The NFL will allow private equity to invest but will retain control over team decisions.

• NFL team owners approved the sale of up to 10% of teams to private equity firms, with valuations soaring in recent transactions.
• Private equity firms have been hesitant to invest in the league, and once they do, they will mainly provide capital without much involvement.
• Private equity ownership in NFL teams is the only major U.S. sports league holdout.

Private equity investors are being allowed entry into the National Football League, but their role is currently restricted.

NFL team owners approved private equity firms to hold up to a 10% stake in a franchise, but the investors must maintain a silent role in the U.S.' most exclusive professional sports club.

Since 2019, the NFL has had the advantage of observing how private equity ownership has unfolded in other significant U.S. leagues, which have allowed it to make an informed decision after extended discussions.

"According to Bain Capital co-chair Steve Pagliuca, who spoke on CNBC last week, big sports is currently considered an investment class. Pagliuca emphasized that this situation is different from private equity having any influence on the franchise."

Private equity's deep pockets are likely to be welcomed by many teams, according to industry experts. The funding could be used for stadium upgrades and construction, as well as to cushion the skyrocketing valuations of teams, which are worth an average of $6.49 billion, according to CNBC's Official 2024 NFL Team Valuations.

Private equity firms will not have a full seat at the table despite the league and its owners welcoming their cash.

Recently, the prices for NFL franchises have soared, with the Washington Commanders selling for $6.25 billion in 2023, the Denver Broncos changing hands for $6.2 billion in 2022, and the Carolina Panthers selling for $2.275 billion in 2018.

"The issue is that not many people can afford a team, which raises the question of how many families have that much money. As Shirin Malkani, co-chair of the sports industry group at Perkins Coie, pointed out, there is a liquidity problem if we don't allow more entities to enter the market as buyers. This will ultimately help valuations. It's a straightforward solution."

Private equity can provide breathing room for families who own teams and face estate taxes by offloading a stake.

Having access to private equity funds enables you to utilize the additional liquidity to pursue any direction. The 10% from private equity represents an opportunity but not a necessity, as Anthony Mulrain, co-chair of Holland & Knight's sports industry team, stated.

One toe in

The NFL is the only major U.S. sports league that has not allowed private equity to invest in its teams, and the league was closely monitoring them.

Since 2019, the NBA, MLB, NHL, and MLS have allowed private equity ownership of up to 30% of teams.

"Michael Considine, a partner at Kirkland & Ellis who leads the law firm's pro sports efforts, stated that the NFL has been very thoughtful in its approach. "The rules created around institutional capital are designed to safeguard the integrity of the game, just like in every other league," he said."

Each fund or consortium under the NFL's rules can enter into deals with a maximum of six teams, with a minimum hold period of six years for their investments.

The league plans to take a share of private equity profits from future sales of ownership stakes, a practice that no other league currently employs.

Cleveland Browns owner Jimmy Haslam stated on CNBC that a minimal sharing of profits, which has not yet been finalized, is equitable and private equity groups agreed.

The media rights deals have caused team valuations to increase, attracting private equity's interest. However, the industry will only provide funding and have minimal involvement with the teams.

Private equity firms typically assume management and board positions when investing, but in the U.S. sports industry, they have limited influence over operations and personnel.

Private equity funds may present challenges for limited partners who invest in pro sports teams, particularly in the NFL.

Private equity investments usually come with a set duration, ranging from three to seven years, and an anticipated return. However, investments in sports teams lack a clear exit or control path, and they often do not allow governance, which may conflict with some limited partner requirements in funds, according to some private equity investors who wished to remain anonymous due to their investments.

"These ownership interests are similar to those of a silent partner, so nothing changes for the team. It's business as usual," stated Mulrain of Holland & Knight.

Private equity firms invest in both cash and human capital, and there may be some management ingenuity where investors whisper into the owners' ears about connectivity of the franchise and other businesses, according to Mulrain.

Deep benches

The NFL's reluctance to allow private equity investment is evident in the lengthy process and the limited number of investors initially approved.

CNBC previously reported that collectively, these investors have $2 trillion in assets and plan to invest $12 billion of capital, including leverage, over time.

Each fund has a history of investing in sports and possesses a substantial amount of funds.

In a short time, the three NFL-approved firms have accumulated a significant amount of investments.

In 2022, Ares Management officially entered the sports industry by raising a $3.7 billion fund exclusively dedicated to sports and media. The fund has an advisory board consisting of former players and sports and media executives. Ares Management has already been involved in various transactions involving either equity or debt in teams such as European soccer's Atletico de Madrid, MLB's San Diego Padres, and the NHL's Ottawa Senators, among others.

Arctos Partners, a newer investor on the approved list, is considered a likely NFL investor due to its deep bench of team investments, according to sources.

The sports-focused fund, which was launched in 2019, was closed earlier this year with $4.1 billion in commitments. This was a prompt follow-up to the first fund, which had closed with over $3 billion in assets under management.

Arctos has amassed approximately twenty stakes in sports and e-sports teams, including the NBA's Golden State Warriors, MLB's Los Angeles Dodgers, and MLS' Real Salt Lake. Additionally, it owns stakes in Harris Blitzer Sports & Entertainment, which owns the NHL's New Jersey Devils and NBA's Philadelphia 76ers, as well as Fenway Sports Group, the parent company of the MLB's Boston Red Sox and NHL's Pittsburgh Penguins.

The NHL's Tampa Bay Lightning, which is currently up for sale, is also owned by Arctos, who is expected to relinquish their stake as part of the selling process, according to a source.

Only Arctos has been approved to invest in equity across all five major North American sports leagues, pending final approval.

Sixth Street Partners, one of the initial circle of investors for NFL teams, has been expanding its presence in media and sports. The firm has invested in the NWSL's Bay F.C., the NBA's San Antonio Spurs, and Spanish soccer's Real Madrid, as well as media rights in Spanish league soccer.

A consortium comprising Dynasty Equity, Carlyle Group, CVC Capital Partners, and Ludis, founded by NFL running back Curtis Martin, can also acquire stakes in teams.

The investors declined to comment beyond earlier statements released after the NFL vote.