An emerging sports investment banker said this week leagues are a more attractive investment proposition than teams, citing leagues’ dominant strategic role in driving revenue. “The value of the leagues has gone up, probably greater than the value of the teams,” said Gregg Lemkau, co-CEO of BDT & MSD Partners, which has recently represented the Eagles’ LP sale and the Celtics controlling interest sale. He later said: “If I [had] a choice to invest, I’d go league-first, because that really controls all the economics, and then team and down from there.”
Speaking at an event staged by Semafor, Lemkau told a sold-out room at the New York Stock Exchange that leagues “you can invest in” -- F1 and TKO Group, for instance -- have generated massive growth, and the same logic holds true in the Big Five, where you cannot directly buy equity. The teams are therefore acting as indirect stakes for his clients. “When we talk to owners of NFL teams or MLB teams, yes, they think they own the local franchise, but they really think they own 1/32nd of the NFL or 1/30th of MLB, and that’s kind of how they think about it from an overall value perspective.”
Lemkau also predicted that leagues will find more ways to profit from the growing activity in the team-equity marketplace. “I wouldn’t be surprised to see the leagues begin to grab back some ownership of that themselves,” he said. “I don’t think they’d raise the fund themselves, but participating in economics around a fund. I think there’s a way for the leagues to take advantage of the positive way and control a little bit more of the economics around some of what’s happening.”
(This is already happening in the NFL, to an extent. Also worth noting about his desire to invest in the league: The NFL seems to be considering external capital for 32 Equity.)
Downplaying PE’s role in driving up fan costs
Lemkau said one thing that surprised me. He downplayed concerns that private equity will worsen sports’ middle-class affordability challenges because institutions are betting on valuation growth, not income. “The return tends to come from the difference between what you sell it for and buy for as opposed to the income along the way. So very few of these are being run for cashflow or income stream dividends.”
That’s true, but valuations are a direct reflection of revenue. Rest assured, the dozens of team employees SBJ reporters talk to daily are under tremendous pressure to increase the top line, pressure that’s only growing with valuation growth and sophisticated LPs joining with high expectations for their eventual exit.
