The reason billionaires like to pour money into sports

In August alone, former Disney CEO Bob Iger and billionaire investor Josh Kushner agreed to buy a controlling stake in the Los Angeles Lakers basketball club (USA), thereby valuing this team at a record $12.5 billion. A group of investors, including Amazon founder Jeff Bezos, also bought nearly 40% of the shares of Liverpool Club (UK).

Mid-last month, the sale of the San Diego Padres baseball club (USA) for 3.9 billion USD to a billionaire investor. This number exceeds the $2.4 billion that billionaire Steve Cohen spent to buy the New York Mets baseball club in 2020. The Yankees, America’s most valuable baseball team, also recently reached an agreement to sell shares to Apollo Global Management for $2.6 billion.

Sports clubs around the world are changing hands at breakneck speed, pushing valuations to unprecedented heights. Analysts say there are many reasons for this buying wave.

The first reason is quite surprising, when related to artificial intelligence (AI). Sports are considered an AI-immune investment. Teams are unlikely to be disrupted by this groundbreaking technology like many other investments.

“I bet the probability that the Yankees will exist in 100 years is higher than IBM,” said Sal Galatioto – an expert in the field of buying and selling sports clubs.

Galatioto has been involved in negotiating acquisitions in this sector for the past 30 years. He said he has never been as busy as today.

“People never buy teams for quick profits. They buy because they expect assets to increase in value in the long term, to satisfy their ego and enjoy the value of scarcity, like buying a work of art. But now, it is also a tool to prevent the risk of disruptive technology,” he said.

Victor Matheson – professor of economics at Holy Cross College, said there are many fields that are less impacted by AI, such as the electricity industry. However, sports teams are “much more attractive”. “No one dreams of becoming CEO of the national electric company. But everyone has wanted to become the owner or manager of the Yankees,” he said.

Besides, the value of live broadcast copyrights for sporting events has never been as high as it is today. As audiences become more accustomed to watching on-demand content, sports is one of the few content people still accept watching with ads. The entry of streaming services like Amazon, Apple and Netflix has further pushed up licensing fees.

“No one knows what new technology will appear in the future to distribute matches. As long as you own the content, it doesn’t matter how that content is distributed,” Galatioto said.

Finally, sports teams are an asset class with limited supply. Not all teams are for sale.

Some teams, like the Padres baseball team, are only put up for sale after the owner passes away. But there are also teams like the New York Giants, controlled by the Mara family for more than a century, that are willing to sell shares.

Sports teams selling shares is not new. However, this activity has recently become increasingly popular. The buyer group is also more diverse. American investors are actively acquiring European football clubs. Meanwhile, sports clubs in North America are also being acquired by foreign investors.

Many owners are betting on the fact that even if they buy at too high a price or suffer short-term losses, selling later can still bring huge profits. “You can accept paying more than the real value, as long as you believe that in the future someone will be willing to pay more,” Matheson said.