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News Analysis
Credit funds take aim at clubs and many other sports assets
by Lisa Fu
Ares CEO Michael Arougheti bought a stake in the Baltimore Orioles baseball team. Apollo co-founder Josh Harris owns a stake in English Premier League football outfit Crystal Palace and serves as managing partner of a trio of US teams: the National Basketball Association’s Philadelphia 76ers, the National Hockey League’s New Jersey Devils and the National Football League’s Washington Commanders.
But sports investing is no longer just a hobby for well-heeled executives. Private credit funds are providing debt and taking minority equity positions in deals a world away from the major US leagues. Examples include English football teams, sailing competitions, sports equipment firms, sports-related media and more.
“The allocators want exposure to sports and sports-related businesses,” said Aaron Kless, CEO of Andalusian Credit Partners, which lists sports as a core pillar of its lending strategy. “Managers want to provide exposure to it, assuming the right risk-adjusted return and the right kind of attributes.”
Exposure for individuals
In December, CAIS Advisors announced it would give individual investors exposure to private equity and private debt investments in sports and related sectors. Avenue Capital Group, whose CEO Marc Lasry is a former co-owner of the Milwaukee Bucks basketball team, raised more than USD 1bn in late September for a similar sports-focused fund.
The fund has already supplied debt financing to Ipswich Town, an English second-division football club, and entertainment technology company Cosm. Cosm has content partnerships with the NBA, UFC (Ultimate Fighting Championship), sports channel ESPN and others.
In the autumn, Apollo launched Apollo Sports Capital, a business focused on investments in global sports and live events. Ares said in September that it had launched a sports, media and entertainment vehicle for affluent individual investors. And over the summer Partners Group told Creditflux’s sister publication Mergermarket that the firm wants to take its royalties business into the sports sector, among others.
Crystal Palace FC: Apollo’s Josh Harris owns a stake in the Premier League club
The concept of sports as its own asset class has become a hot topic over the past few years. The largest investors, particularly Middle Eastern sovereign wealth funds and rich, high-profile individuals, have been increasingly hooked by sports investing, Kless noted.
Many investors view the sector as being counter-cyclical and resilient to recession. Tellingly, during the COVID-19 pandemic many live sporting events were either cancelled or took place behind closed doors, but fan loyalty never wavered.
“Just think about all the different ways in which sports and entertainment are being monetised,” said Joe Smith, a partner at law firm McDermott Will & Schulte. “There’s enormous demand and somebody’s got to finance all that.”
For private credit managers, specialising in sports can be a valuable differentiator in a market where competition for fundraising is intense, said Heather Waters Borthwick, a partner at law firm Akin.
Opportunities extend beyond the largest sports franchises. Last year, BC Partners Credit furnished debt and convertible preferred equity to Riddell, a leading retailer of American football helmets. Ares has provided senior secured debt and equity to League One Volleyball, an operator of youth volleyball clubs. Comvest Credit Partners has supplied debt financing to Sportime, which runs tennis and sports clubs in the New York tri-state area.
Over the past few years, private equity firms have sharpened their focus on sports investments and “where the equity goes, debt follows”, explained Kless of Andalusian Credit. The firm is backed by hedge fund billionaire David Tepper, who owns the American football team Carolina Panthers and Major League Soccer team Charlotte FC.
Investing in sports is no longer a hobby for executives
Private credit funds, which find investment opportunities via relationships with private equity sponsors, are ready to provide the debt those sponsors need to clinch sports deals.
This can take the form of direct lending to sponsor-backed companies with ties to the sports industry, such as equipment manufacturers. But increasingly managers are supplying a mix of private debt and equity to back the acquisition of teams and franchises.
Many sports teams do not generate steady cashflow, and acquisitions are further complicated by caps on the debt allowed in a transaction. These are barriers for traditional bank lenders, but not for flexible private credit managers, which can also use the flexibility of their mandates to take equity positions in teams.
Last month Sixth Street closed a minority equity investment in the New England Patriots, an NFL team. Over the summer Ares took a minority stake in the France SailGP international sailing team.
