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The NBA’s Institutional Investor Era

Last Updated: December 19, 2022
The NBA continues to open more avenues for investing in teams, but what does it all mean? Boardroom explores.

The NBA is quietly paving the way for new investment strategies within and for those on the outside looking in.

In January 2021, the Association became the first US league to allow private equity funds to invest in teams. The NHL, MLB, and MLS then followed suit. In early November, they launched a private equity division to help formalize a more proactive approach to identifying appropriate investments. In December, owners voted to allow sovereign wealth funds.

What does all of this mean? Let’s break it down.

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Sovereign Wealth Funds

The NBA’s Board of Governors voted on a rule change that enabled sovereign wealth funds to buy stakes in teams, along with other facets of investing (i.e. endowments, pension funds, etc.). Foreign governments buying into a league is a foreign concept to American sports … until now. No other sports league allows this. The timing of this is particularly interesting, too, taking into account that there’s a team for sale in Phoenix valued at $2.7 billion — though they’re expected to get much more than that.

Sovereign funds are found mostly in oil-rich Middle Eastern countries. Although restricted, these entities cannot be controlling owners yet. Keep in mind, the NBA played preseason games in Abu Dhabi for the first time in October. Per a study, the biggest pension funds and sovereign wealth funds are worth a combined $27 trillion. This only opens a pool of wealthy investors from foreign entities.

The closest instance the NBA has in this realm dates back to when Russian oligarch Mikhail Prokhorov bought the Brooklyn Nets in 2009, a nine-month approval process that made Prokhorov the first foreign-controlling owner in league history.

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Private Equity Division

The NBA Board of Governors officially approved NBA Equity in December, enabling the league to bundle existing investments and enhance activity in the space. They hired David Lee, who spent 10-plus years in startups after time at LG Electronics and Bain, to lead the division.

The idea here is that the NBA can target specific startups that will “drive innovation” both inside and outside the game. So, in this sense, the NBA will position itself as a strategic investor versus a strictly financial investor. Think about the NBA’s partnership with New Era, a strategic fit in the apparel and lifestyle realm.

Other startups the NBA has equity stake include:

  • Sportradar: Data and analytics.
  • Nextiles: Sensor-laden apparel to help capture data.
  • Sorare: NFT fantasy gaming platform.
  • QuintEvents: Event planning space for fan experiences.

Yahoo! Sports reports that the total value of these investments is roughly $1 billion. With its new, concerted approach to investing in startup companies for private equity, expect this figure to increase dramatically.

Private Equity Funds

The NBA introduced the idea in 2019 when it hoped to create an investment fund that would buy small equity stakes (20%) in a portfolio of a max five teams (or a single one). The general goal was to give liquidity options for minority owners and also help finance new team purchases, especially as team valuations continue to skyrocket.

The NBA soon thereafter gave exclusive power to Dyal Capital Partners, who put out a $2 billion fund focused on NBA franchise stakes, but then expanded beyond with the likes of Owl Rock Capital and Altimar Acquisition Corp. NBA owners’ full net worth are tied up in whatever franchise they own. That’s how they lose liquidity.

Examples of Passive Ownership:

  • Dyal HomeCourt purchased a small stake in the Suns (5%) at a $1.55 billion valuation — $77.5 million stake.
  • Dylan also took a 6% stake in the Atlanta Hawks.
  • Arctos Sports initially took a 5% stake in the Warriors and raised it to 13% not long after.

“There’s no doubt that I feel I’m one of the few people in private equity that doesn’t own a sports team,” David Rubenstein, co-founder of the Carlyle Group, told CNBC in September. “All my friends bought sports teams and I said, ‘Look, your investors are not going to take you seriously by you diverting your attention to these sports teams.’ But I was wrong. It’s very difficult to buy a sports team and lose money. Some people have done it, but it’s very rare.”

The evolution of investment vehicles into the NBA has evolved in similar ways as it was for European soccer. It’s a new era for ownership and for the league investing in startup companies, both of which are ultimately here for a similar cause: Make the league more money with endless opportunities.

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About The Author
Anthony Puccio
Anthony Puccio
Anthony Puccio is a former Staff Writer at Boardroom. Puccio has 10 years of experience in journalism and content creation, previously working for SB Nation, The Associated Press, New York Daily News, SNY, and Front Office Sports. In 2016, he received New York University's CCTOP scholarship and earned a bachelor's degree in Communications from St. John's University. He can be spotted a mile away thanks to his plaid suits and thick New York accent. Don't believe us? Check his Twitter @APooch.