Sports now big business, but families remain fans of ownership
Kansas City Chiefs owner Clark Hunt hoists the Super Bowl trophy in 2020.
When Kansas City Chiefs kicker Harrison Butker sent a field goal through the uprights in the waning seconds of Super Bowl LVII last month, it was a victory not just for the players, team and city but also for the Hunt family, who have owned the team since its inception.
The Hunts first bought into the now-defunct American Football League in 1959 for $25,000, when the family wealth was primarily from the oil business. Forbes estimates the team is now worth $3.7 billion, and the Hunt family’s diversified portfolio is estimated at $15.5 billion.
In 2006, the team transitioned to a second generation of ownership, passing from founder Lamar Hunt to his son, Clark. That type of transition hasn’t always been a given, as evidenced by the number of family-owned teams in the major U.S. sports leagues that were sold in recent years rather than transferred from one generation to the next.
- Families are well-positioned to continue buying into teams.
- Private equity and other competition has driven prices higher.
- The changing media landscape means there’s more money to be made.
- Tax breaks offer a strong incentive for purchasing a team.
- As with any family business, intergenerational handoffs can be a challenge.
And yet, wealthy individuals and families continue to be the vast majority of buyers, as they have been for many decades — attracted by the potential for huge profits and the enduring appeal of competitive sports. In the past, such ownership carried far lower stakes and involved far less complexity. These days, teams regularly sell for billions of dollars, involve management or ownership of multiple large facilities and many other operational concerns, and generate a very prominent public profile. As families continue to pursue team ownership, the changing landscape for sports has altered what it means for a family to go down that route.
CIVIC PRIDE … AND PROFIT
“As these brand values soar, it changes the calculus,” said Jon Wertheim, executive editor and a senior writer at Sports Illustrated. “It used to be a civic obligation to own a team, and now it’s a rapidly appreciating asset.”
The soaring values have produced a total return in the past 15 years that exceeds that of the S&P 500, according to an analysis from the boutique investment bank Inner Circle Sports.
The market for sports content has meant that more individuals and family offices are investing in sports, said Inner Circle CEO Rob Tilliss. “People in the last decade have woken up to the fact that live sports is the most valuable content in the world in an extremely fragmented content world,” he said.
High prices have meant that fewer buyers can assemble the capital to make a purchase. At the same time, price growth has increased the opportunities to buy in, as majority purchasers increasingly look to sell minority stakes.
“With most of the North American leagues now permitting private equity, we have seen a more efficient and liquid market for minority team interests,” said Brian Kantarian, co-leader of J.P. Morgan’s private-bank sports finance group.
Of course, it takes more than just a large check to buy a team. Purchasing one can be “a multiyear process," said Bill Mulvihill, head of sports finance at U.S. Bank. “The leagues are very focused on having a strong ownership group,” he said, and that means “a lot of due diligence.” For some, paving the path to majority ownership could mean that “maybe they come in as a limited partner on another team — to get to know the league and so that the league gets to know them,” Mulvihill said.
Sports teams are atypical in a few ways from what families tend to buy. Among an investor group that tends to prefer keeping a low public profile, buying a team does the exact opposite.
“Sports ownership has never been more front-facing,” Wertheim said. “People know who they are, people have opinions — there are a lot of wealthy people who want nothing to do with that.”
And where succession issues are a concern in any family business, the prominence and perceived high stakes of transferring a sports team to a new generation can bring additional drama.
Wertheim produced probably the most detailed report on intergenerational challenges in the NFL, with episodes that included a physical confrontation between a daughter and her stepmother in the owner’s box during a game, a feud between sons that prompted a father to put a team up for sale rather than bequeath it, and one family so uninterested in running the Chicago Bears in its third generation that the lone candidate left the top job after 12 years to focus on photography.
FUN FOR FANS, AND FINANCES
But families, knowing all that, continue to invest in teams, in part because “it’s fun, people enjoy it,” said Inner Circle’s Tilliss, adding that “there are psychic and economic benefits to it.”
Families are also able to apply tax advantages when buying a team, writing off the full purchase price over 15 years. While families have that same opportunity with any other business they might purchase, the scarcity of sports teams means that the team retains its value amid that depreciation better than typical businesses a family might invest in, such as a group of McDonald’s franchises.
Combining debt with that depreciation can make for a particularly advantageous deal, Tilliss said. “You can typically borrow some of the upfront equity at the same time as you’re getting that tax benefit,” he said. That means a family is “getting kind of a leveraged return” that has similarities to some private equity deals. And while the leagues cap the amount of team equity that can be put up as collateral, Tilliss said, “Banks have gotten pretty sophisticated at underwriting unsecured loans for team owners.”
The disparate advantages of team ownership can mean that owners pursue one approach over another. “You see different owners — some are very clearly doing this because they’re a fan, and some are doing it for economic reasons, and you can see the difference in how they’re managed,” said Mulvihill of U.S. Bank.
And, of course, sports teams have a special advantage that is similar to another major venue for family investment — real estate — in that only so many iconic sports teams will ever be available to own.
As Wertheim puts it, “Anyone can buy a mansion or have a yacht, but not anyone can buy the Denver Broncos.”