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Ian Charles, managing partner at Arctos Partners, said the rise of artificial intelligence is likely to increase the valuation of sports teams and media rights, making sports an even more attractive asset class for investors.
As AI-generated video and online content become more prevalent, live sports will become even more important in high-profile fights, Charles told Inside Alts. As fans pay more for live experiences and in-person games, team values will continue to rise and generate significant profits, he said.
Charles said, “Sports is the only must-see pre-order content.” “In a world where people are increasingly isolated and seeking connection, the value of watching a sporting event with friends, being part of a community, and the communal and tribal connections that come with crying, shouting, and cheering has grown exponentially for media environments and ecosystems.”
Arctos is at the center of an investment boom in the sports sector. The Dallas-based firm manages $15 billion in assets and has helped pioneer the expanding role of private equity in the ownership and financing of sports teams. The company is the only private equity firm approved to own equity in teams in all five major North American professional leagues: the NFL, NBA, MLB, NHL, and MLS.
The company’s large lead in sports has made it an attractive target for other private equity firms. Bloomberg reported last month that private equity giant KKR had agreed to acquire Arctos at a valuation of $1 billion, while retaining Charles and other executives. Arctos and Charles declined to comment on the report.
But despite concerns about bubbles in team valuations, Charles said the theory of sports as an investment is in its infancy.
He said the team’s values are driven by two things. The first is league revenue, which is divided among teams and represents intellectual property. The second is the live entertainment business, which is driven by stadium and other revenue and is protected because “no one is allowed to compete in certain forms of live entertainment.”
“These two assets are very unique,” Charles said. “We have this very durable, very important IP piece and this local live entertainment piece.”
These twin drivers gave major league sports teams their own unique characteristics as investments.
Charles said North American sports teams have largely outperformed publicly traded stocks over three, five and 10-year periods, with occasional exceptions. The value of the team has increased steadily with little variation. It also has little correlation with stocks, providing that elusive “alpha” that many wealthy investors and family offices are always looking for.
Sports teams, once viewed as billionaires’ trophy assets or unprofitable vanities, have become more rigorous businesses and increasingly accessible to investors through private equity funds. In 2024, the NFL voted to authorize select PE firms to purchase minority stakes in teams, becoming the last major U.S. professional league to welcome private equity investors.
According to JPMorgan, nearly one in five professional sports teams currently has some type of private equity investment. The bank says the cumulative revenue of the four major sports leagues – NFL, NBA, MLB and NHL – has outpaced the S&P 500 since 2014.
Charles said sports are also “counter-cyclical,” meaning they are less susceptible to business cycles and recessions.
“They have this kind of exclusive local live entertainment business in the sports space. That’s really interesting,” he said. “And 70% to 80% of premium sports’ total revenue is long-term, contracted through sponsorships and 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 guaranteed to win. Charles said Arctos is only focused on the five major leagues. He said emerging sports such as padel, pickleball and E1 series electric powerboat racing have yet to prove their worth as durable investments.
“I have no idea which professional pickleball leagues will be the best source of content in 20 years,” he said. “We know that when the Super Bowl is held in 2045, it will capture the attention of the whole world.”
If there’s one new league that could emerge and become big business, she said, it’s probably women’s sports.
“I think one of the women’s sports leagues will emerge and gain global attention,” he said. “We don’t know which one it is. We don’t know where it’s going to be based. One of them is going to capture the energy and fandom around the world.”
