Apr 29, 2020 - Economy

Private equity firm formed to buy into pro sports teams

Illustration of a hand holding a small soccer ball, baseball, basketball and hockey puck.

Illustration: Aïda Amer/Axios

Private equity has long dabbled around the edges of professional sports, but now has its first firm dedicated to buying into teams.

Driving the news: Arctos Sports Partners has been launched by David "Doc" O'Connor, former president of Madison Square Garden Co., and Ian Charles, a longtime private equity secondaries investor.

Axios has learned from multiple sources that Arctos is raising between $1 billion and $1.5 billion for its debut fund, with $500 million already committed from backers like the Petershill unit of Goldman Sachs. The firm declined to comment, citing SEC marketing restrictions.

  • Its plan is to invest between $20 million and $300 million for passive, minority stakes in North American pro sports teams and select European soccer clubs.
  • Some of this could be via buying out minority owners, or by providing preferred equity or structured financing to control owners who are seeking some liquidity.
  • The firm quietly launched late last year, well ahead of the coronavirus pandemic, but may now benefit from price constriction and certain owners in need of financial flexibility.

O'Connor and Charles are said to have been first connected by a front office executive for the Boston Red Sox, who knew O'Connor from his time helping to launch the sports representation group at CAA and Charles via a common business partner.

The state of play: MLB late last year changed its ownership rules to permit funds to be part of team ownership groups, leaving the NFL as America’s only major sports league to still prohibit them.

  • Skyrocketing team valuations have made it increasingly difficult for part-owners to find buyers for their stakes. By permitting funds, leagues expand the potential buyer pool.

Roster: In addition to O'Connor and Charles, the Arctos team includes Joseph Nasr (ex-Stellus Capital Management, Jordan Solomon (ex-MSG), and veterans of Warburg Pincus, Fenway Sports Group, and TPG.

What to watch: Baseball is likely to be Arctos' top target, just due to its glut of small limited partners, but also expect the fund to buy into NHL and MLS teams where its fund size could make a more significant impact.

  • NBA teams and European soccer clubs are also within the fund mandate, while NFL team stakes are technically possible but would require a special league dispensation that's unlikely to be granted.
  • Don't expect to hear about the firm's deals, as it's expected to operate quietly — like a private equity secondaries investor.
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