NFL Loosens Strict Ownership Rules to Allow Private Equity Investments

NFL owners voted to allow private equity firms to buy stakes in their franchises, a move expected to attract billions in fresh capital while boosting team valuations that had already been surging.

During a special one-day league meeting in Minneapolis, the group loosened some of the strictest ownership rules in professional sports to allow private equity to own as much as 10% of a team, according to the NFL.

Transactions are expected to happen quickly, given that the owners have already approved firms to pursue investments. They are Arctos Partners, Ares Management and Sixth Street Partners and a consortium led by former NFL star Curtis Martin and comprised of Dynasty Equity, Blackstone, Carlyle and CVC Capital Partners.

There are also teams already looking for investors, including the Los Angeles Chargers and the Buffalo Bills, Bloomberg has reported. Philadelphia Eagles’ owner Jeffery Lurie is also considering selling part of his franchise.

“This is certainly going to change the game,” said Mark Patricof, founder of Patricof Co., an athlete investment and advisory platform. “What individual wants to put up a $700 million check for a business where you have no control and no path to ownership? Institutional ownership was inevitable.”

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The vote went 31-1 in favor of allowing private equity, with the one holdout being Mike Brown, son of Cincinnati Bengals co-founder Paul Brown, according to two people familiar with the matter.

The move to allow private equity into ownership has the potential to shift how teams are run. Limited ownership partners have traditionally been friends, former players and local celebrities. 

Private equity investors will be more focused on getting a return on their investment by pushing for better financial results. Funds will have to hold any investment for six years, and a minimum of a 3% stake in one team.

And to get a piece, private equity funds will have to jockey for stakes in a league where team valuations range from about $5 billion to $10 billion, according to Sportico. This means 10% stakes in NFL teams could sell in a span from roughly $500 million to $1 billion.

Unlike controlling owners, who can only invest in one team at a time, private equity investors will be able to buy stakes in as many as six teams at once. The NBA has a similar rule.

One important goal was “giving owners the different option for capital sources, but at the same time maintaining how we operate,” Kansas City Chiefs owner Clark Hunt said. The league will still be “32 owners around the table, making decisions and deliberating. That won’t change with this step today.”

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Bloomberg reported in May the owners were considering allowing institutional investors to be able to buy 10% of clubs, while some owners would like the cap at 5%. The NFL hired PJT Partners, an investment bank, to assess interest from private equity funds. 

Other sports leagues, including the NBA and MLB, have already expanded ownership rules to private equity and other investors.

A principal NFL owner must be able to pay for at least 30% of a team and an ownership group can’t surpass 25 people. This setup has made selling teams more difficult than in other sports, given the amount of capital needed up front. 

That was apparent last year when a large investor group, led by private equity billionaire Josh Harris, completed what was described as a complicated deal to buy the Washington CoMMAnders for $6 billion. The sales process also didn’t attract many suitors, raising concerns that the league’s conservative rules were too limiting and would depress future sales.

Following the CoMMAnders deal, NFL Commissioner Roger Goodell created a committee of owners to weigh changes to ownership rules.

The NFL is also considering putting forward a policy where only controlling owners and their family members who are limited partners could sell stakes, according to people familiar with the situation who asked not to be named discussing private talks. 

For example, the Atlanta Falcons added four new limited partners to club’s ownership in May, but none would be able to sell to institutional investors because they are not controlling owners or are not members of primary owner Arthur Blank’s family.

Hunt, the Chiefs owner, has backed private equity entering the league because it can be helpful source of capital, including for funding the renovation or building of stadiums, investment that is getting increasingly difficult to be obtained through local government subsidies.

Surging valuations for NFL teams have also created the potential for giant tax bills when ownership is passed down to the next generation. An owner could offset that by selling a stake to private equity.