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Future Returns: Strategies for Private Market Investments in Sports

Houston-based CAZ Investments began pouring money into sports teams earlier this year. The growing “pricing power” of live events and the rise of sports betting as consumers continue to move from cable and broadcast TV to streaming.

As CAZ sees it, most sports teams are high-quality performance assets, largely because monopolies with loyal customers are legalized in host cities, said CAZ chairman and CIO Christopher Zook said.

“Sacramento doesn’t have a second basketball team at the major league level,” said Zook, who owns the National Basketball Association’s Sacramento Kings along with Arctos Sports Partners, a Dallas private equity firm that specializes in sports. . investment.

Also, by investing in a single NBA team like the Kings, investors gain access to 1/30th of the cash flow generated through NBA merchandising and media rights shared by the league’s 30 teams. It will be possible, says Zuk. That stake buffers investors if the team loses the season.

“This is a big reason why these assets have such attractive positioning,” says Zook.

Private investment in sports teams is booming as most U.S. sports leagues have relaxed requirements about who can own a team, according to CAZ, but the new minority owners are more likely to lose control to administrative owners and leagues as a whole. must be approved by a majority of the owners of

As Barons recently reported,

ares management

(Ticker: ARES) recently created a fund focused on sports, leagues and franchises, along with other media and entertainment companies. Companies such as Silver Lake, CVC Capital Partners and Clearlake Capital Group are also sports investors. Quoting data from Pitchbook, Barons By early September, private equity firms had made 221 investments in sports teams worth US$31 billion. Last year there were 440 of his deals worth US$58.4 billion.

Along with Arctos, CAZ currently has investments in the Boston Red Sox, Chicago Cubs, Houston Astros, Los Angeles Dodgers, San Diego Padres, and San Francisco Giants, Zook says.

And it’s just baseball. It also has stakes in “several” NBA teams, including the 2022 champion Golden State Warriors and Kings, as well as several teams in the National Hockey League (NHL) and professional soccer. It also owns part of the new Premier Lacrosse League.

Penta recently spoke with Zook about his company’s approach to investing and why it moved into sports.

“My money always comes first”

With approximately US$4 billion in assets under management, CAZ Investments has 30 shareholders who own a portion of the company and have approximately US$600 million of personal capital invested in various investment vehicles. “I decide where I put my money because my money is always first,” says Zook, who founded the company in 2001, when analyzing his trading.

In addition to shareholders, the company offers global co-investment opportunities to advisors, single-family and multifamily offices, and institutions. According to the company, through these co-investments, it will be able to “provide access to vehicles for a sum not typically available to families under US$500 million. [to] US$1 billion investable assets. ”

Prior to investing in professional sports, CAZ spent nearly 16 months researching the area before making an investment decision. “Then he created a custom solution so that investors could partner with Arctos,” he says.

Arctos closed its US$2.1 billion flagship fund in October 2021. Including co-investors and “parallel affiliates,” the company said at the time had $3 billion in regulatory assets under management.

Zook declined to provide specific details about its investment in Arctos, but said its investment in sports yielded a multiple of 2.5 times its initial investment, with a low internal rate of return of around 20%. increase. He said, “At least he did it twice.” [equity] Multiples and a 15% internal rate of return (IRR),” he says. “Why would you give up liquidity without getting that kind of return?”

Investments in sports should return a multiple of 2.5 times their initial investment, with an IRR “in the high 20s on a net basis,” he adds. “Otherwise it wouldn’t be interesting to us.”

live event play

For CAZ, investing in sports teams is actually one way to profit from live events. Zuk believes that even in the event of a recession, it will continue to generate profits if inflation continues to rise. His ticket prices may go up this season, but fans are “sticky” consumers and multigenerational die-hard fans of his team at home.

“They may not buy five bottles of beer when they come in, but they don’t give up tickets or never go,” he says. “It’s something your family can experience instead of going on a trip or buying a new car or refrigerator.”

Live events are interesting as one of the few ways to reach large audiences at once in the age of cord cutting. This gives companies producing live events, mostly professional sports teams, greater pricing power.

The rise of sports betting is another factor. At least 30 states now allow sports betting, which drives engagement, advertising revenue and willingness to buy naming rights at stadiums, Zook said. Sports organizations “won’t own the bets, but they will profit from them,” he says. For example, the Chicago Cubs collect rent from betting sites in buildings they own next to the stadium. “They can monetize their own brand in other ways,” says Zook.

Arctos and CAZ are more than just an investment in the team. The investment in the Red Sox will come through Fenway Park in Boston, the English Premier League’s Liverpool Football Club, the NHL’s Pittsburgh Penguins, as well as team-owning Fenway Sports Group.

“If you build a platform big enough around live events, you can own the market and make a lot of money,” says Zook.

The Sacramento Kings are another example. This is an NBA team, but reportedly with Arctos Sports Partners, San Francisco Giants’ Triple-A Minor League Baseball affiliate Sacramento River, who has just purchased a majority stake in the Cats. The deal included Sutter Health Park in West Sacramento, where the team plays.

Having stakes in so many teams means Zook is more focused on sports than ever before. In his three weeks this spring, three of his teams in CAZ (the NHL’s Tampa Bay Lightning, Golden States Warriors and Liverpool FC) have reached the finals.

“It was cool,” he says. “I like the fact that when you have two teams competing against each other, you get rewarded in both situations.” If I do, I have to root for the Astros.”