Private Equity in Professional Sports: Opportunity or Overreach?

Illustration: Annelise Capossela/Axios

Money on the Field

Private equity has become an increasingly significant source of influence in the sports world, altering the traditional model of sports ownership, previously dominated by wealthy individuals and families. Since 2019, major professional sports leagues like the NFL, NBA, MLB, MLS, and NHL have relaxed their ownership rules to permit investment from private equity (PE) firms. This shift is heightened by rising sports franchise valuations and media/sponsorship agreements. This change is transforming professional sports organizations from a "trophy asset" for families to a legitimate, high-growth asset for investors. 

The Investment Boom Sweeping Through Sports

In 2019, Major League Baseball (MLB) became the first North American sports league to permit PE investments.  The National Basketball Association (NBA) and National Hockey League (NHL) followed, with the National Football League (NFL) being the last to do so in 2024. PE investments have supported improved marketing strategies and infrastructure development, including stadium renovations and the development of training facilities. Investments have also resulted in higher franchise valuations and reduced loan-to-value ratios for franchise owners. 

Investing in sports teams allows PE firms to hold minority stakes in multiple teams and other sports-related organizations, such as agencies and media companies. This comes at a time when the sports industry itself is growing rapidly, fueled by increasing media rights, international expansion, and new revenue streams such as gambling sponsorships. By many accounts, sports teams' valuations have “outperformed” the S&P 500 over the past 20 years. Additionally, sports teams are unique assets with passionate fan bases, providing intangible value beyond just financial returns. However, the influx of capital creates both significant opportunities and complex challenges for league and organizational formation, governance, and operations. 

Shared Ownership, Split Priorities

Private equity funding in sports franchises can have several negative consequences. One of the primary issues that may arise is the aspect of shared ownership. As previously mentioned, the majority of sports teams are owned by wealthy individuals or families, but when PE firms join the ownership group, they may leverage their power to gain a disproportionate level of influence in decision-making that may compromise the rights of other owners and the product on the field/court. 

Another potential concern is the clash between corporate culture, which prioritizes short-term financial gains, and what the fans of these sports teams truly value, a long-term approach to putting a championship-level team on display. Finally, some leagues and critics are wary of private equity's control due to practices like aggressive cost-cutting and the potential for a lack of long-term commitment. 

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Balancing Investment and Integrity: A Proposal for League-Level Regulation

Photo by Crystal Partners

A primary recommendation is that major sports leagues regulate the organizational power of PE investors. This would extend the effort to put fans over profits and safeguard against a wide range of concerns, such as securities litigation, including regulatory scrutiny and disputes relating to governance, control, and fiduciary duties. Additional concerns include valuation issues, allegations of unfair practices or breaches of fiduciary duty, revenue-sharing agreements, sponsorship deals, and other financial arrangements. This regulatory approach is feasible and could be modeled after the NFL’s model with some minor adjustments. 

When the NFL owners voted to allow PE funds to buy stakes in teams, it limited these funds to up to only 10% ownership. It also set a floor requiring investors to purchase 3% ownership while simultaneously requiring the investment to be held for at least six years. PE firms get no voting power, governance rights, or influence in decision-making. The restrictions continue, with only a select group of PE firms having been approved to invest. These include: Arctos Partners, Ares Management, Sixth Street Partners, and a consortium that includes Carlyle Group, Dynasty Equity, and Ludis. Teams that have been at the forefront of PE investments in the NFL include: the Buffalo Bills, Miami Dolphins, Los Angeles Chargers, and San Francisco 49ers.

Conversely, restrictions in the other leagues are much looser and will benefit from a potential overhaul. The NBA, NHL, and MLS all cap a team’s collective private-equity ownership at 30%, while the MLB caps it at 20%. Individual PE funds can buy up to 20% stakes in NBA, NHL, and MLS teams, and 15% in MLB teams. 

As mentioned, leagues should use the NFL’s current approach as a starting point and work to refine the restrictions first. Like the NFL’s framework, the leagues would mandate that all PE investments are strictly passive and non-controlling, with zero voting power or influence on team management and on-field decisions. Furthermore, a centralized approval committee should vet every potential PE firm and its individual partners, and establish clear rules on cross-ownership, prohibiting a single PE fund from holding stakes in multiple teams within the same league or in competing sports-related businesses (e.g., sports betting companies or athlete agencies). A key modification to the NFL’s current structure would be for leagues to mandate that PE investments also have no influence and cannot participate in negotiations for revenue-sharing agreements, sponsorship deals, and other financial arrangements. This separation would reduce potential antitrust or breaches of fiduciary duty issues.

A second recommendation is for sports leagues to strengthen their effort to safeguard player safety and well-being. With the influx of cash investments, organizations must implement policies that prevent PE firms from making cost-cutting decisions that could increase the risk of injury. Athletes are right to question whether PE investors have their best interests at heart, as they often seek cost-cutting measures for higher profits and return on investment. For example, the use of artificial turf instead of natural grass in the NFL highlights this very issue. While turf fields have been in use long before PE investments have existed in the NFL, the inundation of PE may see similar cost-cutting measures to maximize profits. 

Fair Play, Fair Pay: How PE Funds Can Improve Player Welfare

We recommend that the major sports leagues mandate a portion of the PE funds be used to establish mandatory, league-wide standards for player facilities and playing surfaces. To incentivize teams to make the switch, the cost can be shared by the league and its new PE partners and framed as a long-term investment in player assets. Once the league and players associations from the respective leagues have agreed on the standard of the facilities, the capital gained from the PE fund must be used to maintain the practice and playing surfaces meet the required standard set by the league and players association. 

Additionally, players can receive enhanced compensation through expanded revenue-sharing mechanisms. This would address player concerns that the PE investors are solely profit-driven. This extra compensation, with the added revenue sharing, would specifically support athletes who face financial or health challenges once their playing days are behind them. A practical way to structure this is to set a portion of capital gains that these sports teams generate year over year and place it directly into this specific fund. This would ensure that as the value of the league grows and the PE firms' profit, so too do the players. This would be especially impactful for those who have a relatively short professional career and those whose bodies endure chronic physical pain and receive little compensation. 

This shared player fund could be used for retirement benefits and a health insurance fund. The retirement benefits could provide a reliable pension or a 401 (k) to offer long-term financial security, while the health insurance fund will ensure access to quality medical care long after their careers are over, addressing the physical toll many sports take on an athlete's body. By creating a direct link between the PE firm's financial success and the long-term well-being of the players, this model aligns the interests of all parties and fosters a more collaborative and trusting partnership. It transforms a potentially contentious relationship into one where players feel valued as true partners in the league's success, rather than just as a workforce.

Protecting the Future of the Game

Photo by Mallory Bielecki

While the infusion of private equity (PE) capital offers professional sports leagues new opportunities for financial growth and stability, it also introduces risks that must be carefully managed. PE investment can serve as a positive and constructive force in the sports industry if implemented responsibly. To preserve the integrity of the game and the well-being of the players, leagues must establish clear, enforceable regulations that limit investor influence and ensure a portion of the profits benefits the athletes directly. By emphasizing strong governance, player safety, and revenue sharing, leagues can align the interests of owners, investors, and players, creating a more sustainable and equitable future for the sports industry. Ultimately, the successful integration of private equity investments will depend on a proactive and thoughtful approach that puts the long-term health of the sport above short-term financial gains.

*The views expressed in this article do not represent the views of Santa Clara University.