The owners of the 32 National Football League (NFL) franchises voted in favour of a major change to club ownership rules yesterday, allowing private equity funds to purchase stakes in teams.
NFL ownership rules had allowed teams to have limited partners, but did not allow institutional investment as part of ownership. The rule change will now allow capital pooled from various investors to be used to purchase a stake in franchises of up to 10%.
The scope of these investments will still be limited, however. The league has vetted private equity funds and identified four which it is content with having a role in franchise ownership – Arctos Partners, LP; Ares Management Corporation; Sixth Street; and a consortium group including Blackstone, Carlyle, CVC, Dynasty Equity and Ludis.
Teams will be able to sell stakes to multiple private equity funds, but the total stake sold in each franchise cannot exceed 10% and each individual stake held by a private equity fund must be for at least 3%.
This will of course also mean that funds may wish to hold stakes in more than one team, and so the NFL has set a limit of six teams per fund. Investment firms that do so will be subject to specific rules around information disclosure.
The league’s primary rationale for the change is a desire to allow greater liquidity on the business end of American football. The NFL believes that rising valuations of teams, with the league already the most valuable franchise on earth, have made sales of franchises and ownership changes more difficult.
“We’ve been very deliberate on this private equity,” said NFL Commissioner, Roger Goodell “I think it’s an access to capital that I think has been of interest for a long time. Other leagues have been doing it; we’re doing it with a cap at 10%.
“So it’s a much less significant position (than other leagues). I think it’s an appropriate thing to give teams that liquidity to reinvest in the game, into their teams. I think it’s a positive development for us. I don’t think all teams will take advantage of that, but they will if they need that. It’s a very good opportunity for them.”
The NFL has been teasing a change in its private equity rules for some time, with Goodell stating back in May that owners ‘agree with the direction that we’re going’. He made these comments after NFL owners approved an increase in the league’s debt limit from $200m to $700m, again with ownership transitions in mind.
Major changes like this never occur without concerns, or pushback, however. NFL fans have been voicing their concerns on social media about the perceived implications of private equity ownership in the NFL
Notable concerns include fans’ fear that private equity firms may exercise influence over a team’s decision making, such as buying lower value players to keep costs low or pushing for sponsorship and branding on team jerseys and helmets, as is often seen in other sports like association football/soccer.
The NFL, however, maintains that allowing private equity firms to invest in teams will change very little. To ensure that private equity involvement remains what it calls a ‘passive investment’, the league will not grant any firm voting rights in a franchise.
In order to have a controlling stake in a franchise, an owner/investor must hold a share of at least 30% – as private equity firms’ NFL stakes will be capped at 10%, these companies will be unable to secure such a stake, unless the rule is changed again in the future.
“This won’t change a thing,” Goodell remarked. “This is 10% of a team. All it is is a silent position that would allow access to capital for those teams that wish to offer 10% of their team.
“They will not be in any kind of decision-making influence in any way. It was very important when we began this that we strengthened the ownership. … We think the single-owner structure has been very valuable … and this does not impact that at all.”
