Artificial Intelligence will boost sports team ratings

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The rise of artificial intelligence is likely to boost the valuations of sports teams and media rights, making sports a more attractive asset class for investors, according to Ian Charles, managing partner of Arctos Partners.

As AI-powered video and online content becomes more ubiquitous, live sports will become even more important in the battle for attention, Charles told Inside Alts. Because fans will pay more for live experiences and in-person games, team values ​​will continue to rise and generate strong returns, he said.

“Sports is the only must-watch content and date-watching,” Charles said. “In a world where people are increasingly feeling lonely and looking for connection — the community and tribal connection you get from watching a sporting event with your friends, being part of your community, crying and screaming and cheering — the value of that to the media landscape and ecosystem is enormous.”

Arctos is at the center of an investment boom in sports. With $15 billion in assets under management, the Dallas-based firm has helped pioneer the growing role of private equity in sports team ownership and capital raising. It is the only private equity firm approved to own equity in teams across all five major North American professional leagues – NFL, NBA, MLB, NHL and MLS.

The company has gained so much leadership in sports that it has become an attractive target for other private equity firms. Bloomberg reported last month that private equity giant KKR had agreed to buy Arctos at a valuation of $1 billion, keeping Charles and other senior management in their positions. Arctos and Charles declined to comment on the report.

However, despite concerns about a bubble in team valuations, Charles said investment theory in the sport was still in its infancy.

He said the team’s values ​​have two drivers. The first is league revenue, which is distributed among teams and equals intellectual property. The second is the live entertainment business, which is led by stadiums and other protected revenues because “no one is allowed to compete with you in your form of live entertainment.”

“These two assets are completely unique,” ​​Charles said. “You have the very solid, important IP piece, and then this local live entertainment piece.”

These twin drivers have given major league sports teams unique characteristics as investments.

North American sports teams have mostly outperformed public stocks over 3-year, 5-year and 10-year periods, with only occasional exceptions, Charles said. The value of team values ​​has increased steadily, with little fluctuation. They are also largely uncorrelated with stocks, providing the elusive “alpha” that many wealthy investors and family offices are always looking for.

Once viewed as trophy assets and unprofitable vanity plays for billionaires, sports teams have become tougher businesses that investors increasingly have access to through private equity funds. In 2024, the NFL voted to approve select private equity firms to purchase minority stakes in teams, becoming the last of the major American leagues to welcome private equity investors.

Nearly 1 in 5 professional sports teams now have some type of private equity investment, according to JPMorgan. The cumulative returns of the four major sports leagues — the NFL, NBA, MLB and NHL — have outperformed the S&P 500 since 2014, the bank said.

Sports are also “counter-cyclical,” meaning they are less susceptible to economic cycles and recessions, Charles said.

“They have this kind of monopoly local entertainment business in sports, and that’s really interesting,” he said. “And 70% to 80% of total revenue in premium sports is long-term and contracted through sponsorship, through media rights, with guaranteed payments and escalators. So it doesn’t matter if GDP goes down or up.”

However, not every team or league is a sure bet. Arctos only sticks to the big five tournaments, Charles said. He said that emerging sports, such as padel, pickleball, E1 series powerboat racing and others, had not yet proven themselves as permanent investments.

“I have no idea which professional pickleball leagues will be the premium source of content in 20 years,” he said. “I know that when there is a Super Bowl in 2045, it will capture the attention of the entire world.”

He said if there was a new league that could take off and become a big business, it would likely be in women’s sports.

“I believe that one of the women’s sports leagues will rise and gain global attention,” he said. “I don’t know which one it is. I don’t know where it will be based. One of them will capture the energy and audience in the world.”