Warriors Secure a Slam Dunk with New Private Equity Deal
The Golden State Warriors have proven that strategic basketball does not just take place on the court. Earlier this month, the NBA team became a pioneer in the league through forging a lucrative business relationship with private equity firm Arctos Sports Partners. Arctos agreed to buy a minority stake in the Warriors brand in a deal that values that team at roughly $5.5 billion, representing what is presumed to be the first private equity investment in an NBA team.
“You get some of the benefits of being a team owner,” said NBA Commissioner Adam Silver of the benefits of private equity investment. “So it’s not just a pure ‘What’s my return on financial investment?’ Not that that’s not important, but try to come closer to some of the same reasons that traditional franchise owners buy into teams. Part of it is financial, but part of it is the amenities, and the cachet, and the desire to be directly involved with these leagues.”
Earlier this year, Adam Silver and the NBA approved private equity firms to join the game, allowing them to have up to 20% of any individual franchise and invest in up to five teams, according to Front Office Sports. The current reported equity limit for any one franchise is set at 30%, regardless of how many funds own a stake in the team. In the past, teams have always been owned by individuals and small groups. However the NBA permitted this change after the COVID-19 pandemic decreased league revenue by 10% in the 2019–2020 season. This decline, coupled with souring franchise valuations, have caused the league to change its stance and create new opportunities for minority owners to sell their shares. With this new change, the NBA hopes to broaden the scope of potential buyers through increased competition and offer limited partners a way of cashing in on their investments.
“Given the size of what clubs are worth, you don’t want to cut out private equity from being able to purchase because it eliminates a very important group of potential purchasers and investors, said former NBA Commissioner David Stern to FOX Business.
While the Warriors are said to be the first team in the league to take advantage of this new opportunity, they certainly will not be the last. The San Antonio Spurs are looking to follow suit with CVC Partners at around a $1.3 billion valuation. While there is no certainty that this deal will go through, it undoubtedly signals a shift among NBA teams to reshape ownership structures and take advantage of new economic opportunities.
Arctos Sports Partners has roughly $1 billion in assets under management, capital it had planned on using to invest in multiple sports franchises. Its new minority stake has fueled a 23.2% annualized return for the Warriors ownership group who bought the Warriors franchise in 2010, turning a significant profit that has certainly justified their then-record $450M franchise purchase.
These changing paradigms among the NBA demonstrate an open door to institutional investment. The league’s change in ownership rules foreshadow a rush of private equity into sport. While the Golden State Warriors are the first to capitalize on this change, there are certainly more teams to follow in the near future. Whether this will be a slam dunk for the league remains to be seen–for now, it appears to be a promising new opportunity to bridge business and sport in a mutually beneficial way.
