On Tuesday afternoon, NFL owners voted to approve a measure to allow private equity funds to buy stakes -- small stakes for now -- in teams. It is a significant shift in the NFL's ownership rules, which, until now, had allowed a team to have limited partners, but had never allowed institutional investment -- pooled money from investors -- as part of ownership.
What does that mean? Access, very soon, to hundreds of millions of dollars in cash for owners who want to sell a small portion of their teams to a private equity fund.
What it is very, very unlikely to mean? Any changes in the way franchises run that are noticeable or meaningful to fans. A private equity fund is not going to buy an entire NFL team. This was an important move for the business side of football, because access to cash should allow greater owner spending on franchises, which should theoretically allow greater financial stability for those teams. But an executive from a private equity firm is not going to be sitting in the draft room choosing the next quarterback.
Here is a quick primer on what is to come.
The ground rules: The NFL has been thinking about private equity for five years and got very serious about it in the last year, with the appointment of a special committee to delve into an asset class that other professional sports leagues were already in business with. The result is a measured first dip into the pool.
A total of 10 percent of a team can be owned by private equity funds. The NFL has already vetted the private equity funds that will be allowed to do transactions with the teams. The list of permitted funds consists of Arctos Partners, LP; Ares Management Corporation; Sixth Street; and a consortium group including Blackstone, Carlyle, CVC, Dynasty Equity and Ludis (which is led by Hall of Fame running back Curtis Martin). Direct investment by sovereign wealth funds and pension funds is not allowed. Such funds are allowed to be investors in the overall private equity funds, but even then, their participation would be limited to a very small percentage share of ownership.
A team can sell stakes to multiple funds for a total of 10 percent of ownership, although each stake must be for at least 3 percent. And a fund can hold stakes in more than one team at the same time -- up to six teams. The league has set up parameters around information disclosure for funds that own stakes in multiple teams.
This is truly a passive investment. There is no voting power attached to the transaction. The rest of the NFL's strict ownership rules remain in place. The controlling owner must own 30 percent of the team. A franchise can have limited partners, but no team can have more than 25 owners total, including the controlling owner, other individuals and families, and now private equity funds.
And private equity funds that buy shares in teams are obligated to initially hold onto the investment for six years before they can sell; it is not going to be like flipping real estate.
"This won't change a thing," NFL Commissioner Roger Goodell told reporters on Tuesday. "This is 10 percent of a team. All it is is a silent position that would allow access to capital for those teams that wish to offer 10 percent of their team. They will not be in any kind of decision-making influence in any way. It was very important when we began this that we strengthen the ownership. … We think the single-owner structure has been very valuable ... and this does not impact that at all."
Why do this? Because even extremely wealthy people need liquidity. Existing owners can sell stakes in their teams for hundreds of millions of dollars, generating a cash infusion they can then use for whatever they want -- stadium projects and facility upgrades and anything else an owner pays for.
And when teams are sold, allowing private equity to buy in should make it easier for bidders to piece together the money to buy a team in a time of soaring valuations. There are relatively few billionaires and even fewer who have both the wherewithal and the desire to buy an NFL team. That makes the presence of limited partners critical. It is not always easy, though, to convince an individual to write a large check without giving them a say in team operations in return.
To keep sale prices going up -- the 2023 sale of the Washington Commanders to Josh Harris and a collection of limited partners that includes Magic Johnson broke the $6 billion mark -- the NFL needs a larger pool of potential owners to get into the bidding. The pool should expand now, because institutional investment will almost certainly be able to provide a larger chunk of the sale price as a limited partner than an individual or family can, with little to no interest in having a voice in team operations. Private equity funds want to buy into NFL teams for a simple and obvious reason: because, with team values skyrocketing and the business of the NFL booming, they are practically guaranteed to reap a profit for their investors whenever they sell their stakes.
"We've been very deliberate on this private equity," Goodell said. "I think it's an access to capital that I think has been of interest for a long time. Other leagues have been doing it; we're doing it with a cap at 10 percent. So [it's a] much less significant position (than other leagues). I think it's an appropriate thing to give teams that liquidity to reinvest in the game, into their teams. I think it's a positive development for us. I don't think all teams will take advantage of that, but they will if they need that. It's a very good opportunity for them."
Now what? The NFL surveyed owners in the spring about private equity, and there is believed to be some pent-up interest among current owners in tapping the private equity market; with the change going into effect immediately, a few teams could move relatively soon to seek investment. And now that private equity investment is a reality, more teams, particularly those owned by families, will likely start to think about how it fits in with their planning.
The next time a team comes up for sale, keep an eye on the bidding and the number of bids. They should both be robust.