Sports Investing Presents ‘Game Changer’ for Institutional Investors, per PGIM

Some of the most prominent sports franchises in the world are owned by institutional investors. Over the past decade, sovereign wealth funds, private equity firms and other investors have increasingly bought stakes in teams and other franchise-aligned sports investments. But this was not always the case.

In a white paper from PGIM, “A Real Game Changer,” the firm noted that there are opportunities for institutional investors across the sports ecosystem, from broadcasting rights to equity ownership in sports teams and debt financing.

According to the report, the Ross-Arctos Sports Franchise Index, which tracks the valuation of the largest North American sports leagues, has grown at nearly double the rate of the S&P 500 this century. The RAFSI rose more than 1,280% from 2000 to 2024. In the same period, the S&P 500 grew about 650%.

Over the past one, three, five, 10 and 20 years, the RAFSI has returned an annualized 14.8%, 17.8%, 12.0%, 14.1% and 12%, respectively.

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Sports Team Ownership

Sports teams have three main sources of revenue: broadcasting rights; events, including ticket sales, advertising and merchandise; and ancillary businesses related to a team’s stadium or other operating assets, according to Shehriyar Anita, head of thematic research at PGIM and principal author of the report.

Until the past decade, sports team ownership was dominated by wealthy individual investors. In 2018, the total investment in the top five European football leagues from institutional investors was $67 million. By 2023, that figure grew to $4.943 billion.

Some investors have adopted multi-club ownership strategies or have taken a controlling stake in many teams, often in different divisions or leagues of the same sport.

Investors should also consider stakes in teams in less-prominent sports, the report’s authors wrote. As investors flock into the industry, valuations have soared. That may make it harder for new investors to find the right entry point among the largest teams, which are likely already backed by prominent investors.

Less-prominent leagues can offer attractive entry points for investors, per PGIM, including smaller sports at an earlier stage of their global growth, include the Ultimate Fighting Championship and Professional Fighters League in the sport of mixed martial arts. PGIM also pointed to horse racing as another niche sports segment that could offer attractive opportunities.

Broadcasting Rights

Most sports leagues sell their broadcasting rights—agreements that grant a specific network or streaming service the exclusive rights to broadcast live events. These rights have caught on among investors, especially private equity firms. In an April report, S&P Global estimated the market will grow to $35 billion in 2027 from $29.4 billion in 2024.

The amount spent on broadcasting rights, particularly by digital platforms, has skyrocketed since 2019. That year, slightly more than $1.5 billion was spent on broadcasting rights by digital platforms. In 2023, that number increased to $8.5 billion.

Revenue from broadcasting rights can vary by league. PGIM noted that National Football League teams earn 65% of their revenues from broadcasting rights, while Major League Baseball teams generate less than 20% of their revenue from that source. In contrast, MLB teams (playing about 10 times as many games) generate 60% of their revenue from tickets and sponsorships, which only account for roughly 30% of NFL team income.

Debt Financing Opportunities

To finance new stadiums, which can open up new revenue streams for a team, owners often turn to the debt markets for financing.

In the U.S, local and state governments often issue municipal bonds to finance the construction of sports stadiums and complexes. These “stadium bonds” are often tax-exempt and often backed by revenue streams related to the project.

PGIM cited the example of the Sports Authority of Nashville and Davidson County issuing $760 million in municipal bonds with a 20-year maturity in 2023 to help build a stadium for the NFL’s Tennessee Titans. The bonds, which included both taxable and tax-exempt securities, were backed by a variety of revenue streams, including a new hotel tax and an 8% sales tax on all sales made inside of the new stadium.

Stadium owners and municipalities are also tapping into private credit markets to finance new projects, according to PGIM.

Potential Issues

As investors pour into sports, fans of sports leagues and teams have pushed back against what they see as “investment-minded ownership,” according to PGIM.

In one case, backlash from fans against the 1-billion-euro sale of broadcasting rights of the German Football League’s Bundesliga to a consortium of investors which included Blackstone eventually killed the talks.

