Banking & Finance Quarterly: Private Equity’s Two-Minute Drill

A sports team worth $12.5 billion. A wealthy owner scrambling to cash out 10 months after buying in. And a bright spotlight on the deep pockets vying for professional sports. 

Pending league approval, scrutinized billionaire Mark Walter will hand over the Los Angeles Lakers to Josh Kushner, who built his fortune largely through his venture capital firm Thrive Capital, and former Walt Disney Co. Chief Executive Bob Iger in a record sale.

As teams’ valuations climb, investment firms and their founders are piling into an increasingly lucrative asset class. Private equity has been a major player, pouring more than $55 billion into the sports ecosystem — funding everything from franchises to media rights platforms — between 2019 and 2024, PitchBook reported.

Leagues began letting private equity firms buy passive equity shares in teams about seven years ago, opening the door to a new flood of institutional capital. But the market for minority ownership stakes is still in its early innings, and the lawyers and bankers who advise firms on team deals say it shows.

While investors have gotten good at putting money in, most haven’t yet cracked the other side of the trade: how to turn stakes back into cash. Getting over that liquidity hump and keeping private capital flowing could mean rewriting leagues’ rules around ownership, financing and exits. 

“There’s not really a built-in exit mechanism,” said Eric Geffner, a partner and sports group co-head at Simpson Thacher & Bartlett’s Century City office. 

Geffner’s law firm advised New York City-based private equity heavyweight Kohlberg Kravis Roberts & Co. on its recent acquisition of Arctos Partners, the biggest owner of minority stakes in professional sports teams, in a deal valued at $1.4 billion. 

In pursuit of liquidity

The liquidity issue leagues brought institutional capital in to solve seems to have moved down the ownership chain. 

While private equity has long nurtured pro sports ties, strict ownership rules kept firms on the sidelines. For the better part of leagues’ history, team stakes stayed in wealthy families’ coffers for generations – a prized, exclusive asset tied to legacy and tradition. 

Private equity funds have invested prolifically in sports agencies and media without touching the teams themselves, while firm executives have bought – and continue to buy – team stakes as individual investors. The sale of the San Diego Padres to José E. Feliciano – co-founder of Santa Monica-based private equity firm Clearlake Capital – and his wife, Kwanza Jones, is one recent example.

The door to direct ownership cracked open in 2019, when Major League Baseball became the first North American league to allow teams to sell passive, minority stakes to private equity funds to give long-term owners a slice of liquidity. 

“Leagues see private equity as a source of capital to help with growth, to help with stadium financing, to help with allowing existing families to exit their interests,” said Raul Anaya, Bank of America’s president of the greater L.A. market and national head of local markets strategy.

The NBA followed suit in 2021, its private equity ownership guidelines serving as a playbook later adapted by the NHL and the NFL. One fund within a firm can own no more than 20% of a team, while entire firms are capped at 30%. Funds were limited to owning stakes of a maximum of five teams, a cap the NBA lifted to eight in December. 

Today, private equity funds back 77 men’s sports teams in the U.S., including a third of all NBA franchises and more than a quarter of those in the MLB. L.A. teams with direct private equity ties include the Dodgers and the Chargers, which both sold minority stakes to Arctos.

Angel City Football Club is minority-owned by Monarch Collective, local venture capitalist Kara Nortman’s women’s sports-focused private equity firm based in Carthay. Iger and his wife, Willow Bay, own a controlling stake in the soccer team.

Firms want in on sports ownership for a host of reasons. Scarcity and record viewership have sent team valuations climbing faster than the S&P 500 over the last decade, a PitchBook analysis shows, and media rights deals drive predictable revenue.

“The risk is a lot lower than some other opportunities they may be pursuing,” said Courtney Brunious, who teaches sports business at the University of Southern California’s Marshall School of Business. “It’s one of the more enduring pieces of content out there, (which) creates more stability when it comes to the asset, which I think is really attractive.”

Sports ownership has always been a “capital appreciation play,” said Brian Kantarian, head of J.P. Morgan Private Bank’s sports finance group, adding that the sector’s fundamentals all but guarantee private equity firms growing asset value. 

Strategies remain informal, discretionary

Promising as they may be, minority team stakes are fundamentally different from private equity firms’ typical investments, said Daniel Belke, a partner in law firm Sidley Austin’s Century City office. They’re largely illiquid and locked down during minimum hold periods, their sales governed by leagues and majority owners. No formal secondary market that would let funds trade existing stakes has emerged.

“The back-end exit issue is still being worked through,” Belke said. “The first step was creating a permissible kind of institutional class that (private equity) could get into, and they’ve done that. But there does need to be a repeatable liquidity ecosystem where (funds) know they can get out of these investments at the appropriate time because they can’t be locked in forever.”

The firms that snapped up the first minority stakes to come to market are coming up on the end of their hold periods, which are typically between five and seven years. In the absence of a secondary market, some early investors are now scouting for buyers, Kantarian said.

“The (private equity) community, especially those first movers, are out there actively talking to family offices, to other institutions, and actively thinking about exit liquidity, at least for a portion of their (sports) portfolio,” he said. “We’re going to see if the private equity assumptions (from) five to seven years ago play out as we’re in that first cycle of exit liquidity.”

Sales of early-bought stakes have been few and far between, and mostly incidental, Simpson Thacher’s Geffner said. (Prior to joining Simpson Thacher this year, Geffner was part of the Sidley Austin entertainment, sports and media team in Century City.)

