Washington Commanders owner Josh Harris announces that private equity investment in NFL teams is on the horizon.

• At the CNBC CEO Council Summit, Josh Harris, owner of multiple sports teams and co-founder of Apollo Global Management, stated that he anticipates an increase in private equity and institutional investor deals for sports teams.
• The purchase of the NFL's Washington Commanders by Harris highlights the growing valuation of sports teams, as well as the increasing capital needs for teams.
• Institutional investors are now allowed to own non-majority stakes in teams in most professional U.S. sports leagues, except for the NFL, which has not yet permitted it.

In 2023, Josh Harris, a private-equity investor, led a group that spent $6.05 billion to buy the Washington Commanders, which remains the most expensive purchase of any professional sports team.

As the owner of several other sports teams, including the NBA's Philadelphia 76ers, NHL's New Jersey Devils, and English Premier League's Crystal Palace, and a founder of Apollo Global Management, Harris stated that the acquisition of the Commanders was one of the most challenging deals he has ever been involved in.

The significant challenge of purchasing one of the NFL's 32 teams was mainly due to the capital requirements, despite the involvement of Amazon founder Jeff Bezos and the controversy surrounding former owner Dan Snyder.

If you're not among the world's wealthiest 50 individuals, writing a $5 billion equity check is challenging for anyone, according to Harris. During a CNBC "Squawk Box" interview at the CNBC CEO Council Summit in Washington, D.C., on Tuesday, Harris shared this insight. To purchase the team, Harris collaborated with a 20-person group comprising NBA legend Magic Johnson, former Google CEO Eric Schmidt, and David Blitzer, the Blackstone Group senior executive who had previously partnered with Harris to buy the 76ers and Devils.

Harris remarked that the process served as a "wake-up call" for the NFL, stating that the current NFL rules on forming groups to purchase a team are "restrictive."

"Never before had that amount of capital been raised, as Harris stated."

The value of sports teams has increased by 10% to 15% annually as the sports industry continues to expand. In 2018, David Tepper broke the NFL record for a team purchase with his $2.275 billion acquisition of the Carolina Panthers. In 2022, Rob Walton, a Walmart heir, led an ownership group to buy the Denver Broncos for $4.65 billion.

The trend of rising team prices is evident across sports, with Mat Ishbia of United Wholesale Mortgage paying $4 billion for the Phoenix Suns in 2022, surpassing the previous NBA record of $2.35 billion paid by Joe Tsai for the Brooklyn Nets. Steve Cohen, a hedge fund manager, also paid $2.4 billion for the New York Mets, breaking the then-MLB record of $2.15 billion Guggenheim Baseball Management paid for the Los Angeles Dodgers in 2012.

The growth of the underlying businesses of the teams and media rights has kept valuations growing and cash flows high, but the capital-intensive nature of running a team has also increased, including player salaries, staff, and the cost of maintaining or building an arena or stadium.

Harris stated that releasing capital from other sources to aid in the expansion of businesses is the appropriate solution.

In recent years, U.S. pro sports leagues have relaxed their rules against private equity investors, allowing them to own a team, except for controlling ownership.

The NFL's stance against PE ownership is currently being reviewed as team values continue to increase.

"NFL Commissioner Roger Goodell stated at the league's spring meeting in May that there is a lot of interest in the private equity space. He added that the league is making real progress on potential private equity and expects something to be done by the end of the year."

At the meeting, Goodell announced that the league's owners agreed to increase the debt limit for franchise acquisition to $1.4 billion, which is a $200 million increase and another challenge that Harris mentioned in the purchase of the Commanders.

Would allowing private equity investors into sports have any negative effects on the teams or the league's overall strategy, as those investors focus on an exit?

In the NBA, institutional investors cannot act as controlling owners, and there is no compulsion to leave; the primary owner has the final say in decision-making.

At the CNBC x Boardroom Game Plan Summit last year, Stanley Kroenke, owner of several professional sports teams including the NFL's Los Angeles Rams, stated that the rising values of NFL teams are becoming unaffordable even for billionaires, which is a concern the league is monitoring and where Kroenke has been among owners advocating for innovative solutions.

Kroenke stated that the NFL is a league with numerous rules, and while many people agree with him, they are unwilling to take action.

Kroenke stated that the league will face more pressure due to sky-high valuations, as the NFL's valuations have significantly increased since he first joined the league.

The influx of professional investors into sports has undoubtedly transformed the industry, but Harris emphasized that there remains a substantial disparity between the corporate realm and sports.

"In business, success is measured by EBITDA or stock price, while in sports, it's about winning games and bringing championships to the city; the second goal is to create lasting memories and protect these franchises," he stated.