When investors think about sports, their mind might jump straight to owning a team or buying a stake in a league.
While deals such as the record $10 billion acquisition of the Lakers by billionaire Mark Walter might grab the headlines, Mark Affolter, partner, portfolio manager and co-head of Sports, Media, and Entertainment at Ares, tells InvestmentNews that’s just the tip of the iceberg that also includes media and entertainment.
“While investments in sports teams, clubs and leagues often draw a lot of attention, we’ve identified a significant and underpenetrated white space opportunity within the broader sports, media and entertainment ecosystem,” he explains.
That opportunity, he notes, is “five to six times larger than teams and leagues” and spans everything from athletic gear and ticketing platforms to youth sports programs, streaming analytics, live content, gaming, and music.
Part of the appeal is that these assets share the same “historically low correlation to the broader market” that makes sports teams attractive with stability rooted in “the value ascribed to unique and unscripted content, non-discretionary consumer spending, and recurring and resilient cash flows.”
The sector is also benefiting from a major structural shift from the institutionalization of sports and entertainment financing.
“Historically, sports franchises were financed through traditional bank debt,” Affolter says, but lending restrictions have created “a significant funding gap within the sports industry.”
With valuations climbing, he adds, “major North American leagues have started allowing private capital solutions to provide liquidity within a market we view as undercapitalized.”
For investors, this evolution opens a previously closed door. “Entry points have now opened up into a historically inaccessible asset class,” Affolter says, calling it “an impactful diversification tool” for long-term portfolios.
And investments in these industries is supported by the cash flow enjoyed by many of its businesses thanks to the loyalty of fans.
“Being a sports, music or entertainment fan comes with personal connections,” Affolter says, “and that loyalty can translate into long-term, recurring revenue streams.”
In sports, this means media rights, sponsorships, and game-day sales locked in by multi-year contracts. In music, subscription-based streaming has become “a utility-like expense in households,” he notes, with fans both rediscovering old favorites and discovering new ones.
Media rights and IP monetization, have a powerful effect on valuations.
“We’ve seen the average annual value and the length of contracts increase significantly due to the growing demand for live unscripted content,” Affolter explains.
As for overlooked niches, he points to youth sports as one of the most promising growth areas. The $40 billion market involves “60 million children playing sports” and is “less likely to be impacted” in downturns since parents tend to cut other expenses first.
It’s not a space for short-term plays, though.
“Similar to most investments in the private markets, we believe this is a core, long-term growth strategy,” Affolter says. Liquidity will “vary significantly deal by deal” depending on terms and structure, but for those willing to hold, the rewards can be compelling.
“Sports, media and entertainment assets offer attractive risk-adjusted returns, historically low correlation to traditional asset classes, and the potential to build durable portfolios that can withstand broader market cycles,” he concludes.
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