Some investors have also faced accusations of “sportswashing” or using sports as a front to redirect public attention from unethical practices or human rights violations in an investor’s home country.

Across North American sports leagues, many limit what stakes investors can take in a team. The NFL will soon allow only a small, hand-selected number of private equity firms to invest up to 10% in its teams. Not only is the number of funds that can invest limited, but so is the number of partners who can invest in those funds, as many, such as Arctos Partners, have closed their funds.

Nevertheless, sports investing seems quite decisively open for business.

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Tags: investing, PGIM, Private Credit, RAFSI, Ross-Arctos Sports Franchise Index, Shehriyar Anita, sports

Driven by an increased number of plan sponsors looking to terminate their traditional defined benefit pension plans, the U.S. pension risk transfer market closed at $26 billion in the first half of 2024, according to new data released by Legal & General Retirement America, an increase of about 15% from the first half of 2023 ($22.5 billion).

The increase in market volume can largely be attributed to transactions that exceed $1 billion, of which there have been five so far this year—totaling approximately $16 billion. Over the last three years, large transactions have made up around 50% of the market, according to LGRA.

LIMRA also announced Thursday that in the year’s second quarter, total PRT premiums fell 31% year-over-year to $11.3 billion.

“Although second quarter 2024 premium results fell short of last year, historically these results are strong,” said Keith Golembiewski, LIMRA’s assistant vice president of annuity research, in a statement. “In addition, the number of contracts sold increased 10% year over year, indicating broad plan sponsor interest continues. LIMRA is forecasting strong PRT sales in the second half of 2024.”

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The three largest publicly announced U.S. transactions so far this year have been Verizon Communications Inc. ($5.9 billion), Shell USA Inc. ($4.9 billion) and 3M Co. ($2.5 billion).

Prudential Insurance Co. of America also recently completed the industry’s first PRT involving a multiemployer plan. The $221 million transaction will provide pension benefits for 87,000 retirees and beneficiaries at Sound Retirement Trust, a multiemployer plan based in Seattle.

LGRA found that slightly more plan sponsors are looking to terminate their pension plans this year, as 66% of the transactions that occurred in the first half of this year were plan terminations, compared with 54% in 2023. High corporate pension funding ratios also likely play a role in the growth, as plan sponsors with fully funded or overfunded plans are in a good position to conduct a PRT.

The average U.S. pension funding ratio continued to soar: 109.5% in July, according to LGRA’s Pension Solutions Monitor.

However, with the Federal Reserve planning to cut rates this month and a poor market performance in the beginning of August, experts say companies considering a PRT should do so sooner rather than later.

In addition, the increased number of insurers participating in PRTs has heightened competitiveness and expanded capacity in the market, with 21 insurers currently involved and more entrants expected.

Meanwhile, employers continue to face lawsuits attacking their completion of PRTs with Athene Annuity and Life Co. The most recent lawsuit targeted Bristol-Myers Squibb Co. and its independent fiduciary, State Street Global Advisors Trust Co.

Looking ahead, LGRA reported that it expects at least two more transactions worth more than $1 billion to close by the end of the year.

LGRA also noted increased activity from midsized pension plans compared with previous years. For example, LGRA found approximately 20% more transactions valued between $50 million and $500 million when compared with the last five years.

“We anticipate the full year market volume to exceed $50 billion, surpassing 2023’s volume of $46 billion and nearing the record-setting volume in 2022 of $51.9 billion,” the report stated.

In the U.K. 20 billion pounds ($26.35 billion) worth of PRT buy-in and buy-out transaction have been completed year to date. Like in the U.S, PRT transaction volume was driven by deals over $1 billion. In the first half of the year, five transactions worth over $1 billion each were completed, totaling $16 billion.

LGRA expects the U.K. PRT market to exceed 40 billion pounds in volume this year. The firm noted that there are 20 billion pounds of active deals in the pipeline and expects most of these transactions to close this year.

Reporter Matt Toledo contributed to this story.

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Tags: Keith Golembiewski, Legal & General Retirement America (LGIMA), LGRA, LIMRA, Pension Risk Transfer, PRT