A major league baseball logo in Angel Stadium in Anaheim, California, May 22, 2022.
Ronald Martinez | Getty images
Major League Baseball is increasingly attracting investors in investment while the League faces major changes in players’ salaries and media rights.
The Private Equity has gravity to professional sports, which the acquisitive sports company Arctos Partners called “remarkably resilient assets” in times of economic uncertainty in a research note this week. The MLB in particular is about to attract new stakeholders with major changes on the horizon.
A potential Lock-out of the MLB is looming if the League offers a wage ceiling proposal during collective negotiations at the end of 2026. The MLB is also sailing in a spectacular media landscape. The result could be major changes in the finance of the League – and a renewal of interest on the part of investors.
“There has been no massive investment gold rush to invest in MLB,” said Neil Barlow, capital-investment partner at Clifford Chance by emphasizing sports and entertainment. “The MLB must obtain its house so that the League becomes even more competitive for investment. Institutional investors will not commit and risk their capital when all that means is that it helps to finance a talented armament race.”
MLB does not have a salary ceiling for its players – unlike the National Football League, the National Basketball Association and the National Hockey League – which has led to some of the largest sports contracts and major disparities in remuneration. The team owners and the League front office envisaged a new economic structure, previously reported CNBC. Meanwhile, the League also recalibrates its media rights strategy while regional sports networks continue to suffer, and before the expiration of national agreements in 2028.
These factors present a risk, but also many opportunities, said that Michelle McKenna, principal advisor to the practice of Evercore strategic advice, which focuses on technology, entertainment and sports. In particular, the luxury taxes associated with the teams that spend too much for the players present the greatest risk, said McKenna and Barlow.
McKenna called him a moment of “strategic transformation” for the MLB, in particular with regard to the decline of income from local media and the changing distribution model. Private capital investment capital could “help to smooth this transition period and offer strategic assistance,” said McKenna.
“Baseball remains an excellent asset with excellent sporting content. They will understand this and those who invest early on,” said McKenna.
The MLB has been open to investment capital since 2019, becoming the first league to open its doors to these investors.
According to Sporto, according to MLB statutes, investment capital companies can hold up to 15% of individual teams, which can sell up to 30% of their equity to these investors, according to Sportico.
The rest of the major American leagues followed out, allowing investment capital to take minority participations. More recently, the NFL began to authorize these investments, triggering a frenzy among institutional investors, because the league has part of the highest hearings and the most lucrative media rights agreements.
The capital and influence of Private Equity often go to spending surrounding teams, such as stadium and hospitality improvements and digital improvements. It also frees up more space for payroll expenses.
“It is also interesting to look at baseball work to introduce new rules, products and experiences in the stadium to connect with a younger audience,” said McKenna, noting the expertise of Private Equity in many areas. “PE investment in sport is not the EP of your grandfather. These are longer-term partners with well-compliant strategic advice in addition to capital.”
According to Pitchbook, 18 of the 30 MLB teams have a link with investment capital, including 10 teams that have received direct investments from companies.
Last month, Sixth Street Partners bought a participation in the Giants of San Francisco, the company’s first investment in MLB. Arctos was a portfolio of five direct teams in teams.
In a statement, Sixth Street said that its “important investment” in the Giants would support the franchise “in its pursuit to be champions on and off the field”.