Investment in the sport sector was dominated by individuals or enthusiasts looking to fulfil their ambitions of being a team owner. The idea that you could invest, accelerate growth and make attractive returns was not associated with the industry and so PE houses approached the sector, which had volatile earnings, with caution.
However, the past 18 months has been different. Investors are now seeking to take advantage of the value driving characteristics of the sector, and sport entities are looking for a new type of partner that can facilitate game changing growth and global appeal.
Why the interest in PE is growing
There are many value driving characteristics that underpin the sports sector which investors are finding increasingly attractive:
Unrivalled brand loyalty
A quick look at the number of followers on Instagram show the strength of the brands. Premier League football clubs have a combined following of 155.5 million. Through the lowest lows to the highest highs, the loyalty that clubs command over their supporters is unrivalled in every regard.
Predictable and recurring revenue
Media rights, multiple sponsorships, global partnerships and prior sporting performance provide predictable and recurring revenue streams.
New opportunities in existing sports
Teams are finding new ways of leveraging the value of their brands and see PE investment as a way of accelerating this growth. The rise of women teams, e-sports and commercial activities such as documentaries / content creation are innovations that are increasing both the breadth and depth of consumer access and monetisation of the bands.
“Recession proof” assets
Sport is a price-inelastic product; consuming sport is not a luxury but a necessity for many viewers. During the financial crisis of 2008 and the following recession, Premier League football clubs showed that not only could they hold onto revenue, but they could actually grow. During this period, total Premier League revenue grew substantially, almost doubling from 2006/07 to 2012/13.
Recent PE successes
CVC invested in Formula One in 2006 and generated strong returns over their 11 year hold period. Silver Lake, who invested in the City Football Group in 2019 (which valued the company at c£3.7bn), will be aiming for a similar level of returns.
We think PE will increase
Fuelled by the challenges of the pandemic, we predict PE involvement within the sporting world will increase.
For more information on PE in sports, please read our joint report with The Sports Consultancy – The Investment pitch: Private equity in sport.
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