Private Equity has a horrible reputation across America.

It ruined Toys R’ Us, it’s ruining Red Lobster.

It’s now getting into sports, but it’s way too early to tell how it’s going to ruin that too.

Let’s explore.

A budding Romance: PE and American Sports

The price is too damn high

Soaring valuations for the last 10 years has turned sports leagues into victims of their own success, particularly in the NBA and NFL.

Point 1: While the NBA is cool with PE guys coming in and buying chunks of teams, the NFL has remained cautious.

The vetting process is TOUGH. Many people have been turned away, few have been accepted.

Point 2: But it’s time. Because eventually, a team owner is going to put up an NFL team for $10 Billion dollars, and the Jeff Bezos flock may consider that too high a price.

Allowing institutional investors to come in and purchase a sports team (or part of a team) is ensuring there’s enough demand for the product. Otherwise, the price isn’t justified. In other words, sports leagues have to manufacture demand (expand the buying pool) to preserve the valuation of their teams.

It’s about non-correlation, stupid!

The stock market is a finicky thing. If you could put your money into a soaring vehicle in a booming market that wasn’t tied to the whims of day traders, wouldn’t you do it?

Point 1: That’s called non-correlation. It’s the notion of an asset’s price not being tied to other volatile things like stocks, bonds, mortgages, etc.

Point 2: Sports teams are the perfect 1-2 punch as a non-correlated asset class. They go up in value (in some cases they outperform the S&P year to year), and they’re not tied to the stock market. Any large pension fund that puts their money into PE is hoping to get exposure to these types of investment vehicles.

What AI Made This Week

Sick Fits by Ahmed

Video of the Week

Say what you will about Peter Thiel (and we have a lot to say), he’s a really great clear-thinker on all things business and marketplace concepts.

Have a great week!

Ahmed and Peter