Legal eagles punt ‘trophy assets’

Sports used to be small-scale stuff for seasoned mergers and acquisitions lawyer Matt Eisler. But, with valuations now booming, the Hogan Lovells partner has worked on some of the biggest deals in the sector.
As global head of the law firm’s sports group, Eisler advised private equity tycoon Josh Harris’s consortium on the $6bn takeover of the Washington Commanders American football team in May — the biggest team takeover in sports history.
And, before that, Eisler had worked on the previous record holder, last year: representing a consortium led by the Walton-Penner family, heirs to the Walmart founder, on their $4.6bn acquisition of the Denver Broncos.
By that point, Eisler was already accustomed to representing billionaires in their pursuit of trophy assets — or massive returns from selling them. He advised Russian billionaire Mikhail Prokhorov on the staggered sale of the Brooklyn Nets in 2018 and 2019, to Alibaba co-founder Joe Tsai, at a then-record valuation of more than $2.3bn.
“I realised, wow, this is not going to be the highest valuation forever — something’s happening here,” says Eisler, “I don’t think this record is going to hold.”
That is just one of the highlights in more than a decade’s worth of sports deals since the New Jersey native moved to Denver in 2010 and fell in love with the Broncos football team, basketball’s Denver Nuggets and baseball’s Colorado Rockies.
As sport is increasingly recognised as an asset class — and one that is widely hoped to be more recession-proof thanks to locked-in broadcast and ancillary revenue streams — the price of entry is rising. Booming valuations mean that even the richest buyers seek co-investors, financing, and sophisticated legal advice. 
“When you talk about sports owners, you’re talking about people that are very, very wealthy and can usually get their way just by spending some money,” Eisler says. “But, when you put them both into a situation together, you really have to come up with some creative solutions for people to coexist in a way that works.”
In the top leagues, such as the NFL, teams no longer trade for millions of dollars but billions, raising the stakes for the billionaires and investment firms buying into sports. Part of the appeal to Eisler is “building bridges” between the ultra-wealthy people attracted to sports ownership.
Beyond teams, investors are putting money into leagues, media rights, and stadiums as new sources of capital change the way the sports industry does business.
The appetite to buy in is creating opportunities for incumbent owners to sell minority stakes or, when league rules permit, controlling shareholdings.
European private equity group CVC Capital Partners has invested in tennis, rugby, volleyball and European football. Sixth Street Partners has invested in Spanish football clubs Real Madrid and FC Barcelona. RedBird controls Italian football club AC Milan, while Silver Lake has a minority position in English champions Manchester City.
For those seeking a more attractive price in North America, Sixth Street in April committed $125mn to buy a new National Women’s Soccer League club, becoming the first institutional investor to take majority ownership of a professional US sports franchise.
In most major US sports leagues, ownership rules are stricter than, say, in European football, meaning private equity firms and other sources of institutional capital cannot usually take controlling stakes in clubs.
But, since 2019, Major League Baseball, the National Basketball Association and Major League Soccer in the US have revised their ownership rules to allow greater participation by private equity firms and institutional investors in their sports. The National Hockey League has also welcomed private equity investors.
Eisler advised the NBA’s San Antonio Spurs as private capital arrived from Sixth Street and Michael Dell. He also worked with Arctos as the investment firm sought NBA membership and bought into the Golden State Warriors.
“We were mostly hired to negotiate the documents with the NBA that would allow Arctos to become approved, so that it could take an equity interest,” Eisler says. “And those documents . . . set the framework for how institutional capital would work in the NBA and, essentially, became part of the blueprint of the go-forward model.”
Less than a year after the NBA permitted sovereign wealth funds to take passive minority stakes in clubs, the Qatar Investment Authority bought into the ownership of the NBA’s Washington Wizards, the WNBA’s Washington Mystics and the National Hockey League’s Washington Capitals. The $200mn investment for a 5 per cent share of Monumental Sports and Entertainment valued the group at more than $4bn.
Even billionaires can struggle to compete when the other bidder is a sovereign wealth fund.
Sovereign wealth funds notwithstanding, the increase in valuations also means that billionaires are taking a more flexible approach to raising the cash to fund acquisitions.
According to analyst PitchBook, 63 major sports teams in four leagues — with a combined value of more than $234bn — have private equity connections. But the NFL remains off limits, as it has so far held back from following its peers.
It is already rare for NFL franchises to sell. The last team to trade before the Commanders and the Broncos was the Carolina Panthers — and that was back in 2018. This scarcity — and the difficulty of joining the wealthy group of NFL owners — is another factor holding up deals. So, unless the NFL decides to change its stance, it will be tougher for existing franchise owners to find buyers who can afford their asking price. According to Forbes, the average NFL team is worth more than $5bn. 
I don’t care how wealthy you are, coming up with three, four or five billion dollars in equity is a lot
Josh Harris, who is worth more than $8.6bn according to Bloomberg, brought the likes of former Google chief Eric Schmidt and private equity investor David Blitzer into the consortium that acquired the Commanders. They were joined by basketball legend and investor Magic Johnson.
Further constraints, across various leagues, are the limits on how much debt may be used.
“What we have been seeing a lot of, across all leagues, are ways to finance the acquisition of the asset without violating the rules, the debt limits,” says Eisler. “It has to be very carefully done in concert with the leagues and in a way that considers how the league’s debt policies work.”