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NBA plans private equity investments in teams

NBA plans private equity investments in teams

NBA Commissioner Adam Silver addresses the media ahead of the Miami Heat match against the Los Angeles Lakers in the first game of the 2020 NBA Finals as part of NBA Restart 2020 on September 30, 2020 at AdventHealth Arena at ESPN Wide World of Sports Complex in Orlando, Florida.

Jarrett Ellwood | National Basketball Association | Getty Images

Property requirements.

It’s a phrase that NBA Commissioner Adam Silver used in 2019 to help frame the allure of becoming a sports owner. Silver suggested that the NBA could motivate those looking to join the club, even at the minority level.

The NBA’s plan to attract private equity money is underway, and it is betting on the lure of owning limited partnerships in its clubs will pay off.

With ratings in clubs soaring to astronomical heights, the NBA joined the hunt for private equity when owners approved a plan to allow investment firms to own stakes in teams. NBA executive GB Lockhart He is one of the individuals overseeing this strategy and the university has chosen Dyal Capital as its partner.

It’s the way it works: The NBA collects stakes in clubs and sells them to private equity firms like Dial, which can then technically sell Limited Partnerships (LPs) to private investors. Last May, I mentioned Barron Dyal was seeking $ 2 billion to buy LPs.

Some in the private equity space praise the NBA move and even try to tie it to a more global game.

Pros and cons of PE

By switching to private equity, the NBA is requesting more capital for its league, and it can strike faster deals to help with cash and fund its future endeavors.

Also, the NBA ratings are on the rise. The club now averages over $ 2 billion, and its last two franchises (Brooklyn and Utah) sold an average of $ 2.45 billion when you think of Nets owner Joseph Tsai. Paid $ 1 billion For Barclays Brooklyn Center in a separate deal.

Consequently, the league needed to expand its investor base so that minority stakes became prohibitively expensive.

“This provides the NBA, its member teams and its entire infrastructure with financial options,” said Chris Lynchsicky, president of the private equity consulting firm Phenicia. Assistant professor at Columbia University.

Allowing private equity investments will also help minority owners looking to sell and exit property groups. On the majority side, owners who want to recover from Covid-19 losses by selling stocks can also profit.

Lynchsky, who is also CEO of Winning Streak Sports at Granite Bridge Partners, sees the NBA’s global “economic moat” as a magnet for investors as there is unlikely to be any viable competition for high-level professional basketball. Plus the league is backed by global licensing, merchandise, sponsorship, and nearly $ 2.5 billion in annual media rights income, which lasts through the 2024-25 season.

But this step is not without risk.

Addressed the NBA rankings segment at the 2019 Sports Business Journal’s Bargain Makers Conference, Silver described the cable TV model as “brokenAnd youth league viewers added, “They bust the traditional cable.”

So if the media rights price drops as cable subscribers continue to cut the rope, valuations may drop and investors could lose their money on liquidity providers. A sports banker pointed out 2009 when ratings decreased Given the poor economy as proof that the NBA is not immune to a downturn due to the economic turmoil either.

Few would have expected the sudden stop 40% in revenue Because of the epidemic.

But it can help her attract the audience.

Anthony Davis # 3 of the Los Angeles Lakers strikes the ball against the Miami Heat during the fourth game of the NBA Finals on October 6, 2020 at AdventHealth Arena in Orlando, Florida.

Nathaniel S. Butler | National Basketball Association | Getty Images

SPAC play

Dyal Corporation and Owl Rock investment company have merged with Altimar Acquisition Corporation, a $ 275 million Special Purpose Acquisition Company (SPAC) currently trading on the New York Stock Exchange, Allow merged companies to go public. The new company is called Blue Owl, and public sector investors will soon be able to invest in it under the ticker symbol.owlOn the New York Stock Exchange later this year.

One of its attractions will be the NBA Fund.

Dial did not respond to CNBC’s request for comment, but managing partner Michael Rees spoke about the company’s NBA strategy on December 23. Call the US Securities and Exchange Commission Blue Owl launch plan announced.

“We are proud to be a partner, Exclusive Partner, with NBA, the National Basketball Association, as we are the only approved buyer for a portfolio of minority stakes in 30 NBA teams,” said Rees, according to the transcript. “This business is just launching, and we hope to have a first shutdown in the not too distant future.”

“We think we can certainly develop a very attractive basketball strategy from this platform, but it is also possible to expand into a wider sporting activity that could have a huge positive side,” added Reese, who will also act as one of the co-chairs of Blue Owl. .

It is not clear what Blue Owl’s overall sporting strategy is, nor how it expects to make a return on NBA LPs. A person close to the planning told CNBC that it will buy stakes in some clubs, not all 30 teams.

When discussing the NBA private equity game, the Wall Street CEO said companies don’t make any money in credit capital until they sell something. The person requested anonymity due to the sensitivity of discussing the matter publicly.

The chief executive, who has a long history in private equity, also asked how private companies would achieve any return on $ 2 billion. A longtime sports executive, who also requested anonymity, indicated that NBA teams could redistribute annual dividends to new investors.

Therefore, if a private company was betting on sports teams as a long-term game, it could earn from club revenue while maintaining LPs through dividends. Then, it can sell the liquidity providers at a higher price.

And with such a global product from the NBA, billionaires around the world looking for an entry point into American sports could be potential consumers of NBA gear.

The Qatari President of Paris Saint-Germain Nasser Al-Khulaifi arrived to attend a training session at the Luz Stadium in Lisbon on August 22, 2020, on the eve of the UEFA Champions League final match between Paris Saint-Germain and Bayern Munich.

Miguel A Lopez | Agence France-Presse | Getty Images

Foreign investment is an option?

Private firms can buy LPs and then sell them in the secondary market. If the NBA went the private equity route, there would be guidelines in place, but it would lose some control over who LPs are sold to.

Foreign investors can be a way for companies to make money from LPs.

There is talk of Middle Eastern investors as future buyers of minority stocks. The NBA bans sovereign government investment in its teams, but investors from Abu Dhabi, Dubai and Qatar have been linked to the league before. In 2010, rumors circulated of investor interest in it Buy Detroit Pistons.

Lynchieski added that the NBA could also use the private equity investment tool to screen individuals who might be looking to buy majority positions in teams at a later time. The sports director used Tsai’s entry as an example. Paying Russian billionaire Mikhail Prokhorov $ 1 billion for 49% Stake in Brooklyn Nets in 2018 before taking full control.

Lynchsky cited David Tepper’s entry into the National Football League as another example.

One of the many factors that definitely helped Charlotte’s ownership in the NFL was minority interest in the beginning In Pittsburgh Steelers, “He said.” If David Tepper doesn’t see the way the Steelers operate, he understands what the best-in-class organization looks like when he goes to his NFL teammates and says, “I want to buy a team,” he has the money, but most importantly for the Football Association The American, he understands the culture of the winning sports organization that focuses on society. “

The NBA appears to be bullish on its product. Live sports still kept the cable model from falling apart. The league continues to produce world stars to protect its economic moat. $ 8.3 billion in revenue. And the NBA credit at Good situation.

The new focus of the NBA is expanding the list of those seeking ownership supplies via private equity.

“You get some perks of being a team owner,” Silver told SBJ, According to SportsPro. “So it is not just pure,” What is a financial return investment? “Not that this isn’t important, but try to approach some of the same reasons that traditional franchisees buy in teams.

“Part of it is financial, but part of it is the comforts, the vitality, and the desire to participate directly in these tournaments,” Silver said.

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