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The Faithful Departed

In March of 2006, CVC Capital, a Private Equity (PE) firm, purchased a 14.1% share of the Formula One Group for the equivalent of $2.46bn from Lehman Brothers, giving CVC a total stake of 63.4% in the organization and the title of majority owners. In the last 14 years, the Formula One Group has increased its valuation to $13.4bn and gone public under the ticker FWONK.

This deal is known by many as Private Equities public entrance into the global sports arena and since then activity has become more frequent and the size of transactions have become larger. For instance, the NBA, which began allowing its franchises to sell minority shares in 2021, has seen private equity firms buy portions of the Suns, the Kings, the Hawks, the Warriors, and the Spurs within the last few years. The NHL, MLB and MLS all allow for similar ownership structures and as a result seen similar entrants into their owners’ boxes. In fact, the only North American major sports league to not open its doors to new ownership structures is the NFL…

This is not the first time that PE has sunk its teeth into a target and swallowed up market share. In the last decade or so PE set its sight on one of the fastest growing and most stable real assets in the world: Nursing Homes. Here are some facts on PE’s impact on Nursing Homes thus far:

  • In the last 5 years, PE investments in nursing homes grew 500%

  • PE outpaced all other acquirers of nursing homes by a margin of 11% in 2020

  • 70% of all nursing homes are now considered for-profit

  • There is a 10% higher risk of death for seniors living in PE owned nursing homes compared to seniors living in non-profit owned nursing homes

Yes, you are reading that right… if your pop-pop or mema are living in a PE owned nursing home, which is now extremely likely, make sure their estate is in order, because they are on their way out… In a way we all are, so act accordingly.

This phenomenon is happening because at a certain point in an humans life they become more expensive to take care of than the rent they are contributing. PE reduces these seniors to line items, and heartlessly decides they are not worth the expense of treating adequately. Historically, laws were in place that made the potential legal fees of patient mistreatment outweigh the cost of spending money to properly treat said patients, but PE found a way to structure their organization in a way that eliminates that risk. A “legal loophole”, if you will. In doing so, they made it much more profitable for a senior near the end of their life to check out early and to fill the vacancy with another sorry sucker that is soon to join the faithful departed.

These statistics have kept me up at night, and over the last few weeks I couldn’t help but fear the consequences that PE ownership could have on my beloved NFL. PE never surprises you with their actions, they seek value and they will stop at nothing to achieve a return. It’s capitalism at it’s finest, but capitalism threatens the lifeblood of American sports the same way it more literally threatens the lifeblood of our grandparents.

If PE were to enter into the NFL, I suspect you could expect the following:

  • PE firms will target teams that have large, but growing populations, under performing operating income, digital assets, and a large amount of physical real estate (i.e., Tennessee Titans, Houston Texans, Minnesota Vikings, Indianapolis Colts, Atlanta Falcons, etc.)

  • PE owned teams will structure contracts with less favorable terms for players and coaches (i.e., less guaranteed, less incentives, more regulations that result in salary forfeit, etc.)

  • Winning will only be prioritized when profitable, and that currently isn't the case in the NFL (e.g., PE firms will invest more in digital experiences then good players and coaches if it means increased profits for a 10 year period)

  • The safety of players and staff we be completed de-prioritized, leading to career ending injuries or much worse

  • Oh, and ticket sales only account for 1.5% of revenue for the average NFL team, so say goodbye to a good in-person experience

The result of these negative impacts could be catastrophic in a league that has such a strong players union. I know there will inevitably be doubters of the reality of these claims, but let me assure you that the owners of these illiquid assets want to cash in on the historic bull run the NFL has been on and deposit some of the biggest checks in history.

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