Bearish

Courtside

Arctos Partners is “the world’s largest aggregation of institutional capital dedicated exclusively to professional sports investment”.

Last year set a record for sports related investment:

• $6B Washington Commanders sale: biggest sports team sale in history; Dan Snyder sold to Josh Harris with Arctos and Ares Management providing the private equity financing

• WWE-UFC Merger: the two leagues merged to form a $21B entity known as TKO. Dana White shifted from UFC President to CEO

The influx of capital into sports cannot be discussed without mentioning Arctos…

Earlier in April, the firm raised $4.1B, significantly over a $2.5B target, in their second fund dedicated entirely to sports investment.

More recently, an Arctos managing partner made an interesting statement about areas of opportunity for the fund, as well as assets which they plan on avoiding.

Before we discuss that, let’s take a glance at their current portfolio + strategy

Moneyball

Arctos takes pride in being the first investment platform exclusively dedicated to investing in sports globally, across leagues and franchises.

• Long term investors without aspirations for control ownership.

• Collaborative approach to investments - they own stakes in the Boston Red Sox and Liverpool F.C. through their investment in Fenway Sports Group.

• Provide bespoke financing options to support acquisitions from new control owners (as seen in Washington Commanders Sale)

Their portfolio includes a number of assets across the NBA, MLB, NHL, major European soccer leagues, racing leagues, and more.

With a fresh $4B in hand, sports fund AUM eclipsed $7B.

Let’s look at what they plan on doing with the ammunition.

Hibernation

Arctos has a deep appreciation for the stability of leagues such as the NBA, MLB, and NHL.

The underlying commonality between these leagues seems to be geography - all three represent major American sporting platforms.

But there are deeper implications here. America’s top sport leagues are highly predictable from a financial perspective. Operations are fairly anti-competitive, with teams having a monopoly over their respective region and getting paid by the league despite losing seasons.

There are a number of risks in European sports assets:

• Promotion / Relegation: The worst teams in a given league fall to the league below them while the best teams rise. For comparison’s sake, imagine if the NBA G-League Champion got moved up to the NBA each year while the worst team fell to the G-League.

• Broadcast Money Distribution: The top teams get a larger share of the league’s broadcast earnings, which provides an interesting incentive. But from an investor’s perspective, this feature increases the volatility of revenue streams.

• Saturated Market: A number of larger American investors have flooded European leagues - most notably soccer leagues - with capital in the past 5 years. Arctos itself owns a direct stake in Paris Saint-Germain, as well an indirect stake in Liverpool F.C. and Italian soccer club Atalanta, both through its investment in Fenway Sports Group.

Charles makes his stance clear, stating “it would be a surprise if the firm made another European investment in the next 18-24 months”.

While Arctos continues to sleep on European sports, their new war chest implies that the next few years will see a number of large American sports deals with eye popping valuations

Would be wise to keep an eye on the media rights deals currently being negotiated

Headlines

• NBA targets $76B windfall in new TV rights deal, 3X the current deal. Bloomberg article here

• Peloton shares soar as private equity buyout reports emerge. CNBC article here

• Tesla’s China rival Zeekr eyes $5B IPO in the U.S. Quartz article here

• Akamai confirms acquisition of Noname for $450M. Techcrunch article here

• Billionaire investor Stanley Druckenmiller cut his NVIDIA stake. CNBC article here