The NFL and NBA’s expensive ownership stakes are driving investors to smaller leagues

A version of this article first appeared in the CNBC Sport Newsletter with Alex Sherman, bringing you the biggest news and exclusive interviews from the world of sports business and media. subscription To receive future issues, directly to your inbox.

Last week, the National Women’s Soccer League awarded a new expansion — in Columbus, Ohio — to an ownership group led by Haslam Sports Group for a $205 million fee.

This represents a jump of $40 million from the $165 million that billionaire Arthur Blank reportedly paid for the league’s Atlanta franchise in November. The $165 million fee itself was a $55 million jump from the reported $110 million fee Denver paid in January of last year.

Going back to 2022, the expansion fee for the new NWSL club was just $2 million.

On the surface, this appears to be a story about the growth of the NWSL. Postseason attendance was up 11% last season, according to the league. Nearly 1.2 million people watched the NFL Finals, an increase of 22% from last year, including a massive 70% jump in the 18-to-34 age group, the league said.

It makes sense that investors would want to get in now given the league’s growth trajectory.

But, according to investors and bankers, there is something else going on that is affecting NWSL valuations and has nothing at all to do with football. It’s about the tiered investment thesis driven by the huge companies in the NFL and NBA.

Wealthy investors have long been interested in sports ownership, a trophy asset that has also produced huge returns on investment. The introduction of private equity investment, first adopted by the NFL in 2024, has added to the pool of potential buyers.

This dynamic is welcome news for the entire professional sports industry, which also benefits from another strategic investment play – anti-AI trading. Betting on live events is a counter strategy for those who want less exposure to technology in a market driven by AI investments.

This has helped raise the ratings of the most valuable sports teams in the United States. According to CNBC Sport, the average NFL team is now worth $7.65 billion. In 2010, NFL teams were worth, on average, about $1 billion.

The average NBA team is now worth $5.52 billion, 18% higher than last year. Fifteen years ago, the average NBA team was worth $369 million. This is an increase of 1,396%. the Standard & Poor’s 500 An increase of 422% during the same period.

Ownership stakes in the NBA and NFL have become too expensive for a class of buyers who have an active interest in being owners of a sports team — even at the minority stake level. Former New York Giants quarterback Eli Manning said the same thing in an interview with CNBC Sports last year.

“It’s too expensive for me,” Manning said of a potential minority stake in his old team. “A 1% share worth $10 billion turns out to be a very large number.”

NFL team valuations have risen about 17-fold in 25 years, “the kind of return that is enough to give any portfolio manager legendary status and easily outperform the S&P or any emerging markets index on the planet,” equity research firm Bernstein wrote in a recent note to clients.

The main reason for the growth in valuation stems from the sheer volume of media rights in the league. The NFL signed an 11-year, $111 billion media rights deal in 2021 — and now it wants more money. The NBA followed up with its own 11-year, $77 billion deal, starting in the 2025 season.

Dividing national television dollars between teams allows even the teams with the lowest revenues — the NFL’s Arizona Cardinals and the NBA’s Memphis Grizzlies — to be worth $5.9 billion and $3.75 billion, respectively, according to CNBC estimates.

There is a fear that “second-tier” sports, including MLB and the NHL, could be at risk of losing media rights money as the NFL flexes its muscles and demands more from its media partners. The more money that goes to the NFL, the less money there is for anyone else.

One might expect this dynamic to negatively impact evaluations of those sports. But according to these bankers and investors, this is not happening.

As the NBA and NFL have priced out buyers, there is now a growing demand for sports teams with reasonable valuations. They say that helped drive the recent increase in NWSL numbers. There is more liquidity in NWSL team price points, which has led to bidding wars and higher valuations.

While the recent winning buyers — Blank and the Haslams — are already owners of NFL and other sports teams, they have had to pay increasingly high prices to fight off other offers. There are far more buyout groups willing to write a $200 million consortium check than to pay $1 billion or more for minority stakes in the biggest leagues.

“There’s a lot of demand to get into sports but people can no longer write checks to buy into the big four. So what they’re doing is they’re trading,” said veteran sports banker Sal Galiatoto, president of Galiatoto Sports Partners. “When supply is constant and demand is high, people will give more to win. The underlying economics are not as important.”

The San Diego Padres are finalizing a $3.9 billion sale, an MLB record, despite the collapse of the team’s regional sports network a few years ago. While nearly $4 billion is a lot of money, it is still far less than the average value of an NFL or NBA team.

“Investors come to me and say, ‘I can’t afford the NFL and the NBA, so what do you have for me in MLB and the NHL?’” said one prominent sports banker, who asked to speak anonymously because the discussions were private.

The success of the NBA and NFL has reached the bottom of the sports food chain, said Rick Horrow, CEO of Horrow Sports Ventures.

“Major League Cricket used to be $5 million. Now it’s $30 [million] And go to the top. Major League Pickleball two years ago was $5 million. “The value now is $15 million or more,” Horo said.

Some of this looks more like a sports investment bubble, where valuations are disconnected from the underlying financials of the leagues themselves.

This is a real concern for smaller, less well-known leagues, said Jasmine Robinson, managing partner at Monarch Collective, the largest venture fund for women’s sports, with $250 million invested. That’s why the Monarchs focus most of their money on the WNBA and NWSL, rather than emerging leagues, Robinson said.

“Sports has historically been a big investment, but that’s really only in the major leagues,” Robinson said. “It’s not like you can make any sports deal and you’re going to make money.” “There was a real scarcity. You need to be in leagues that are going to be really groundbreaking to make money. We’re not going to bet on every women’s sports league.”

The big question may be what threshold is needed for an established league if there is an economic downturn that turns off the investment tap. The Monarch is betting that the WNBA and NWSL are above the line, but the WNBA franchises haven’t made any money at all and now need to pay players more money after this year’s new collective bargaining agreement.