• Loading stock data...
Tuesday, December 10, 2024
Tune in on Dec. 11 at 1:05 p.m. ET for our last Future of Sports virtual summit of the year – Future of Sports: Marketing! Register Now

Sports Assets Could Be A New Form of Gold

  • Despite a deteriorating economic environment, sports assets continue to generate billions of dollars in value.
  • In just the the past month, we have seen $8 billion of media rights deals signed by MLS and the IPL alone.
economy-sports-resilience
Ron Chenoy-USA TODAY Sports

“U.S., European Economies Slow Sharply as Recession Risks Grow”: That was Thursday’s headline in the Wall Street Journal’s Economy section.

U.S. equities and bond markets have unequivocally sunk into bear-market territories, while in March the Consumer Price Index (“CPI”) was reported at 8.6%, the highest such figure since 1981.

Retail companies such as Revlon are filing for bankruptcy, media companies are preparing for significant pullbacks in advertising spending, and crypto markets…well I won’t even go there.

Yet, despite the month-long indicators of a looming recession, sports-related deals have been flourishing.

As recently as last week, Front Office Sports covered a $2.5 billion deal between Apple and Major League Soccer. Additionally, on June 15, the Indian Premier League and Viacom18 — backed by Indian billionaire Mukesh Ambani — came to a five-year, $6.02 billion agreement to sell their aggregate streaming and television rights. They secured streaming rights alone for $3.05 billion.

Media rights are largely insulated from the overall macroeconomic environment due to their long terms and tendency to balloon in value over time. While it’s not a hard-and-fast rule — see the EPL’s reduced rights deal in 2018 — the two most recent media rights deals support it.

Then there are team deals. In 2022 alone, franchises like Chelsea, AC Milan, and the Denver Broncos all sold for record sums.

  • Denver Broncos: $4.6 billion
  • Chelsea FC: $3.2 billion
  • AC Milan: $1.3 billion

Team valuations and media rights are something of a “chicken or the egg” situation. Some team valuations couldn’t be achieved without the growing value of media rights and vice versa.

Regardless, the two tend to move in tandem, and more importantly, continue to increase despite difficult (at best) market conditions.

What’s Driving Valuations

Aside from media rights deals, a multitude of factors contributes to increased valuations. 

Scarcity, for one, plays an important role. The value of the top teams comes from their illiquidity and the fact that a globally recognizable brand, like Chelsea, just doesn’t become available very often — recession or not.

Furthermore, the legalization of live sports betting in key U.S. markets, and continued growth in streaming platforms have also unlocked revenue-generating opportunities for prospective owners.

In an interview with the Financial Times, Goldman Sachs head of sports finance Greg Carey stated, “These assets are unlike anything else in the world. Live sports are ingrained in people’s lives. That doesn’t mean if we go into a recession that things won’t slow…but when you’re a monopoly with live content, you have a lot of ways to withstand storms.”

One huge caveat regarding franchise valuations: The individuals who put up the capital to buy these assets aren’t necessarily moved by markets. Interest rates and inflation are unlikely to deter one of these investors, whose time horizons stretch far beyond the duration of an impending recession.

What 2008 Can Teach Us

In an interview with the FT, media rights expert Tim Crow stated, “Sports rode 2008 out really well… It’s difficult to call anything recession-proof, but the fact is there were long-term contracts, and they had to be honored.”

The long-term contracts help insulate those assets.

Additionally, sports assets are largely uncorrelated to markets. When it comes to major indices like the S&P 500 or the NASDAQ, interest rates play a large role in determining the value of each individual company. And sports teams have diversified revenue streams that allow them to weather the market storm. 

In 2009, the Premier League actually saw clubs retain their fan attendance numbers — and in some cases even increase them. Plus, clubs continued to draw significant sponsorship revenue and fees for participating in the Champions League. 

  • Liverpool and Manchester United signed new $32 million-per-year jersey sponsorship deals with Standard Chartered Bank and Aon, respectively.
  • Clubs participating in UCL could also receive $40-$80 million from UEFA’s broadcasting and revenue pool, depending on performance.

The concept here is a flight to quality. When times look bad, people tend to gravitate toward safe-haven assets — and the best of the best rise to the top.

That’s not to say some teams and leagues won’t feel the crunch. From ticket sales and attendance to sponsorships, there will always be ripple effects. 

  • The NFL saw a 1% dip in attendance in 2009, even though most of those tickets were purchased well in advance of the financial crisis.
  • The NFL lowered its prices by 10% for January 2009 playoff games and scaled back Super Bowl tickets to $500 from $800.
  • GM, a partner of the Daytona 500, cut back on a majority of NASCAR-related spending.
  • The NBA league office reduced its staff by about 80 (9%), as did the NFL, which shed about 170 jobs, (15%).

