The sporting investment boom is facing its biggest challenge as it declines

As US stocks sank into a bear market and the Federal Reserve prepared for its biggest interest rate hike in nearly three decades, a fierce bidding war broke out in India.

By the end of Tuesday, Disney and Viacom18 companies had agreed to pay more than $ 6 billion to broadcast the Indian Premier League, the most watched cricket competition in the world. A day later, Apple made its first foray into football, earning $ 2.5 billion for streaming rights to Major League Soccer, the professional men’s league in the United States.

The pair of record deals comes as rising inflation and rising borrowing costs hit wider M&A market and forced the retail sector to real estate to prepare for an era of money-deprived consumers. But for those in the sports industry, the ability of the IPL and MLS agreements to withstand the economic burden is not surprising.

Sports “Rights seem to be a very strange beast, because nothing seems to be stopping their march,” said an executive director involved in the IPL bid. “People don’t want to be abandoned – and the fact is that people consume sports independently.”

This is a thesis facing its worst test so far, as central banks are threatening to raise interest rates further and inflation is forcing consumers to cut. There are already signs that investors are demanding more restraint from media groups like Disney – its share price has fallen by 40% this year.

The 2018 UK Premier League filming deal shows that the value of media rights is not destined to continue to grow with each renewal of the contract, as the broadcaster BT curbs his sporting ambitionswhich allows rival Sky to pay less than the previous deal.

But for those executives who are confident that the boom in sports investment can overcome the impending decline, the effects of the 2008 financial crisis. offers some comfort.

“The sport went really well in 2008,” said Tim Crowe, who advises rights holders on broadcasting deals. “It is difficult to call anything evidence of a recession, but the fact is that there were long-term contracts and they had to be respected.

The most disobedient in the industry argue that a tougher economic background may even be beneficial, as consumers are forced to choose which streaming services to subscribe to more carefully. In this environment, access to exclusive premium content, such as live sports, will become vital in the battle for the eyes. Roger Goodell, NFL Commissioner, said in 2012 that the recession was caused by the global financial crisis they even took advantage league by attracting more TV viewers for games.

“The value of rights is more about competition than current economic conditions,” said Daniel Silman, CEO of rights marketing company Relevent Sports Group.

The boom in media rights in recent weeks has led to a series of record acquisitions by individual clubs.

Last month, a US-led consortium acquired Chelsea for £ 2.5 billion. Days later, the purchase of Italian Milan for 1.2 billion euros marked a new peak in Europe, while the purchase of 4.6 billion dollars of the Denver Broncos NFL franchise from the heir to the family of the founders of Walmart set a new record in all sports.

Denver Broncos quarterback Russell Wilson
Denver Broncos quarterback Russell Wilson © David Zalubowski / AP

“These assets are unlike anything else in the world. “Live sports are ingrained in people’s lives,” said Greg Carey, head of sports finance at Goldman Sachs. “This does not mean that if we enter a recession, things will not slow down. . . but when you’re a live content monopoly, you have many ways to withstand storms.

Although ratings were higher than lucrative broadcasting deals, other factors contributed, such as the scarcity of top clubs and growing global interest in live sports after the coronavirus pandemic. The legalization of betting in key US markets has also opened up revenue-generating opportunities for future owners.

“Sports teams, I wouldn’t say they’re a safe investment, they’re an uncorrelated investment when you consider other macro investments like S&P or even cryptocurrency,” said Edwin Draugan, vice president of Los Angeles-based boutique investment firm Park Lane.

Ian Charles, founder of Arctos Sports Partners, a private equity firm with more than a dozen professional teams, cited relatively low debt levels and the long-term nature of investment as another buffer against economic cross-winds.

In North American sports, where leagues impose strict regulations on the levels of debt and franchise ownership, “you don’t have the leverage or capital flows that are seen in European sports holdings,” he said.

The greater injection of US money into the market has only added momentum to deals this year. American investors already own or own stakes in eight Premier League clubs – including Manchester United and Liverpool – and are trying to buy Everton.

Industry leaders say French football is next on the shopping list due to its relatively low entry price. New York-based RedBird Capital, the new owner of AC Milan, holds a controlling stake in Toulouse FC, while other US investors have been pursuing Lyon and St. Etienne in recent weeks.

In the United States, basketball is emerging as a major goal for investors. This week, after the National Basketball Association ended its championship series between the Golden State Warriors and the Boston Celtics, the league moved to the forefront of the sports line to negotiate the next big package of media rights. His current agreements with Disney and Turner Sports expire in the 2024-2025 season.

Opportunities to buy in the league will probably appear soon. The Portland Trailblazers franchise is expected to be sold as part of the settlement of the late owner Paul Allen, and the league will be expanded from 30 to 32 teams in the future.

The chart showing broadcast revenue will reach 10 billion over the next three seasons.  Value of Premier League broadcasting rights (£ billion)

Despite the bleak economic outlook, Todd Boelli, who is leading Chelsea’s takeover, was optimistic this week about the club’s prospects.

Clubs in the English Premier League have remained significantly undervalued and have a lot of room for growth as owners bring in more US money-making ideas, he told a private investment conference in Berlin. “They don’t realize how great their opportunity is,” he said.

The fact that some sports deals are backed by money already raised from private equity funds as well as established family fortunes may also offer a degree of protection against deteriorating financial conditions.

“They will not be immune to the challenges of access to capital, but investing in sports has never provided a stable return, fixed cash flows or the opportunity to receive dividends in a timely manner,” said Tim Bridge, head of Deloitte. sports business group. “So the thesis of investing capital only for capital growth remains.”

Newcastle Wolves Premier League Football
Saudi sovereign wealth fund acquires Newcastle football club earlier this year © Alex Pantling / EPA / Shutterstock

Deep-pocket public funds that have grabbed clubs across Europe are more resilient than most of the recession. The Saudi sovereign wealth fund acquired Newcastle United football club earlier this year, joining Qatar and Abu Dhabi as owners of top-level sports teams. The recent launch of the Saudi-backed LIV Golf Tournament offered another sign of how much central sport has become a global soft power ambition for wealthy state funds.

Although the optimism of the industry is not shaken, it is not unconditional.

Some executives warn that competition between traditional broadcasters and streamers – an important dynamic in boosting media rights auctions – will eventually fade as conventional television loses more viewers.

But as global stock markets are heading for their biggest decline since the 2020 pandemic, Crow, a media rights adviser, said where interest rates will peak and stay there for a long time. the great unknown. ”

“There are some people who are massively exposed. “If one side of the balance suddenly stinks, you have a problem,” he said.

Additional reports from Kay Wiggins in Berlin

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