![MLB Alters Bylaws Permitting Institutional Investors Take Limited Interest Multiple Clubs](https://cdn.statically.io/img/www.sportico.com/wp-content/uploads/2019/10/mlb-200x200-6.png?w=195&h=195&crop=1)
Bloomberg’s Scott Soshnick reported on October 16 that Major League Baseball has altered its rules to allow investment funds to buy limited stakes in multiple franchises. The article also said that sports banker Sal Galagioto had created a $500 million investment vehicle explicitly for that purpose. The SEC approved GSP Baseball Fund will take no more than 100 investors. The minimum investment amount is $1 million.
Howie Long-Short: As team valuations continue to rise (MLB average is now $1.78 billion, +8% YoY), pro sports leagues have become concerned about the dearth of individuals wealthy enough to buy-in. The NBA is apparently discussing a similar solution, while the NFL is talking about raising its debt limit by +$700 million (to $1 billion).
In theory, permitting investment funds to take stakes in teams across the league would allow existing ownership groups to pull some money off the table, help limited partners to get out from their investments and keep valuations rising. But there are several reasons why some say institutional money doesn’t belong as part of a team’s common equity.
For starters, it seems unlikely that a savvy investor would put money into an asset that one well respected sports financier called “passive, limited and illiquid.” If it’s about generating a return and not stroking one’s ego, a pro sports team is probably not the ideal investment.
One baseball insider with first-hand experience in fund backed LPs echoed those thoughts. He and few others “along with a single private equity group negotiated a tiny piece of a limited interest in a bigger club/media arrangement. And at the end of the day, the private equity guys realized they couldn’t fit [a LP in a pro sports team] into any of their funds because there is no guaranteed exit strategy; they’re also not used to committing this kind of money without having anything to say about management.” Ultimately, the firm got cold feet and the deal fell apart.
The sports financier we spoke to also questioned how much further Major League Baseball team valuations can rise. Remember, the economy is strong and interest rates are low. While a down market shouldn’t impact team valuations (they’re not tied to the markets), it’s likely to shrink the pool of prospective buyers.
But it reasons to believe that Galatioto thinks there is a market for the product and if he’s able to execute on a strategy that would see the fund buy non-controlling stakes at a 25% to 30% discount and he has the right to sell those limited partnership shares when the general partners sell their stakes at a 30% control premium the fund will be a success.
Galatioto isn’t the only one in the market looking for investment capital, though. Multiple sources tell JohnWallStreet that a pair of former MSG executives – Doc O’Connor and Jordan Solomon – are working to raise an “$800 or $900 million private equity fund to take limited partner shares” in premium global sports assets. It’s unclear just how the duo plans to do that. Unlike Galatioto, neither has experience in valuing pro sports teams or negotiating their sales. One source who heard their pitch said, “they could not articulate how they were going to get out.” Of course, it’s must be noted that as it currently stands none of the other big four sports leagues even permit cross-team ownership.
Former Diamondbacks shareholder Jeff Moorad is also said to be working on raising capital to invest in sports teams across multiple leagues – except he’s looking to acquire controlling interests in those clubs. Presumably Moorad is thinking about buying up international clubs and/or minor league teams because the structure runs afoul of majority ownership guidelines of all four major sports leagues.
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