Deloitte investment report predicts more sport mergers and acquisitions in 2023

A new report from global accounting and consultancy firm Deloitte has suggested that the international sport industry will enjoy new flows capital in 2023 as new stakeholders are attracted to the prestige and potential returns that the industry offers.

Deloitte’s latest Outlook for Sports Investment in 2023 report advises that rights holders have provided an ideal environment the mergers and acquisitions market and despite a challenging macroeconomic climate, the inflow of capital into the sector is expected to continue.

Investor confidence has largely been driven by the predictable and improving revenue streams that premium sports properties offer. This has been further buoyed by growing media rights, globalisation of valuable content, and the resilience showcased by sports assets during the initial COVID-19 pandemic.

The report said that the sector was becoming its own asset class with multiple categories spanning professional spectator sports, media, leisure / entertainment and complementing organisations. It added that in recent years external investment has brought new levels of professionalism and commercialisation by the rights holders controlling the assets.

Mature sports markets in America and Europe are seeing a surge in investment as assets gain popularity and commercial value. These regions drew about 80% of total sports investments by volume in 2022.

The sports sector saw more than 220 merger or acquisition transactions completed in 2022. America took the lion's share of larger deals, with twice as many tournaments, competitions, and leagues attracting investment in 2022 when compared to Europe.

However, the report pointed to almost five times as many deals being struck with mid-sized assets in Europe (typically football clubs and teams) than in the Americas. Almost half of investments made into mid-sized European sports assets in 2022 were acquired by organisations outside of the continent, highlighting globalisation trends.

Unlike other sectors, investment in sports has historically been driven by the 'trophy asset' rationale. Ultra-high net worth individuals can be drawn to invest due to their interest as fans and the prestige that comes with owning a sports asset - rather than by sound decisions based on an overriding desire for financial returns.

Additionally, in recent years, a new kind of investor has emerged, primarily due to the attractive, risk-adjusted returns on offer. Some key overarching observations include an influx of institutional money, private equity capital into premium sports assets, the emergence of sports-focused investment funds, and a portfolio approach to purchases.

Private equity capital flowing into the sports sector has, to date, primarily been deployed into premium assets. These differentiate themselves through maturity, quality of infrastructure, overall commercial value, and risk profile relative to less-attractive peer assets.

Examples of premium rights holders include leagues and competitions, North American franchises across the ‘big five’ leagues (NFL, NBA, MLB, NHL, and MLS), and top-tier teams or clubs with remote likelihood of relegation. Premium assets provide private equity firms with access to stable revenue streams, asset appreciation potential, and good exit options.

Overall, Deloitte expects to see increased investment fuelled by new industry entrants who are attracted to the prestige and potentially compelling risk-adjusted returns offered by sports assets.

Click here to view the report.