Suraj K. Gupta, President & CEO of Rogue Insight Capital, an investment firm focused on diversity, innovation, and social impact, has been investing in sports teams for several years. Major sports transactions like the sale of the Golden State Warriors and Paris Saint-Germain have provided valuable insights into the sports industry’s growth and valuation trends. Gupta has observed meteoric growth in the industry, with NBA and NFL team valuations growing by over 19% and 15% annually from 2013 to 2022, effectively doubling every four and five years, respectively.
The exponential growth in sports team valuations can be attributed to the increasing demand for live sports content, which has been the driving force behind the growth of media revenues globally. Companies are willing to pay exorbitant sums for advertising during live sports events, resulting in a significant increase in the value of sports media contracts. Gupta points out that the streamers, like Netflix and Amazon, with diversified ecosystems, have a significant advantage over traditional television networks in terms of capturing consumer interaction and retention.
The significant rise in media revenues has led to gargantuan margin increases for sports teams, as their largest revenue sources are media revenues and ticket sales. This revenue growth has outpaced the growth of costs such as stadium expenses and player salaries. While sports team valuations historically traded at price-to-sales multiples of 5-10x, Gupta believes there is room for further growth, especially with the upcoming renegotiation of NBA media rights, which is expected to increase significantly by 2.5x to $8 billion per year.
Gupta highlights the differences between North American and European sports teams regarding investment opportunities. The North American sports model rewards the worst teams with draft picks and does not have relegation, providing greater stability for investments. In contrast, European football teams face significant downside potential due to relegation and lack of competitive parity, leading to potential valuation depressions for mid-tier teams. Gupta emphasizes the importance of investing in leagues with growing media contracts and stable, competitive teams to maximize investment returns in the sports industry.
In conclusion, Gupta believes there is still tremendous upside in the sports industry, as the demand for live sports content remains robust, and deep-pocketed media companies continue to invest in sports rights. While the price-to-sales ratios may reduce in the long term, the overall trend of increasing valuations in the sports industry is expected to continue. Investors looking to capitalize on this trend should focus on leagues with growing media contracts and teams with a history of stability, longevity, and competition. It is important to consult with licensed professionals for personalized investment advice in the sports industry.
