Key takeaways: 

• Sports leagues asked private equity companies to merge in 2021, and firms funded about $2 billion in team stakes, according to PitchBook.
• Investors herded to the NBA to deliver growth funds to teams, and PitchBook private equity analyst Wylie Fernyhough cast more deals in 2022.
• “NBA teams are selling at a more costly valuation because they are hoping to grow more over the following decade or so,” Fernyhough displayed. “You simply have to make certain it’s done at the right cost.”

Private Equity firms investing a lot of money on NBA teams: 

U.S. stocks produced a lot of money for investors in a decade-long bull market that survived through the end of the previous year.

But those returns bleach in comparison to the windfall from sports investing, especially in the National Basketball Association.

The NBA has the highest cost return compared to other leagues, as basketball’s globalization has extended to other markets, including its almost $5 billion China operation and the recently established $1 billion NBA Africa experience.

Between 2002 and 2021, the average cost return for an NBA squad was 1,057% compared to 458% returns on the S&P 500, according to calculations from PitchBook.

But other sports proposed solid returns, too. PitchBook calculates Major League Baseball clubs proposed a 669% cost return from 2002 to 2021, and the National Hockey League returned 467%.

Now, private equity investors run in for a piece of the activity. PitchBook’s 2021 private equity breakdown assessed over $1 trillion in whole deals the previous year, and around $2 billion of that was spent buying equity stakes in U.S. sports franchises.

Investors are drawn to “the general professionalization of sports,” stated Wylie Fernyhough, PitchBook’s equity lead analyst.

“It was the start,” Fernyhough said of PE sports deals in 2021. “We’re heading to see a lot more deals going on.”