Exactly one year ago this week, Sportico The Qatar Investment Authority (QIA) has invested in the Washington Wizards and Washington Capitals, becoming the first sovereign wealth fund to own stakes in two of America’s major franchises.
When the news broke, I predicted two things would happen: 1) a strong public backlash against the deal, especially regarding Qatar’s human rights record, and 2) an influx of government funds into other franchises. I was wrong on both counts.
Rather, the opposite has happened: QIA’s investment in Monumental Sports & Entertainment has met with little to no significant backlash, and no second major U.S. franchise has followed suit. Leagues like the NBA and NHL may still be in the early stages of the Institutional Capital Era©, but so far foreign governments have remained largely on the sidelines.
Over the past few weeks, a dozen bankers, institutional investors and team owners (and one commissioner) have bravely tried to explain why. They have offered several explanations, ranging from geopolitics and macro analysis of sports trading to the ultimate sports ambitions of many sovereign wealth funds.
It is important to note that not all sovereign wealth funds are the same; they have different objectives, interests and investment themes. The reasons for the $1.6 trillion Norwegian Government Pension Fund to come to the negotiating table are likely to be quite different from those of Saudi Arabia’s Public Investment Fund ($925 billion).
But there’s a key difference between most sovereign wealth funds and the institutional private equity and private credit players that are most active in U.S. team sports: PE funds manage other people’s money and charge fees; PE funds are incentivized to get directly involved and extract value quickly, usually over a five- to 10-year time frame.
Most sovereign wealth funds (and pension funds as well) take a more conservative approach, setting return horizons that are much longer. In theory, more That’s appealing to leagues looking for investors willing to make long-term commitments. Here are some industry insiders’ thoughts on why we don’t see more investors.
permissionAll major U.S. leagues except the NFL are open to some sort of institutional investment, but at least for now, it’s not the time for nation-states’ wealthy to step in. Both the NWSL and MLB have purposefully not allowed foreign governments to invest in their teams.
MLS, meanwhile, has opened its doors to sovereign wealth funds — UAE-backed City Football Group is a majority owner of NYCFC — as have the NBA and NHL. But some of those leagues have more restrictions than initially reported. In the NBA, for example, sovereign wealth funds are not allowed to actively promote their stakes in teams and disclose financial information less frequently than individual investors, people familiar with the rules said. The preferred term is “minority investor” rather than “partner.” (NBA representatives did not respond to requests for comment.)
This is why sovereign wealth funds are more active in Europe and other parts of the world, especially in sports such as football, where the barriers to entry are lower and the rules on investment amounts, voting rights, marketing capabilities and deal structuring are more relaxed.
current situation: Sovereign wealth funds already exist in every US league except the NFL. Many of the PE funds that invest or lend in sports raise their own capital from foreign governments. This gives everyone that sometimes-loved layer of insulation. Sovereigns cost money in management fees, but they avoid much of the scrutiny around deal structuring and public reaction that would otherwise come. That last point is important. While reaction to QIA’s tie-up with Monumental has been relatively muted, there are real concerns in the market about how fans will react to certain deals. The PGA Tour still faces that issue with ongoing merger talks with PIF’s LIV Golf.
Given the fact that many countries already have investments in U.S. sports investment funds, some countries may choose not to compete with the interests of their own LPs. As a hypothetical example, if the Country Investment Authority were an investor in Random Capital Partners and both were looking at the same shares in an NHL team, one could unintentionally drive up the price of the other.
GDP growth rateSome sovereign-backed funds like PIF are primarily focused on growing their country’s GDP. Saudi Arabia’s Crown Prince Mohammed bin Salman said so last year when asked about the fund’s sports ambitions. Passive investments in NBA teams aren’t the most direct way to achieve that. Instead, PIF has invested in sports sectors where it has an operational say or the ability to invest. host It’s hosting domestic events and drawing in tourists, as well as the billions of dollars the country has spent on developing its own soccer league and gradually taking over boxing.
Huge investments by sovereign wealth funds in other sports venues such as UFC (Abu Dhabi), LIV Golf (Saudi Arabia), the FIFA World Cup (Qatar) and even a $1 billion+ tennis offer would bring international visitors to these countries, which would have a bigger impact on GDP than what the major US leagues are currently allowed to have.
The War in Gaza: Last October, in the aftermath of the Hamas terrorist attacks in Israel, I Sportico I wrote a column about how the protracted fighting and international maneuvering to choose sides could complicate any U.S. deals made from the region. With the war still raging, people I spoke to recently were divided on whether that’s still true. Some named specific owners whose sentiments seem to have changed in the past nine months. Others were more skeptical, pointing to ongoing deals between Middle Eastern nations outside of sports.
Geography: One aspect of the QIA and Monumental deal that will be difficult to replicate is the location of the team: Many sovereign wealth funds target specific cities of interest for doing deals – cities with outsized political, cultural or economic influence (Washington DC, Los Angeles, New York, etc.).
This makes sense for Monumental: DC sporting events are popular spots for politicians and Supreme Court justices, and QIA already had a real estate investment in a 10-acre development just around the corner from Capital One Arena. But if social interaction is a big priority, it doesn’t seem like it’s happened in the past year. I’ve heard that QIA representatives haven’t attended a Wizards, Mystics or Capitals game since the deal closed last year.Sportico The transaction involved an entity with representatives connected to the QIA. A representative for the QIA did not respond to an email seeking comment.
A stagnant marketThere are an unprecedented number of minority franchise shares on the market right now, likely the result of a combination of soaring valuations and new institutional options that have expanded the buyer pool. But many of the people brokering these deals say the market is slowing. Two years ago, firms like Arktos Partners and the slow-moving Blue Owl NBA fund were steadily deploying capital. Arktos alone invested in about 20 sports teams in its first few years.
But industry insiders say deal value has fallen sharply over the past 12 months, as has deal volume. Some blame a gap in expectations between buyers and sellers. Some early PE deals were done at prices close to the control stake price, but that no longer appears to be the case. And contrary to the public’s perception of how they spend their money, sovereign wealth funds are just as price-sensitive as other pools of capital, sometimes more so.
timingWhile franchise sales usually take time, due diligence is especially complicated in deals involving foreign governments. That’s true on the league’s side — the NBA wants to know more about who’s joining the ownership team — but also on the funds’ side. Groups like PIF and QIA have also hired investment banks, auditors and lawyers to help with their transactions, and these investments typically require much more buyer-side due diligence than deals involving U.S.-based institutional investors. The QIA-Monumental deal, for example, took more than a year to fully close.
It doesn’t seem so crazy that other team investments may already be in the due diligence stage, slowly ironing out redlines, structures and other deal points. Next We’ll really know in 12 months’ time.
