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Ropes & Gray attorneys provide timely analysis on legal developments, court decisions and changes in legislation and regulations.
Amanda Persaud: Welcome, everyone, to the R&G Dugout, a new podcast series brought to you by Ropes & Gray. We’re really excited about this new series because for the first time, we’re going to be focusing broadly on sports investing, including sports in the context of media and entertainment.
Before we dive in, I’m Amanda Persaud, a private funds partner in the asset management group, based in New York City.
Erica Han: I am Erica Han, a partner in our intellectual property transactions group at Ropes & Gray, and I am based in Boston.
Patrick Dorime: And I’m Patrick Dorime, a partner in our private capital transactions group, based in New York.
Amanda Persaud: We landed on the name “dugout” for the series, in case you were wondering, because just like a baseball dugout, we are hoping to use this podcast really as a way for us, as lawyers at Ropes, to gather as a team together, with sports industry insiders and with investors, to spend time with you on multiple episodes that we’re rolling out starting today and throughout next year with the goal of unpacking all things sports investing. The reason we’re doing this is because having inhabited the transactions, litigation, and regulatory space in sports now for many, many decades, doing this on a global and domestic level, we are seeing transformations happening across the board in spades.
Erica and Patrick, you both have done quite a bit in transactions—and, Erica, in your case, in the IP space—for many years. I’m coming at sports from the fund formation side. What I’m seeing is really exciting because it feels like the sports industry as a whole is at this incredible inflection point. Ownership rules are changing across multiple professional leagues—that’s been happening now for years. We’re also seeing this transformation in college athletics, where it feels like the rules are being entirely rewritten. Then, at the same time, there is so much interest coming from private capital that wants to invest in sports and sports-adjacent businesses.
As I step back and see all of this enthusiasm, I’m also thinking about all the questions that keep arising from our clients. People are trying to figure out: How do you structure investments in particular leagues, for instance? How do you aggregate the capital using a fund structure? Does the typical private equity (“PE”) structure work for investing in sports asset classes? How do you even navigate the complex regulatory landscape? There’s really a lot to unpack here, and we can’t do justice to it in just this one podcast, so we’re planning to do an unpacking in multiple podcasts that are coming up. But for this one, we hope to level set, and really give you a sense for what the landscape looks like.
Erica, maybe you can kick us off with an overview of what the sports opportunity set looks like?
Erica Han: Sure. Thanks, Amanda. Investing in sports does not have the narrow meaning that it once did, if people think about traditional professional sports teams and leagues, although there’s still a lot of interest in that area and growing. When we think about sports investments, we think about teams and leagues, as I mentioned, but also a number of other areas, including media and broadcasting rights, talent, tech, merchandise, hospitality, stadiums—just to name a few. The investment opportunities in sports today are quite vast and varied, and there are a number of businesses that touch on sports. Over the years, the demand for sports and entertainment investments has only grown, in the United States and globally.
When we think about teams and athletes, for instance, the opportunity can cover a range of sports, whether it be soccer, American football, cricket, basketball, or we’ve even seen interest in less traditional sports, such as Formula One racing or even e-sports, which is growing in terms of investments and sponsorships.
And within the sports themselves, there are investment opportunities at levels beyond just the professional teams—amateur teams and a growing interest in college and youth sports, especially following recent and developing changes in college sports to allow college athletes to enter into “NIL” (which stands for “name, image, and likeness” or otherwise is known as “publicity rights”) deals. Our sports practice at Ropes has been following the NIL developments closely—they tend to change on a daily basis—and we’ll get into NIL issues (at all levels) in much more detail in later episodes of this podcast.
But moving beyond teams and leagues, there’s also vast opportunity, as I mentioned, in ancillary goods and services, so this may include sports-related merchandise, fan experiences, talent agencies, media and content companies, education and training for athletes or coaches, and even real estate.
And then there’s the capital coming into this space. The capital is mainly private and is increasingly moving beyond individuals to institutional investors, such as family offices, sovereigns and pooled investment vehicles such as private funds, including funds dedicated to sports and entertainment investing—which, I know, Amanda, you have been focusing your practice on helping clients with. And capital coming into sports is expected to continue to grow at a rapid clip.
Now that we’ve broadly set the table about what sports investing could mean—and there are many more examples beyond what I’ve mentioned just here—we’ll get into a few of the details on investment opportunities. So, Patrick, I’ll turn it to you to talk about that.
Patrick Dorime: Starting with the U.S., there are opportunities to invest in the major sports leagues like the NFL, MLB, NHL, NBA, or Major League Soccer. In the past, team ownership opportunities in these leagues were restricted and limited to a select few, however, over the years, we’ve seen ownership rules loosen to allow a host of investors to enter this space, including, more recently, with the NFL’s approval of private equity ownership. There’s particular excitement in private equity with respect to the ability of certain funds to invest in NFL teams, and the discussions that we’ve had with these funds, we expect this will serve as a useful source of liquidity for existing NFL investors in what’s traditionally been a fairly illiquid market. Currently, most major sports leagues allow PE sponsors to hold minority positions in their teams: Major League Soccer allows a team to have 30% of its ownership represented by private investment funds, the MLB 20% (with no single fund representing more than 15%), the NBA 20%, and the National Football League 10%.
We’re also seeing investment activity in women’s professional sports like the WNBA, Women’s Tennis Association, and the National Women’s Soccer League as well as emerging sports leagues like Major League Pickleball, for example. These leagues tend to have looser restrictions on ownership and are becoming ripe for investment due to their growth in fan popularity, due in part to expanded media coverage at both the professional and collegiate levels, and the popularity of individual athletes within a sport, like Angel Reese and Caitlin Clark.
