Sixth Street makes sports splash with investments in top-tier global sports franchises –

Sixth Street Partners is a 13-year-old global investment firm with more than $60 billion in assets under management. But it wasn’t until January 2021 that she made her first investment in the sport, when she bought a controlling stake in Legends.

Sixth Street has since invested in San Antonio Spurs (June 2021), Real Madrid (May 2022) and FC Barcelona (June 2022). Each of the four deals is different in nature, which is indicative of the firm’s flexible approach. But they have one thing in common – in each case, Sixth Street chose to support a premium franchise (its Legends partners are the New York Yankees and Dallas Cowboys). A source familiar with the firm’s thinking explained that its model works best when applied to high-level teams, globally. Sixth Street declined to comment on its latest sports investments.

Get JWS: Sixth Street invests in 15-25 topics across multiple industries at any given time. It could be avocado. It could be wind farms or real estate. But once it has a theme, the firm pursues it quite aggressively – as evidenced by the three sports deals completed in a 13-month period.
Sixth Street’s sports thesis began with the premise that the difficulties caused by the COVID-19 pandemic, along with changes in consumer behavior, have forced teams to think about their businesses in a multi-channel, 365-day-a-year way. To be fair, some have thought about their business that way for a long time; the decision of the Cowboys and Yankees to form the Legends over a decade ago is proof.

Hungry to recoup lost revenue from the pandemic and diversify their businesses in its wake — and having seen others successfully achieve those goals — many more teams are now exploring the prospect of converting traditionally seasonal businesses into enterprises throughout the year.

Additionally, franchises that didn’t really need or want outside investors before the COVID-19 sports disruption have since found the access to capital and skills that come with institutional investment an attractive avenue.

Another catalyst for developing Sixth Street’s sports theme was league-level rule changes that allowed investment funds to buy stakes in teams. Once the NBA authorized institutional investors, the firm approached the Spurs about buying into the franchise; believes the five-time NBA champions have the greatest opportunity to create value in the league.

The growth of digital media has helped increase TAM for sports teams, making them more attractive to institutional investors. Thirty years ago, business was mostly local; now clubs can consider partnerships on a regional, national or global basis.

Sports teams have historically been limited in their ability to monetize fans abroad. The league controls international media rights and all off-venue merchandise sales, so sponsorship has largely been the only lever to pull. But that has changed over the past decade or two as digital media technology has evolved. Teams can now engage with fans, bringing them more personalized and intimate experiences through direct-to-consumer channels that reach beyond the local market.

Because Sixth Street’s sports thesis is largely built around the idea of ​​accelerating the transition from local, seasonal businesses to year-round global brands, the firm has focused on investment opportunities associated with the best teams in the major leagues (think: value brand, organizational quality, competitiveness). The logic is simple: believe that those organizations have a much higher probability of being a global business than the last 25.

Former Goldman Sachs partner Eric Grubman believes that focusing on the top of the pyramid is a wise approach to take into account current market conditions. “In any industry – not just sports and entertainment – ​​properties that have attractive markets, with well-structured business models, that are profitable and are not overvalued – those properties can withstand difficult markets. Things that lose money or are overvalued – on those, I’d be a lot less honest.”

Sixth Street can be a passive investor or more involved, if the situation arises. The firm’s $380 million investment in Real Madrid’s Santiago Bernabéu stadium is an example of the latter. In coordination with Legends, Sixth Street will, among other things, help the club turn the stadium into a year-round destination. The renovated venue will host non-football sporting events as well as concerts, corporate events and live entertainment. The investment firm has the right to participate in the income generated by the stadium for the next 20 years.

The ability to combine Sixth Street’s capital (think: ability to fund future initiatives) with Legends’ skills and expertise was apparently a differentiator for the firm in that deal. A Real Madrid spokesperson said: “The club has relied on the experience of Legends over the past few years and therefore the Sixth Street-Legends-RMCF partnership made a lot of sense.”

Sixth Street’s investment in FC Barcelona (it bought 10% of the club’s media rights for the next 25 years for $215.6 million and rumors suggest will earn an additional 15% next week) is primarily a bet on the brand, league and value of premium sports rights. The firm believes that the secular changes brought about by the evolution of broadcasting have made live sports even more useful in a broadcast world than in a non-broadcast world. And that evolution is just beginning. For reference, LaLiga recently sold its domestic package in a five-year deal for $5.59 billion.

The data gathered from streaming should open up additional forms of revenue for the club and enable it to make smarter decisions. If Barcelona operate at a higher level on and off the pitch, the value of their media rights will likely continue to increase. Dan Cohen (EVP global media rights consultancy, Octagon) confirmed that would be the case. “Big brands attract big eyeballs and big eyeballs attract contractually mandated revenue streams (media rights, sponsorships, data and betting). Tier 1 properties are only going to keep going up and when you weigh up the returns in this low share market against brands like Barca and others – it’s a no-brainer.”

Reports have suggested that Barcelona may not be “around for another year or two”. If true (an inquiry considering the claims came from a rival club), it would seemingly make a 25-year deal with the team a risky endeavour. But Sixth Street has no concerns about the La Liga club’s balance sheet and believes its nine-figure investment puts FC Barcelona in a position to rebuild and then continue to grow.

While Sixth Street’s last two investments were in European football clubs, its pipeline includes assets from around the world. Expect some additional sports-related announcements from the firm within the next six months.

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