlock upsides through fan trust and sponsorship appeal.
