Why billionaires buy sports teams

The professional sports industry is full of players earning millions of dollars and team owners with billions of dollars.

There are many examples of billionaires venturing into sports and owning high-profile clubs.

Steve Ballmer, estimated to be worth $123.3 billion and regularly among the top ten richest people in the world, owns the Los Angeles Clippers NBA team.

Mukesh Ambani, with a net worth of $83.4 billion, owns the Mumbai Indians, which is part of cricket’s Indian Premier League.

Francois Pinault, whose family has an estimated net worth of $19.6 billion, owns Stade Rennais FC, a top-flight soccer club in France.

Shahid Khan has an estimated net worth of $13.6 billion and owns the Jacksonville Jaguars NFL team and the Fulham FC Premier League soccer club.

There are many more examples of this in professional sports, highlighting the attractiveness of owning a flagship sports club for the world’s most successful billionaires.

The multi-billion-dollar question is: Do these wealthy individuals and entities buy football clubs as an expensive hobby or a business opportunity?

There are feel-good stories of owners who have a strong passion for a sports club and are willing to spend in an unprofitable way because of it.

The most famous recent example is Wrexham AFC – a lower-league football club that was purchased by Hollywood stars Ryan Reynolds and Rob McElhenney.

Both actors have invested in the football club and given it global exposure through the smash-hit documentary series Welcome to Wrexham.

When Reynolds and McElhenney took over in November 2020, Wrexham AFC was participating in the Vanarama National League, the fifth tier of professional football in England.

The club has since climbed to League One, the third tier of English football, and, as of the time of writing, Wrexham AFC was in a good position to fight for promotion once again.

Reynolds and McElhenney have lost millions of dollars on Wrexham AFC since taking over the club – despite its impressive success.

Yet the pair remain committed to the club’s future and have repeatedly highlighted that their goal is not to profit from the club but to grow it.

When business wins

However, Wrexham AFC is rare, as most owners have strong business ambitions when buying a sports club.

This is thanks to the relative stability and proven growth potential of this investment opportunity.

The stable nature of sports team investments is particularly true in American sports, as team owners are not faced with the threat of relegation from the NBA, NFL, MLB, or NHL.

As a result, Forbes estimates that the average value of an NBA franchise is $4.4 billion – up 15% from a year ago.

Such growth is far greater than the performance of the S&P 500 – meaning that if you have the required capital, these investments can be incredibly lucrative.

For example, Ballmer paid $2 billion for the Los Angeles Clippers 10 years ago.

This was considered a significant overpayment at the time, albeit one that one of the world’s wealthiest men could afford.

However, Ballmer’s acquisition of the Los Angeles Clippers proved to be shrewd, as the franchise is estimated to be worth $5.5 billion – and climbing.

TV rights

Top sports teams like the Los Angeles Clippers have a diverse income stream – including ticket sales, merchandise sales, and sponsorship deals.

Perhaps the most notable income stream, however, is TV rights money, which has been growing significantly in recent years.

S&P Global estimates that the annual value of US TV and streaming sports rights will total $32.39 billion in 2025

In 2015, this figure was $14.64 billion – meaning these rights will have more than doubled in the past decade.

Key reasons for the growth in sports rights costs include:

• Sports coverage remains extremely popular, with a US cable TV viewership that is migrating rapidly to streaming services.
• New industry players, including streaming giants like Amazon Prime Video, are bidding for these rights, which increases competition.
• Sports coverage is expanding globally – both in terms of US sports reaching global viewers and vice versa.

TV rights are traditionally locked for several years at a time, providing a reliable and significant income stream for sports teams in the US.

Beyond the US

Similar principles apply to top professional sports teams outside the US, but often with the added risk of relegation from the most lucrative leagues.

Getting relegated from the Premier League is the most obvious example of this.

The Premier League’s domestic broadcasting deal is worth approximately $8.5 billion, while the broadcasting deal that encompasses all of the next three divisions is worth $1.19 billion.

When you consider that the $8.5 million is shared across 20 clubs, whereas the $1.19 billion is shared across 72 clubs, the gulf in financial resources is obvious.

In fact, the drop-off is so bad that the Premier League allocates “parachute payment” money to relegated teams – just to help them survive the drop-off in income.

This is a risk that owners must embrace if they invest in most Premier League clubs – the exception being the “big clubs” like Manchester United and Liverpool, who have the sheer financial resources and business models that ensure they are extremely unlikely to suffer relegation.

Notably, however, the wealth of riches in the Premier League also presents a unique and significant financial opportunity.

If an owner can get their team promoted to the Premier League, a big pay day awaits – both in terms of club revenue and club value.

Therefore, the promotion and relegation structure carries more risk and greater potential reward. However, both models are appealing to many billionaires.

Billionaires like Khan, Stan Kroenke, John Henry, Todd Boehly, and, until recently, the Glazer family all have ownership of Premier League teams and US sports teams simultaneously.

These billionaire investors have made their views clear through their actions. For the uber-wealthy, sports teams are a great investment.