NFL owners voted to approve a measure to allow private equity funds to buy stakes in teams. This is a significant change in the NFL’s ownership rules which until now, have never allowed institutional investment in team ownership. The amount of ownership available to private equity funds is still limited, but the consequence for owners is access to millions of dollars if they choose to sell a small portion of their ownership to a private equity fund. Private equity funds were already allowed to make investments in the NBA, MLB, and the MLS among other professional sports franchises.
Prior to this decision, private equity firms were limited to being limited partners to a team. However, valuations of teams are continuing to rise which makes owning a team almost financially impossible for most investors.
What are the restrictions on private equity investment in NFL teams?
At this time, investment by private equity firms can only equal a 10 percent ownership of the team. This can be divided between multiple private equity investors, but each investor must have at least a 3 percent interest in the team. Private equity firms are also limited to investing in a maximum of 6 teams. The investment is completely passive, and no voting power is attached to the transaction. The NFL has the ultimate authority to determine the private equity firms who may invest teams. At this time, there is not a specific buyback provision, but the league can force a sale.
The rest of the NFL’s ownership rules will remain in place, including the controlling owner holding 30% of the team, and limiting teams to 25 owners total (including the controlling owner, other individuals, and private equity funds). Teams may still have limited partners acting as passive investors as well.
What are the anticipated consequences of private equity investments in the NFL?
The market for private equity in NFL is new which may result in changes to the NFL landscape. The league has established investment criteria to ensure that the team’s owner still has decision making power. The investments made by private equity are meant to be passive and to not give influence to the investors. Additional funds for teams could be used by the franchises for infrastructure projects and stadium upgrades. Overall, teams will have more capital to invest in themselves.
The NFL has informed owners since the announcement that it will take a percentage of private equity profits on the future sales of ownership stakes. Essentially, each time an investor sells it stake in the team, a portion will go to the NFL. This is an unprecedented decision as none of the other leagues allowing private equity investment take a share of the profits.