Speaking of collegiate sports, we’ve seen increased investment interest in collegiate athletics like NCAA football and NCAA basketball as well as with youth sports, and amateur leagues like the American Amateur Union, which covers a wide array of amateur-level sports that often feed into collegiate and professional programs. We’ve seen our clients in this space, on both the collegiate and investment side, express interest in further exploring the potential benefits of PE investment in college sports. As Erica mentioned earlier, we’ll cover college sports in greater detail in a separate podcast.
Erica Han: Thanks, Patrick. Those are some examples on the U.S. side, but on a global level, we’ve historically seen more access to ownership than in major sports leagues in the U.S., although, as Patrick just mentioned, that’s changing.
On the international side, there are investment opportunities in a number of leagues that have global popularity, including Premier League, LaLiga, Australian Football League, LIV Golf, World Aquatics, Basketball Africa League, International Cricket Council—all the various teams that all of them support—and many more.
As we discussed with U.S. sports investments, the same holds true for non-U.S. investments—that each league and each team will have its own rules and regulations for ownership positions. On the international side, any state-sponsored league may have additional geo-political considerations and reputational risks to take into account. So, there’s lots to think about on the global side as well.
Amanda Persaud: Outside of outright ownership of teams, whether that’s majority- or minority-ownership, we’re also seeing capital coming into sports and sports-adjacent businesses through joint venture (“JV”) arrangements. JVs, in our experience with clients, turn out to be quite an attractive structuring option when outright ownership is not feasible or is sub-optimal for the reasons that Patrick and Erica laid out previously.
JVs can essentially be used to create a funding platform to capitalize a business, and in that way, help a league or team meet its specific capital needs. Ropes attorneys have structured a few of these innovative JVs that have grown to become highly profitable and self-sustaining businesses—examples of those include Legends Hospitality and On Location. We also find that sports teams and leagues find that JV investors can be more nimble and they can bring specialized expertise that help drive the league’s profitability, and they can do that while mitigating some of the burdensome rules around governance in ownership.
And then, lastly, I think it’s worth pointing out that JV arrangements can also be a way of creating revenue sharing partnerships—for instance, media revenues, sponsorship revenues, and even in the product space, revenues for items like NFT trading cards.
Patrick Dorime: Investors may also consider stadium financings and land-use development projects, for example, as other alternative forms of investments. And recently, we’ve seen activity in the development of retail space and fan experiences with real estate transactions.
Sports investments can also include investments in the companies that help the industry run, like food and beverage companies, athletic apparel companies, film and content studios, fan consumer products, and even transportation and security companies. Ropes has been at the forefront of representing clients in this space. As Amanda alluded to, earlier this year, we represented Legends Hospitality in its acquisition of ASM Global, a venue and event management company. Legends, a Sixth Street portfolio company, is a food, beverage, merchandise, retail and stadium operations company serving entertainment venues and companies. Legends was founded by the Yankees and Cowboys in 2008. We represented Sixth Street in its initial investment in Legends in 2021.
We would typically categorize these projects as alternative asset investments and other examples include providing capital to start an athletic conference, acquiring licensing rights, etc., and they can be well suited for dedicated private funds that have niche focuses on sports and entertainment. In fact, we’ve seen a rise in interest in forming sports-focused investment funds to acquire these assets.
Erica Han: We’ve just scratched the surface today, but it’s definitely clear, the world of sports, media and entertainment investments is wide and continuing to grow, especially as companies find new and creative ways to capitalize on public interest in these endeavors. So, finding the right way to enter the industry may depend on specific investment goals since there are a lot of opportunities, including a lot of types of structures. If the goal is investing in sports as an asset class or creating synergies in an existing investment portfolio, then maybe pursuing a joint venture with a league or team, creating a dedicated fund or investing in a company that supports various sports leagues might make sense.
If the goal is to create and capitalize on efficiencies and innovations in the industry, it may be worth considering an alternative investment, such as those Patrick mentioned—it could be a licensing deal or it could be other opportunities.
Of course, there are plenty of niche considerations that are unique and specific to sports, media and entertainment investments. We’ve touched on some of those today—those include ownership rules, investment holding periods, prohibited investment categories, players’ unions, a number of different IP issues that come up as well, including ambush marketing, who owns what rights, and conflicts in rights that have to be figured out and navigated.
What we’ve found is that potential investors need a collaborative, cross-disciplinary legal approach to successfully execute and manage these investments, including fulsome diligence on the associated risks, and those risks have legal, reputational and business components to them, so it’s important to look at a potential sports investment from multiple angles.
At Ropes & Gray, we’ve had success leveraging teams of specialists across practice areas for these transactions, so that can include private equity, intellectual property, fund formation, tax, labor, employment, internal investigations and litigation, among others.
Amanda Persaud: Now that we have the big picture, we’re going to start diving into specific topics that we touched on in our upcoming episodes.
You’ll get to hear from Ropes specialists along with industry insiders and investors. Our goal is to inform and spark your thinking about the art of the possible in sports transactions. Whether you’re an asset manager interested in creating a sports-focused fund, a team owner, an athletic director or simply a sports enthusiast, join us for future episodes as we explore all the latest developments that are reshaping the industry.
Thank you for joining us in the R&G Dugout today. You can also listen and subscribe to this and other Ropes & Gray podcasts wherever you regularly listen to your podcasts, and that includes Apple and Spotify. Looking forward to discussing more on the next episode.