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The rise of artificial intelligence is likely to increase the valuations of sports teams and media rights, making sports an even more attractive asset class for investors, according to Ian Charles, managing partner of Arctos Partners.
As AI-generated videos and online content become more ubiquitous, live sports will become even more important in the battle for attention, Charles told Inside Alts. As fans will pay more for live experiences and in-person games, team values will continue to grow and generate strong returns, he said.
“Sports is the only must-watch content by appointment,” Charles said. “In a world where people are increasingly alone and looking for connection – for the community and tribal connection that you get from watching a sporting event with your friends, being part of your community, crying and screaming and cheering – the value of that to the media landscape and ecosystem is just becoming exponential.”
Arctos is at the center of a sports investment boom. With $15 billion in assets under management, the Dallas-based firm has contributed to private equity’s growing role in sports team ownership and capital raising. It is the only private equity firm authorized to hold equity in teams in the five major North American professional leagues: the NFL, NBA, MLB, NHL and MLS.
The company has gained such a lead in the sports sector that it has become an attractive target for other private equity firms. Bloomberg reported last month that private equity giant KKR had agreed to buy Arctos at a $1 billion valuation, keeping Charles and other senior executives in place. Arctos and Charles declined to comment on the report.
Yet despite concerns about a bubble in team valuations, Charles said the thesis for sports as an investment was still in its infancy.
The team’s values have two drivers, he said. The first is league revenue, which is distributed among teams and amounts to intellectual property. The second is the live entertainment sector, driven by stadium and other revenues that are protected since “no one is allowed to compete with you in your particular form of live entertainment.”
“Both of these assets are very unique,” Charles said. “You have this very durable, very important IP piece, and then this live local entertainment piece.”
These pilot twins have given major league sports teams unique characteristics as investments.
Charles said North American sports teams have mostly outperformed public stocks over a 3-, 5- and 10-year period, with a few exceptions. Team values have increased steadily, with little volatility. They are also largely uncorrelated from stocks, providing the elusive “alpha” that many high-net-worth investors and family offices always seek.
Once seen as trophies and unprofitable vanity games for billionaires, sports teams have become more rigorous businesses and increasingly accessible to investors through private equity funds. In 2024, the NFL voted to allow some private equity firms to buy minority stakes in teams, becoming the last of the major U.S. professional leagues to welcome private equity investors.
According to JPMorgan, nearly one in five professional sports teams now have some form of private equity investment. The cumulative returns of the four major sports leagues – NFL, NBA, MLB and NHL – have exceeded the S&P 500 since 2014, the bank said.
Charles said sports are also “counter-cyclical,” meaning they are less vulnerable to economic cycles and recessions.
“They have this kind of local monopoly business of live entertainment in sports, it’s really interesting,” he said. “And 70-80% of total premium sports revenue is long-term and contracted through sponsorships, media rights, with guaranteed payouts and escalators. So it doesn’t matter whether GDP goes down or up.”
However, not every team or league is a safe bet. Charles said Arctos only sticks to the five major leagues. He said emerging sports, like paddle tennis, pickleball, E1 Series electric boat racing and others, have yet to prove themselves as sustainable investments.
“I have no idea which of the professional pickleball leagues will be the source of premium content in 20 years,” he said. “I know that when there is a Super Bowl in 2045, it will attract worldwide attention.”
If there’s a new league that could break out and become big business, it would probably be women’s sports, he said.
“I think one of the women’s sports leagues will grow and attract worldwide attention,” he said. “I don’t know which one. I don’t know where it’s going to be based. One of them is going to capture the energy and the fandom of the world.”