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One of America’s longest running pastimes is professional sports. Yet, there has been less public investing in professional sports teams than one might expect. Still, there are a lot of reasons why being publicly traded makes sense for pro sports teams and why they can be an attractive investment for investors, too.
Pro sports teams have been publicly traded on and off for decades
Some people might be surprised to learn that a number of different professional sports teams have been, or currently are, publicly traded. In the past:
- This season’s NBA Champion Boston Celtics went public back in 1986 – just a few months after winning the NBA Finals that season. But they went private in 2002 (no title that year).
- In the ‘90s, the MLB’s Cleveland Indians (now Guardians) and the NHL’s Florida Panthers both went public (on Nasdaq) for a few years each.
Today, investors are able to invest in six different sports organizations:
- The Atlanta Braves (BATRA & BATRK) are listed on Nasdaq.
- The New York Knicks and New York Rangers via their parent company, Madison Square Garden Sports Corp. (MSGS).
- The same is true for the Toronto Blue Jays (MLB), Maple Leafs (NHL), Raptors (NBA) via Rogers Communications Inc. (RCI).
- You can even invest in football clubs (soccer for Americans), with Manchester United (MANU) listed in the U.S., while Juventus and others are listed abroad.
- F1 fans can invest in Liberty Media (FWONA & FWONK) on Nasdaq, the sport’s parent company.
- Similarly, TKO Group (TKO) owns UFC and WWE wrestling.
You might be interested to know that their combined market value is about $75 billion (chart below) and, according to FactSet, 70% of that is available to be publicly traded (green bars).
Chart 1: Sports teams’ market caps vary significantly, as do their floats
Surprise! You might already own a sports team via ETFs
Many of the teams are already included in major indexes. For example:
- The Braves are in the Russell 2000.
- The Knicks and Rangers are in the S&P 600.
- F1 is in the Russell 1000.
- The UFC and WWE are in the S&P 400.
That means if you own exchange-traded funds (ETFs), especially small- or mid-cap ETFs where they’re mostly included, you might already be a minority owner of a team!
Importantly, inclusion in indexes also means that these listings are highly liquid.
Sports teams have been good stocks to own in recent years
Of course, for investors, what matters most is whether a stock is a good investment.
In recent years, sports teams have been good stocks to own (although we all know past performance is no guarantee of future returns!).
Benchmarked against the S&P 400 mid-cap index (chart below, purple line), we see that most of the U.S.-listed sports teams’ stocks have outperformed their peers over the last couple years, with the UFC and WWE (TKO) being the standout.
Chart 2: Sports stocks have outperformed other mid-caps
Even though many teams are still private
The majority of teams are privately owned, but between actual transactions and Forbes’ estimates, there’s a lengthy record of valuations. Morningstar researched sales over the last 20 years, finding that the average sports team values have grown at least twice as fast as the S&P 500 (chart below) – for the NBA it’s 3x, for the MLS it’s 5x!
Chart 3: Sports team values have outpaced the S&P 500 over the last 20 years
Yet another benefit of public stock markets
Public stock markets help connect investors and entrepreneurs — providing cash to power new operations and growth to companies, as well as dividends and growth to investors.
Public equity markets benefit sports teams in the same ways they benefit company IPOs, namely:
- An IPO is a source of funds: A paper from NIU suggests that an IPO could help the team attract star free agents or invest in new facilities for fans, enabling them to grow revenues. In recent years, taxpayers have been less willing to cover the costs of stadiums, with only 40% of the cost covered, half the share they covered in the ‘90s.
- Constant liquidity: Trading on an exchange solves a lot of the problems typically associated with buying or selling a pro sports franchise – a sometimes long and public process.
- Stocks attract new, long-term, investors: Listed companies are more accessible to mutual funds and retail investors, a combined pool of tens of trillions of dollars. Both represent a new, broader, often long-term investor base. As teams have become increasingly expensive, the addition of potential buyers expands who can afford the potentially multi-billion-dollar price tag to buy a team.
- Public prices lower costs of capital: With continuous bids and offers quoted on exchanges, investors can value the sports teams more accurately and find liquidity whenever they decide to invest. This has been shown to reduce the costs of capital.
- Incentivize long-run performance: Building teams that can be competitive over the long run benefits investors and stock prices, as well as fans! Research from William & Mary suggests that, since league offices should already have this long-term vision, they’re great candidates for an IPO. The success of this strategy has already been demonstrated by F1’s commercial side of the sport going public, while its individual teams have separate ownership.
Sports teams might also be good for investor portfolios
Although sports teams are a little different from more traditional companies, there are a number of similar reasons as to why adding a sports team to your portfolio might make sense.
- Live sports are an increasingly precious commodity. Last year, 56 of the 100 most-watched telecasts were live sports. As a result, media rights deals for sports keep rising. The NBA recently signed an 11-year media rights deal for $76 billion – at $7 billion per year, that’s more than 2.5x the annual fee of its last deal. Annual TV and new streaming rights deals for sports have doubled in the last decade to $30 billion a year.
- They’re more recession-proof. A report from Morningstar notes that long-term media rights deals are paid out regardless of the economic cycle, providing downside protection against recessions, and that attendance has proven resilient to recession.
- They provide diversification. Reporting from Sportico has highlighted that sports teams are unlike any other asset out there, and as such, they’re “non-correlated” with other assets, providing important diversification. Also, some teams have exposure to venues and merchandise in addition to media rights on the team itself.
- It’s fun! For most investments, the only thing “fun” about it is when the price goes up. But, for sports teams, if you’re a fan of the team, it gives you the opportunity to own a piece of your favorite team!
Equity listings are a win-win-win for owners, investors, and leagues
Lots of other enterprises trade on exchanges. For team owners, trading provides liquidity that allows ownership to change hands more easily and price discovery to more transparently show a franchise’s value. It also increases the pool of potential buyers from a few billionaires to a few billion people.
Today, investors only have a few options if they want to invest in sports teams. But, with all the potential benefits to being publicly traded, it might make sense for more teams to join the Atlanta Braves and F1 on Nasdaq.
Michael Normyle, U.S. Economist at Nasdaq, contributed to this article.
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