NBA Commissioner Adam Silver addressed the media before the Miami Heat game against the Los Angeles Lakers in one of the NBA 2020 finals as part of the NBA 2020 restart on September 30, 2020 at the AdventHealth Arena at ESPN Wide World of Sports Complex. Orlando, Florida.
Gareth Elwood National Basketball Association Getty Images
This is the phrase of the commissioner of the National Basketball Association Adam Silver, used in 201
The NBA’s plan to raise money from private capital is underway and it relies on the attractiveness of owning limited partnerships in its clubs will pay off.
With club ratings rising to astronomical levels, the NBA joined the pursuit of private capital when owners approved a plan that allowed investment firms to hold stakes in teams. NBA CEO JB Lockhart is the man who controls this strategy, and the league has chosen Dyal Capital as its partner.
The way it works: The NBA rounds out clubs and sells them to private equity firms like Dyal, which can then technically sell limited partnerships (LPs) to private investors. Last May, Barron Dyal’s report sought to raise $ 2 billion to buy LP.
Some private equity praises the NBA’s move and even tries to link it to a more global game.
The pros and cons of PE
By turning to private capital, the NBA wants more capital for its league, can make faster deals to help liquidity and finance its future endeavors.
Also, NBA estimates are skyrocketing. The club’s average price is already over $ 2 billion, and its last two franchises (Brooklyn and Utah) are selling for an average of $ 2.45 billion, given that Nets owner Joseph Tsai paid $ 1 billion for the Barclays Center in Brooklyn in a separate deal.
Therefore, the league had to spend its investment base as even minority bets became expensive.
“This provides the NBA, its members, the entire infrastructure with financial opportunities,” said Chris Lencheski, chairman of the private equity consulting firm Phenicia and an adjunct professor at Columbia University.
Allowing private investment will also help minority owners who want to sell and leave property groups. On the part of the majority, owners who want to recover from the losses of Covid-19 can sell shares and also take advantage.
Lencheski, who is also CEO of Granite Bridge Partners’ Winning Streak Sports, sees the NBA’s global “economic trench” attracting investors, as there is unlikely to be viable competition for high-level professional basketball. Plus, the league is backed by global licenses, merchandise, sponsorship and approximately $ 2.5 billion in annual media rights revenue, which continues through the 2024-25 season.
But moving is not risk-free.
Referring to the NBA ratings slides at the 2019 Sports Newspaper Business Conference, Silver described the cable TV model as “broken” and added that the league’s young viewers were “tuning in the traditional cable.”
So if his media rights fall in price as cable subscribers continue to cut the cable, ratings may fall and investors may lose money on LP. A sports banker cited 2009, when ratings fell due to a bad economy, as proof that the NBA was not immune to a downturn due to economic shocks.
And few predicted a sharp halt in the projected 40% of revenue due to the pandemic.
But there may be help in attracting the public.
The Los Angeles Lakers’ Anthony Davis №3 shot the ball against the Miami Heat during the fourth game of the NBA Finals on October 6, 2020 at the AdventHealth Arena in Orlando, Florida.
Nathaniel C. Butler National Basketball Association Getty Images
The game of SPAC
Dyal and investment firm Owl Rock are merging with Altimar Acquisition Corporation, a $ 275 million special purpose vehicle (SPAC) that is currently traded on the New York Stock Exchange, allowing the combined companies to go public. The new company is called Blue Owl and public investors will soon be able to invest in it under the NYSE symbol “OWL” later this year.
And one of his landmarks will be his NBA fund.
Dyal did not respond to a request from CNBC for comment, but managing partner Michael Reese spoke about the company’s NBA strategy on December 23, when the US Securities and Exchange Commission announced a plan to launch Blue Owl.
“We are proud to be a partner, an exclusive partner with the NBA, the National Basketball Association, where we are the only approved buyer of a portfolio of minority stakes in the 30 NBA teams,” Reese said, according to the transcript of the call. “This business has just started and we hope to make our first completion in the not too distant future.”
“We believe that we can certainly develop a very attractive basketball strategy from this platform, but also possibly expand to a wider sports business, which can have a huge development,” added Rees, who will also serve as one of co-presidents of Blue Owl.
It is unclear what Blue Owl’s overall sporting strategy is or how it is expected to recoup the NBA’s return. A person close to planning them told CNBC that he would buy bets at some clubs, not all 30 teams.
When discussing the NBA’s private equity game, a Wall Street chief executive said companies don’t make money from trust capital until they sell something. The person requested to remain anonymous due to the sensitivity of the public discussion of the issue.
The CEO, who has a rich history in private equity, also doubted how private companies would bring in a return of $ 2 billion. A longtime executive director of the sport, who also requested anonymity, noted that NBA teams can redistribute annual profits to new investors.
So, if a private company relies on sports teams as a long-term game, it can profit from the clubs’ revenues while holding on to LP through dividends. Then he can sell the LP at a higher price.
And with such a global NBA product, billionaires around the world looking for an entry point into American sports could be potential users of NBA equipment.
Qatar’s president Saint-Germain Nasser Al Kelaifi arrives for training at Luz Stadium in Lisbon on August 22, 2020, on the eve of the final football match of the UEFA Champions League between Paris Saint-Germain and Bayern Munich.
Miguel A. Lopez | AFP | Getty Images
Opportunity for foreign investment?
Private companies can buy LPs and then sell them on the secondary market. If the NBA follows the path of private capital, there will be guidelines available, but it will lose some control over who the LPs are sold to.
Foreign investors can be a way for companies to make money on LP.
There is chatter that points to Middle East investors as future buyers of minority stakes. The NBA has banned sovereign government investment in its teams, but investors from Abu Dhabi, Dubai and Qatar have been linked to the league before. In 2010, it was rumored that investors were interested in buying the Detroit Pistons.
Lenski added that the NBA could also use the private equity investment tool to explore individuals who could buy later positions in teams. The sports director uses Tsai’s entry as an example. He paid Russian billionaire Mikhail Prokhorov $ 1 billion for a 49% stake in Brooklyn Nets in 2018 before taking full control.
Lenski cited David Tepper’s entry into the National Football League as another example.
“One of the many factors that certainly helped Charlotte own the NFL was the minority stake initially in the Pittsburgh Steelers,” he said. If David Tepper doesn’t see the way the Steelers work, he understands what a top-class organization looks like when he goes to his NFL teammates and says, “I want to buy a team,” he has the means, but more importantly for the NFL, he understands the culture of a profitable community-focused sports organization. “
The NBA looks bullish on its product. Live sports still protect the cable model from disintegration. The league continues to produce international superstars to protect its economic trench – revenue of $ 8.3 billion. And the NBA loan is in good shape.
The NBA’s new focus is to expand the list of those seeking private equity.
“You get some of the benefits of owning a team,” Silver told SBJ, according to SportsPro. “So it’s not just pure ‘What is my return on investment? “It’s not that it doesn’t matter, but try to get closer to some of the same reasons that traditional franchise owners buy in teams.
“Part of it is financial,” Silver said, “but part of it is convenience, cash, and a desire to be directly connected to those leagues.”