Arctos, one of the first moved in this space, has two public exits to its name so far: in 2024, two years into serving as a minority owner of the Tampa Bay Lightning, the firm offloaded a portion of its interest after the team sold to Doug Ostrover and Marc Lipschultz, co-chief executives of New York City-based asset manager Blue Owl Capital. And in April 2025, the Miller family’s purchase of the MLS’ Real Salt Lake prompted a restructuring and adjustment to Arctos’ minority interest in the team. 

Across its two sports funds, which total roughly $7 billion in commitments, Arctos has returned just under $380 million to its investors, KKR’s second-quarter report shows. 

Some minority team ownership stakes have gone into continuation vehicles or evergreen funds, said Jeff Shaffer, a managing director of private equity services at law firm Alvarez & Marsal’s Westchester office. With that, the assets can sit for longer than they could in a traditional fund while fund managers look for buyers and wait for the appreciation. 

“There’s an expectation-setting that has to happen,” Shaffer said, to make sure the limited partners whose money is tied up in these funds are prepared for ownership stakes’ inherent illiquidity and longer holds.

In a regulatory filing for one of its sports investment funds, Century City-based asset manager Ares Management Corp. flags potential constraints. The firm’s sports, media and entertainment opportunities fund, launched in July 2025, warns investors that league rules could “restrict the fund’s ability to incur indebtedness, the nature and timing of the fund’s sale of an investment in a team and transfers of interests in the fund.”

As one of the most prolific buyers of minority team stakes, including a 10% interest in the Miami Dolphins, Ares had invested $15 billion across its sports, media and entertainment strategy as of last fall.

While the firm declined to participate in this story, its retail investor-focused opportunities fund offers a clue to how private capital is injecting liquidity into sports investing. According to footnotes on Ares’ website, the fund uses broadly syndicated loans, among other liquid credit sources not related to sports, “to meet investor redemption requests and facilitate liquidity across the portfolio.”

Top-down ways to generate liquidity, like a team-level refinancing, new preferred equity infusion or a new debt structure, could also help with interim cash needs for majority and minority owners, Sidley Austin’s Belke said. 

“I imagine that’s only going to accelerate … for the owner not to lose control of the team, drive more liquidity, and so that minorities may have access to that as well,” the lawyer said. 

Negotiating exits

Private equity firms join ownership groups primarily as a source of capital. Investors can pitch in with advice on running a franchise more smoothly or profitably, but their reach can only go so far, said Shaffer of Alvarez & Marsal, who advises private equity clients on improving sports teams’ operations. 

“If you’re a multi-billionaire going in and buying a team, you have a certain amount of freedom,” Shaffer said. “If you’re an institutional investor and only owning 10% and maybe not even getting a board seat, you’re along for the ride, and you’re trying to influence the outcomes as best you can with your expertise. But there are some things that are definitely outside your control.”

League rules that keep private equity out of most major team decisions often leave funds with little control over how an exit plays out. That’s why funds try to bake exit terms into stake purchase agreements upfront, Belke and Geffner said. 

“What’s important, especially on the legal side, is structuring it on the front-end so that (funds) have the option and the ability to exit when and if that opportunity arises,” Belke said. 

Majority owners typically ask for a right of first refusal or right of first offer to give themselves first dibs on minority stakes if funds choose to sell, “which kind of chills the process,” he said.

A flood of capital could force leagues to bend

As team valuations rise, the pool of potential buyers for entire franchises or pieces of them narrows. Going forward, the most likely buyer for the minority stakes teams have sold is another private equity fund with the institutional capital and know-how to absorb them, Geffner said. 

“They’re creating a market for themselves for potential exits in the future,” he said. 

Until that market exists, leagues could help firms get closer by vetting and approving potential buyers of minority stakes in advance, Geffner said. The system could look like the NFL’s provisionally approved buyers list, he said. The league, historically resistant to institutional investment, allows ownership stake sales only to Arctos, Ares, Sixth Street Partners and a consortium comprising Blackstone, Carlyle, CVC, Dynasty Equity and Ludis. 

“You could see there being a pre-approved pool of secondary buyers that the league has to approve on a regular basis,” Geffner said. “So, (funds) don’t need to look for sellers in the market, and that could expedite things.”

Fund-to-fund sales that break minimum hold periods are strictly restricted and require leagues’ approval, making a secondary market for the stakes a far-off possibility. Frequent turnover could hurt the stability and continuity of ownership that leagues value, USC’s Brunious said.

“Leagues have put these guidelines in because they don’t necessarily want to have their equity stakes and their franchises just basically going to market and (being) sold every other year,” he said. 

Leagues may be more likely to bend and rewrite other rules, including the cap on the number of teams a single fund can invest in, Geffner said. 

“As a league, you don’t want to have one of your biggest players maxed out and not have the ability to invest in another team,” he said.

They might also consider becoming more lenient about the maximum debt private equity funds can take on to finance their stakes as team valuations creep higher, Geffner said. 

“I do think, just given the number of major transactions and the size of these valuations, the leagues are going to have to reassess their (ownership and financing) policies,” he said. “There’s going to need to be more flexibility for folks to put together the check sizes that are required for an acquisition of the size that we’re seeing.”

As one of the head bankers arranging financing for firms and individuals buying team stakes at J.P. Morgan’s Private Bank, Kantarian said complying with leagues’ debt rules often requires “creative solutions.”

The debt cap is a balancing act as leagues want to ensure value creation while preventing a chain reaction that starts with an overleveraged owner and ends with lenders seizing a team stake, he said.  

“If you saw pressure on valuations, particularly (in) the upper echelon,” Kantarian said, “I do think there would be some value in terms of thinking through what levers could be pulled.”