The NBA became the first major US sports league to accept private equity investments in its teams back in 2020. The league has now decided to allow teams to accept investments from endowments, pension funds and sovereign wealth funds. The decision was reportedly made in early November.
The news was reported by entrepreneur and investor Joe Pompliano.
“BREAKING: The NBA will now allow sovereign wealth funds, pension funds, and endowments to invest in teams, per @Sportico. The NBA was the first major US sports league to allow private equity investors, but with valuations continuing to rise, they will now broaden the scope,” Pompliano tweeted.
According to Sportico, this change could lead to foreign governments and US university endowments buying stakes in NBA teams.
“The decision could pave the way for foreign governments and large U.S. university endowments, such as Harvard’s $42 billion war chest, to buy small, passive stakes in NBA franchises,” Sportico reported.
In such cases, the league would still have to approve potential new investors.
The majority owners of the Washington Wizards (Ted Leonsis) and Toronto Raptors (Larry Tanenbaum) were the biggest supporters of the change.
The changes have since been confirmed by NBA spokesman Mike Bass. Bass added that “all such investments are subject to league review and NBA Board approval.”
The league is reportedly likely to be cautious with new investments from sovereign wealth funds. Sportico said that they will treat them as “test cases.” They also mentioned that “human rights and geopolitical standing" will be a factor in the league's decisions to approve or deny investments.
The NHL is already expected to follow the NBA in allowing these types of investments. This goes in line with 2020 when the NHL, MLB and MLS all followed the NBA’s lead in allowing private equity investments.
For Sportico’s full report on the NBA’s recent changes, click here.
How will the change affect NBA franchise valuations?
The change to allow investments from endowments, pension funds and sovereign wealth funds is expected to increase the valuations of NBA franchises.
According to Sportico, the average franchise in the league is already worth almost $3 billion. This limits the number of investors that can afford to invest in the league. The aforementioned changes will give owners more investment options and, therefore, should increase their teams’ values.
According to Sportico, many private equity firms have already invested in the NBA.
“In the past 18 months, a handful of private equity firms have rushed to invest in NBA franchises,” Sportico reported.
“Dyal HomeCourt (NYSE: OWL), the fund that originally partnered with the NBA, is known to have invested in the Atlanta Hawks, Phoenix Suns and Sacramento Kings.
“Arctos Sports Partners’ portfolio includes the Kings, Utah Jazz, Golden State Warriors and Philadelphia 76ers. Sixth Street bought into the San Antonio Spurs.”
It remains to be seen which sovereign wealth fund will be the first to invest in the NBA.