No one is truly immune to a recession. But ultimately, sports assets have the ability to operate outside the purview of economic machinations. 

Contextualizing A Market Downturn

There are many reasons to look at markets through a negative lens.

After the longest bull-market cycle, we are currently experiencing the highest inflation in 40 years, rising interest rates, technology stocks trading down 50%+, a war in Ukraine, broken supply chains, and continued lockdowns in China. 

Venture capitalist Morgan Housel touts a concept called the Policy Uncertainty Index, which attempts to quantify economic uncertainty by tracking any mention of it in the media.

According to his article, uncertainty bottomed out — and certainty about the future peaked — twice over the last two decades: In the year before the September 11 attacks, and in the year before the 2008 financial crisis.

Markets are unpredictable and will remain unpredictable, which is why assets that force you to “take the long view” tend to decouple themselves from the market.

Count on the flurry of team and media rights deals continuing for the time being.

Linkedin
Whatsapp
Copy Link
Link Copied
Link Copied

What to Read

Joe Tsai

NFL Owners Set to Vote on Dolphins, Bills Stakes for Tsai, Carter,..

The deals are likely to be approved at the owners meetings in Dallas.

Amazon Breaks NFL Streaming Record (Again) With ‘TNF’ Ratings

The “Thursday Night Football” game drew 17.29 million viewers.

Jay-Z’s Attorney Calls Sexual Assault Lawsuit a ‘Campaign of Extortion’

The lawsuit was originally filed against Sean Combs in October.
Aaron Rodgers

A Jets–Aaron Rodgers Divorce Could Get Expensive

The Jets could end up with $49 million or more in dead money.

Featured Today

Nov 2, 2024; Denver, Colorado, USA; Detailed view of a Wilson NBA basketball held by a referee during the second half between the Utah Jazz against the Denver Nuggets at Ball Arena

‘Obvious Weak Point’: Refs Remain an NBA Gambling Concern

A season after Jontay Porter, the biggest risk may not be players.
Nov 2, 2024; Ann Arbor, Michigan, USA; Michigan Wolverines cheerleader runs with a flag before the game against the Oregon Ducks at Michigan Stadium.
opinion
December 7, 2024

College Football’s Billionaire Backer Era Begins

Is this the new normal in CFB recruiting?
LA Galaxy forward Dejan Joveljic (9) celebrates with midfielder Riqui Puig (10) after scoring a goal against Seattle Sounders FC in the second half in the 2024 MLS Cup Western Conference Final match at Dignity Health Sports Park
December 6, 2024

With or Without Messi, Major League Soccer Is Barreling Into the Future

After the Cup final, the league looks to accelerate its growth.
Dec 18, 2022; Lusail, Qatar; FIFA president Gianni Infantino claps during the awards ceremony after the 2022 World Cup final between Argentina and France at Lusail Stadium.
December 2, 2024

FIFA Wants More Matches. Resistance Is Growing Inside the Global Soccer World

Resentment and frustration over expanded schedules is nearing a breaking point.

Endeavor, TKO Consolidate Sports Assets, Hoping They’re Better Together

The move brings On Location, Professional Bull Riders, and IMG under TKO.
Sep 11, 2024; Los Angeles, California, USA; The Nike shoes worn by Seattle Storm center Mercedes Russell in the first half against the LA Sparks at Crypto.com Arena.
opinion
September 28, 2024

New Nike CEO Must Do It

The biggest task the new CEO faces is intangible: Refresh the brand.
October 1, 2024

Nike CFO Says ‘Adversity Creates Sharper Focus’

Amid a downbeat but expected set of earnings, Nike says it sees signs of optimism.
Sponsored

How UBS Crafts Impactful Partnerships Across Sports, Arts, and Culture

As UBS continues to expand its impressive array of sports and entertainment partnerships, the company solidifies its position as a leader in wealth management.
A Nike swoosh on a building in Eugene, Oregon.
September 23, 2024

Wall Street: Things Will Get Worse for Nike Before They Get Better

Some analysts are skeptical of how much the new CEO will change.
Crypto.com soccer advertising
September 15, 2024

The Champions League Is Back. So Is Crypto Sponsorship

Crypto investment is making its debut in the biggest European soccer competition.
Sep 9, 2024; Santa Clara, California, USA; San Francisco 49ers wide receiver Deebo Samuel (1) warms up before a game against the New York Jets at Levi's Stadium.
September 12, 2024

The NFL’s Private Equity Era Won’t Be the Bloodbath You Think—for Now

“It’s a different kind of investment thesis entirely.”
ESPN commentator Jay Williams speaking at a conference.
September 11, 2024

Jay Williams Supports PE in College Sports: ‘I Would Like to Own 49% of Duke Basketball’

Williams wants in when PE gets into college sports.