Private Equity in Sport

Making news this week was the announced sale of the Boston Celtics to private equity manager, Bill Chisholm, who is an active manager of Symphony Technology Group. There has been a lot of interest from private equity firms to enter sport investment, and this is the newest example. In addition to his investment, Chisolm also has support from Sixth Street, an investment firm that has invested into other sport franchises (Novy-Williams, 2025). Typically, in a private equity investment cycle, a investment company performs due diligence on the opportunity, risk factors, market growth, synergies between other businesses, amongst others. They then make the initial investment and enter into a value building phase where they work to grow the business and overall revenue to eventually exit from the investment by selling either to another investment company, another business through a merger or acquisition, or the public via an initial public offering, if taking a private company public. What makes the sport investment so interesting is the scarcity of available assets and the ability to add value. With so few professional teams in each league, there are limited opportunities for ownership. So, when a franchise comes up for sale, it can start a bidding war. That seems to have a part in the Celtics sale of a record $6.1billion sale. Three additional factors that are unique in this situation are the existing owners wanted to remain in a governing position for a few years after the sale, wanted the sale to be in two parts (51% initially and then 49% in a couple years at a higher valuation of $7billion) and that the club does not own the arena or associated real estate, which limits the revenue and ancillary real estate income.

The typical comment behind the private equity investment in sport is usually related to the rising franchise values and that the returns are higher than that of the S&P500. This phenomenon can be easily seen in table 1 showing the rate of return for the Big 4 professional sport leagues in the U.S. (MLB, NBA, NHL, NFL) from 2001 to 2024. The overall returns are similar to the S&P500 until around 2013, when the values start to differ more clearly.

The overall trend for professional sport has been pretty clear, but this is the combined return of all major leagues. When the returns broken down by sport, a different trend emerges, as shown on Table 2. While each of the professional leagues has shown a higher growth rate than the S&P500 over the past several years, the magnitude of growth is not equal across the leagues. The NBA clearly has shown the greatest growth in franchise value in response to their popularity and subsequent media rights deals. This longer term trend of returns would indicate that the NBA has been on an upward trajectory in terms of value, and that owning a franchise would need to include a valuation above the existing level, to capture some of the longer term value appreciation. In technical terms, this is known as residual or terminal value, utilized in some cash flow valuation estimates. 

This difference in growth can be seen a little more clearly on Table 3, which shows the overall growth from 2001 to 2024 and from 2010 to 2024 for each of the major sport leagues. The S&P 500 had an overall growth of 412% from 2001-2024 with an compound adjusted growth rate (CAGR) of 8.24% annually with most of the growth coming since 2010. Every professional league had a CAGR in excess of the S&P500, with the NBA returning almost 17% since 2010.

Even more interesting is that financial theory has a positive relationship between risk and return; as risk increase, so does expected return. The sport franchise landscape over the past 15 years would suggest that franchises are providing a higher rate of return with less risk. This is, in part, why there has been interest in investing into the different professional leagues. As long as the revenues and valuations continue to rise, the investment will continue to come in.
So, while on the surface, this may seem like overbidding for an asset, if the future is similar to the past, the franchise will be worth even more in next several years. That would mean that even at a combined $6.6 billion valuation (majority and minority shares), selling in the future could still turn a tidy profit.
 
References
Novy-Williams, E. (2025, March 21). Six takeaways from the record $6.1 billion Celtics sale. Sportico. https://www.sportico.com/business/team-sales/2025/boston-celtics-sale-details-price-financing-structure-1234844123/