By Lilit Kalantar, Marlon Walde, and Nikolai Verbov
Sports have always been an attractive investment opportunity, with private equity investors looking to capitalize on the industry’s exceptional growth and non-cyclical nature. While private equity investors have been active in European sports management, they only recently received approval to invest in professional sports clubs in the United States. One such deal that stands out is the investment made by private equity group Sixth Street in the National Women’s Soccer League (NWSL). This deal not only marks Sixth Street’s entry into US sports management, but also involves a record expansion fee of $53 million.
This article explores the rationale behind the Sixth Street-NWSL deal, value creation strategies in sports and soccer clubs, and the future outlook for women’s soccer in the US.
Deal Structure & Rationale
While private equity investors have historically been quite involved in the ownership of sport teams in Europe, they have not been active in the US before. Most of all, this happened due to the fact that they received official approval to invest in the professional sport clubs as late as in 2019. This approval pushed private investments into US sports management. Nevertheless, the current deal can still be considered outstanding, because the private equity group not only committed to become a majority investor, which is still a rare case in the US, but also paid a record high expansion fee. In fact, the commitment of $125 million includes an expansion fee of $53 million, which is 10 times than those paid in 2020. In general, expansion fees represent the price, which is paid to expand the collectively owned league by attaching an additional team. The NWSL announced that Sixth Street’s investment will create the 14th team of the league, which is expected to start playing in 2024. Key commitments include significant infrastructure investments to support the club’s growth and operations, including building a state-of-the-art training venue in a yet undisclosed location, as well as hiring front office positions.
According to Alan Waxman, the Chief Executive of the investment firm, the intention is to keep the franchise for as long as 10 years. This decision can partially be due to the fact that the female league is currently in the process of actively catching up with its male counterpart, and in 10 years is projected to become at parity in terms of valuations, media revenues, sponsorships, etc. For Sixth Street, this investment fits perfectly in their already developed and long-term portfolio of sport teams, which includes such clubs as Real Madrid, FC Barcelona, and the NBA’s San Antonio Spurs.
On the other side, Berman, the Commissioner of the National Women’s Soccer League, explained their rationale behind the deal in the following way. According to Berman, the league is not looking for a buyer with a history of investing in the female sport, but is rather drawn to investors with a concrete business value proposition that can justify the valuation of the investment such as the Sixth Street.
Value Creation in Sports and Soccer Clubs
While the sports industry only saw few private equity investments in the past, the Covid-pandemic seemed to act as a catalyst for investments into the sector, with more and more funds targeting league or club investments nowadays. The segment is inherently interesting for financial sponsors as the industry saw exceptional growth in the last years, proving to be non-cyclical during the pandemic with ever increasing valuations. In addition to industry tailwinds, the recurring revenue component stemming from media rights is highly attractive for levered buyouts present in the private equity world.
But how do financial sponsors create value by taking stakes in sport leagues or individual clubs? Typically, funds are exclusively active in the economic and commercial aspects of the business, leaving the sports management to dedicated parties. There are two main value creation strategies which are usually pursued in parallel by investors: increased commercialization & monetization of the business on the one hand, and enhanced governance on the other.
Value through increased monetization is relatively straight forward: by creating more revenue streams for the league’s/club’s fan-base, higher proceeds can be generated. This can be done through a mix of media rights, sponsor partnership, tickets and merchandise. The growth opportunities offered by these revenue streams include, but are not limited to, digitalizing the viewer experience, introducing new commercial structures and increasing marketing activity to reach broader audiences. This can be achieved organically or through acquisitions, including stakes in new entities that manage key broadcasting rights.
The second avenue of value creation focuses on the optimization of league/club governance. Ownership of the businesses can be held by a variety of parties with diverging interests, making it fairly complex. Reconciling these interests under a unified front while propelling transformational change at the management level is a key value lever utilized by financial sponsors. Given that the majority of league/club investments are minority stakes, the approach to governance is partnership based, with changes proposed but not enforced by the funds. The sponsor offers strategic advice and guidance for business improvement, but it is essential that mutual agreement between all relevant stakeholders is present.
Future Outlook for Women’s Soccer in the US
Women’s soccer in the United States has a promising future as it continues to grow in popularity. The National Women’s Soccer League (NWSL) has seen steady growth over the years, with more investment, media attention, and participation, including landmark broadcast deals with CBS Sports and sponsorship deals with major companies like Nike and Verizon. The US women’s national team has a talented group of young players, and with the 2023 Women’s World Cup set to be hosted by Australia and New Zealand, they will be looking to defend their title.
According to a report by television analytics firm Samba TV, TV viewership of women’s sports in the US exploded in 2022, with audiences for the Women’s March Madness tournament, the WNBA Finals, and the NWSL Championship Game all increasing by wide margins year-over-year. The NWSL Championship Game’s viewership grew by an astounding +453% year-over-year from the 2021 iteration. With the rising tide of soccer and the explosion of interest in women’s athletics, the NWSL is widely expected to expand into two new markets in the spring of 2024, with further expansion likely over the coming years. New clubs will need specialized training facilities and equipment to practice with, vendors to purchase from, and retail spaces from which to sell merchandise.
Thanks to investments like the one from Sixth Street, the NWSL is also set to expand to 14 teams in 2024, following a series of initiatives introduced by Commissioner Jessica Berman, including raising the salary cap, increasing the number of staff at the league office, and the number of sponsorship deals per team, which averages 37, more than any other women’s sport, according to Sponsor United. Attendance and ticket sales have risen, with season ticket holders up by 20% and attendance up by 80% since 2020. Sponsorship is up by 87%, and ticketing revenue is up by 125%.
In addition, the NWSL has scored primetime coverage and the launch of the Women’s Sports Network, the first 24/7 channel dedicated to women’s sports. The league has also partnered with EA Sports to feature NWSL players and clubs in EA Sports FIFA game.
While men’s sports still dominate the traditional sports pages, people now have more choices for where to get their sporting news, and blogs and newsletters that focus on women, like Lindsay Gibbs’ Power Plays and Alison Wade’s Fast Women, give the same intense focus to women’s sports that has always been given to men. Top brands including Nissan, Geico, and Capital One reached more than 6 million households during the women’s tournament.
In conclusion, the recent investment made by Sixth Street in the National Women’s Soccer League (NWSL) represents a significant milestone for the sports industry. This deal not only signifies the growing interest of private equity firms in sports management but also highlights the potential of women’s soccer in the United States. The investment is expected to lead to increased monetization and commercialization of the league, along with enhanced governance, which will result in improved league operations and revenue streams. Moreover, the NWSL’s promising future, as evidenced by its growing popularity, media attention, and participation, is set to continue, with further expansion and growth expected over the coming years. Overall, this investment signals a new era in sports management and presents significant opportunities for investors, stakeholders, and fans alike.
Sources:
https://www.ft.com/content/4c07e452-9884-4ddc-9c29-1cfbfafaf634
https://www.buyoutsinsider.com/theyre-in-the-big-leagues-now/
https://sriexecutive.com/news/private-equity-is-changing-football/
https://www.pehubeurope.com/private-equity-european-footballs-growing-fanbase/
https://samba.docsend.com/view/ikgwjgnraauya5pf?submissionGuid=a637b730-8c83-49f7-bd0a-5b9f3a09ca14
https://www.cnbc.com/2023/03/21/womens-soccer-faces-big-year-nwsl-season.html
https://www.wsj.com/articles/national-womens-soccer-league-san-francisco-boston-utah-11674857126
Comments are closed.