AI will supercharge sports team valuations
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The rise of artificial intelligence will likely increase the valuation of sports teams and media rights, making sports an even more attractive asset class for investors, according to Ian Charles, managing partner at Arctos Partners.
Charles told Inside Alts that live sports will become even more important in the fight for attention as AI-generated video and online content becomes ubiquitous. He said team values will continue to rise and generate strong returns as fans will pay more for live experiences and in-person games.
“Sports is the only must-see appointment viewing content,” Charles said. “In a world where people are increasingly isolated and looking for connection — for the social, tribal connection that you get from watching a sporting event with your friends, being part of your community, crying and screaming and cheering — the value of that to the media landscape and ecosystem increases exponentially.”
Arctos is at the center of a sports investment boom. The Dallas-based firm, which has $15 billion in assets under management, helped pioneer the growing role of private equity in sports team ownership and capital raisings. It is the only private equity firm approved to own equity in teams in North America’s five major professional leagues, including the NFL, NBA, MLB, NHL and MLS.
The firm has achieved such a large lead in the sport that it has become an attractive target for other private equity firms. Bloomberg reported last month that private equity giant KKR had agreed to the deal. Buy Arctos at $1 billion valuationProtecting Charles and other senior management. Arctos and Charles declined to comment on the report.
Despite concerns about a bubble in team valuations, Charles said the argument that sports is an investment is still in its infancy.
There are two drivers of team values, he said. The first is league revenues, which are distributed among teams and equal intellectual property. The second is the live entertainment business, driven by stadiums and other revenues that are protected because “no one is allowed to compete with you in your particular form of live entertainment.”
“These two entities are quite unique,” Charles said. “You have a very durable, very important piece of IP and then this local live entertainment piece.”
These twin drivers have brought unique characteristics as investments to world-class sports teams.
North American sports teams have mostly outperformed public equities over the 3-year, 5-year and 10-year period, with only occasional exceptions, Charles said. Team values have increased steadily with little fluctuation. They are also largely unrelated to stocks and offer the elusive “alpha” that many wealthy investors and family offices are always looking for.
Once viewed as trophy assets and unprofitable vanity games for billionaires, sports teams have become more slick businesses that are increasingly accessible to investors through private equity funds. In 2024, the NFL became the last of the major US professional leagues to welcome private equity investors by approving elite PE firms to buy minority stakes in teams.
Nearly 1 in 5 professional sports teams now have some form of private equity investment, according to JPMorgan. The bank noted that the cumulative return of the four major sports leagues (NFL, NBA, MLB and NHL) has outpaced the S&P 500 since 2014.
Sports are also “countercyclical,” meaning they are less vulnerable to economic cycles and recessions, Charles said.
“There’s a sort of monopolistic local live entertainment business in sports, which is really interesting,” he said. “And 70% to 80% of the total revenue in premier sports is long-term and contracted through sponsorships, media rights, guaranteed payments and escalators. So it doesn’t matter whether GDP falls or rises.”
But not every team or league is a sure bet. Arctos remains committed to only the five major leagues, Charles said. Emerging sports like pickleball, E1 Series electric powerboat racing and others have yet to prove durable investments, Padel said.
“I have no idea which of the professional pickleball leagues will be the premier source of content in 20 years,” he said. “I know when the Super Bowl happens in 2045, it will have the world’s attention.”
If there is a new league that could emerge and become a major industry, he said, it would probably be in women’s sports.
“I think one of the women’s sports leagues will rise and attract global attention,” he said. “I don’t know which one it is. I don’t know where it will be located. One of them will take over the world’s energy and fandom.”
