Private Credit Expected to Play a Larger Role in Sports Financing
Private Credit Expected to Play a Larger Role in Sports Financing
Goldman Sachs is reportedly creating a ‘sports franchise’ unit inside of its investment banking division. The group will provide wealthy clients with streamlined access to investment opportunities within the sports industry.
Goldman has a long history of working with major sports properties as an investment bank on ownership tractions, and in helping club owners to secure equity and debt financing for capital intensive projects like new venue construction.
It makes sense that the multinational investment bank and financial services company would look to capitalize on growing interest in sports as an asset class. Professional franchises are in relatively short supply relative to other investment opportunities and Goldman has access to deals.
But there are other ways for wealthy individuals to invest in pro teams, and they can gain exposure to multiple franchises by becoming limited partners in a sports focused fund (think: Dyal Homecourt, Arctos Partners) or multi-club ownership group (think: Fenway Sports Group, Harris Blitzer Sports & Entertainment).
It seems more likely that Goldman could be leaning into a growing market for private credit.
Private credit financing, typically considered non-bank lending, has surged in popularity over the last year (largely outside of sports). In fact, we are said to be in a ‘golden moment’ for the $1.5 trillion industry given the capital flowing into the investment vehicle (see: 10% CAGR).
One primary reason is the return structure. Private credit can generate higher yields and more consistent returns, while having seniority in repayment over equity investments. This makes it an attractive alternative asset relative to more traditional classes with relatively low, but certainly not zero, risk.
Private credit is expected to find a place in sports as club owners increasingly look to leverage real estate to keep franchise valuations rising.
“There is now a much greater willingness by ownership groups to invest [additional] capital in real estate and infrastructure.” Tim Katt (managing director, sports & entertainment, Transwestern) said. “This direct investment approach allows for the ability to unlock new revenue streams both in premium experiences and mixed-use development.”
Multiple clubs are in the process of, or exploring, new stadium construction. Several projects include more than just the playing venue.
The Battery surrounding Truist Park in Atlanta is frequently cited as the roadmap for clubs to follow. The Minnesota Vikings have demonstrated how teams can leverage their headquarters and training facilities to anchor larger development projects.
“The beauty of real estate is that it has the ability to create a 365 day per year connection with fans while sitting completely outside of the league revenue sharing model,” Katt said. “Real estate is the biggest opportunity today in sports and entertainment.”
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One consistent challenge sports owners face, however, is the lack of public financing available for stadium related projects. Government entities at the state, regional, county, and municipal level have become weary of using public funds on sporting venues.
That should create opportunities for new allocators–including private credit lenders.
Stadium infrastructure projects fit the profile successful private credit investors look for as sports organizations maintain consistent revenue streams for loan repayments.
Greg Carey and Dave Dase will lead Goldman’s new sports franchise unit. Carey secured the financing for recent stadium/arena projects in New York (Yankees), the Bay Area (49ers), and Los Angeles (Clippers).
Goldman, particularly through Carey’s work, should be able to provide sports franchise clients with unique access to these types of opportunities (and collect commissions in the process).
It is important to note that Goldman has not yet confirmed the exact types of opportunities it plans make available through its new unit. There is also not always a clear delineation between equity and debt. Private debt deals often convert into preferred equity with payment-in-kind (PIK) interest that is only paid out on a sale of all, or a portion of, the team’s equity or assets.
It would make sense, however, for Goldman to provide access to private credit transactions. It would be a meaningful differentiator from other sports banks, and a novel way to potentially provide clients with outsized returns inside a business with skyrocketing valuations.
“Investment into sports is maturing in the same way other alternative asset classes grew in the 2000s and 2010s.” Katt said. “Private real estate finance is [one example] of a unique way to participate in the growth of professional sports value creation without the barriers to entry or lack of control in passive team ownership.”
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About The Author: Adam Grossman is the Vice President of Business Insights & Analytics at Excel Sports Management. He works with companies, sports properties, media rights holders, athletes, agencies, and events to determine the value of their most important assets. Grossman is also a professor at Northwestern University Master’s In Sports Administration program and the co-author of The Sports Strategist: Developing Leaders for a High-Performance Industry. You can find him at [email protected].