Professional sports teams present a lucrative investment opportunity. Data suggests that sports teams have outperformed the S&P 500 over the past few decades. Historically, ownership of sports franchises was exclusively the realm of a handful of individual billionaires. A recent decision by the NFL has opened the door to investments by private equity firms, subject to certain conditions.

Nearly all of the NFL owners voted in favor of allowing an approved list of private equity firms to invest in NFL teams. At the August 2024 meeting, it was decided that a select group of private equity firms could purchase an up to 10% stake in an NFL team. The approved list included Ares Management, Blackstone, Carlyle Group, CVC Capital Partners, Dynasty Equity, and Sixth Street Partners.

A single private equity firm is allowed to purchase stakes in multiple NFL teams. The minimum holding period in each deal is six years and the investment does not come with voting rights. Although pension funds and sovereign wealth funds are prohibited from directly buying stakes in NFL franchises, pension funds and sovereign wealth funds are allowed to be investors in private equity firms that have ownership stakes in NFL teams.

The investment criteria was designed to make sure private equity owners remain passive owners. The NFL wanted greater access to capital while not impacting how the NFL teams are run. The NFL’s announcement states that “an executive from a private equity firm is not going to be sitting in the draft room choosing the next quarterback.”

Outside of football, professional teams for other sports have been more open to private equity ownership stakes. The National Basketball Association (NBA), National Hockey League (NHL), Major League Baseball (MLB), Major League Soccer, and National Women’s Soccer League all allow up to 30% private equity ownership.

Robert Kraft, the owner of the New England Patriots, views the development positively. “We thought it’s an opportunity for us to really change how some of the ownership groups have real problems with the illiquidity, they have big families and have to solve a lot of problems that are not usual. And so we thought this was a great source of capital and could be done in a way that was very functional and wouldn’t affect the operation.”

The infusion of new capital from private equity firms will help with funding stadium renovations, growing the fan experience, and other new projects. The new pool of buyers is also likely to increase demand for NFL teams and therefore push up prices.

Private equity firms purchasing a stake in an NFL team should keep the potential tax consequences in mind. NFL teams are typically considered pass-through entities for U.S. federal income tax purposes. They are treated as partnerships and an annual Schedule K-1 filing is required with the IRS. In addition, a private equity firm may be subject to local and state tax payments and filing obligations as a result of an NFL team’s business registration in a particular jurisdiction.