Sports-Focused PE Firm Seeks Up to $1.75 Billion for Team Stakes

(Bloomberg) -- After watching the value of pro-sports franchises skyrocket in recent years, owners are now confronting a harsh reality: It’s becoming harder and harder to sell passive minority stakes when they need to raise cash, especially during economic downturns.

With high valuations scaring away many potential investors, the problem has led leagues to loosen their ownership restrictions -- and created an opportunity for a new kind of private equity investor focused on acquiring limited stakes in franchises.

That’s the mission of Arctos Sports Partners, a firm unveiled Wednesday that’s led by former Madison Square Garden Co. Chief Executive Officer Doc O’Connor and private equity veteran Ian Charles.

Arctos is planning to raise between $1.25 billion and $1.75 billion, and has already starting making investments, according to people familiar with the matter. The plan is to invest across the major U.S. leagues -- where allowed -- and also top-level European soccer, said the people, who asked not to be identified because the strategy isn’t public yet. Current backers include the Goldman Sachs Group Inc.’s Petershill division.

Though the group began forming Arctos before the coronavirus pandemic, the global sports shutdown will likely further add to the opportunity. Owners across sports are considering asking limited partners to provide more funds to backstop losses, and Arctos can either be an alternative to that, or help purchase stakes from passive owners who don’t have the cash to stay involved.

“The Covid-19 pandemic’s impact on the global economy is significant and very acute in the sports and live entertainment ecosystem,” O’Connor said in a statement. “Businesses across all sectors need access to capital as they recover from this disruption and we want to be part of the solution and a long-term partner to leagues and franchise owners.”

Different leagues vary on whether the private equity firms can own stakes in franchises. It’s not currently allowed in the NBA or NFL, but it is in the NHL. Major League Baseball owners recently voted to change their rules to allow it.

Arctos doesn’t have the opportunity to itself. Bloomberg News reported in October that Galatioto Sports Partners has created a $500 million vehicle -- the GSP Baseball Fund -- to invest in teams. The NBA is also considering its own investment fund to buy minority shares.

Charles was previously a partner and board member at Landmark Capital, and O’Connor spent two years running MSG before stepping down in 2017. Other Arctos partners include Joseph Nasr, former managing director at Stellus Capital, and Jordan Solomon, a one-time executive at MSG and the NBA.

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