Arctos Partners has scored big on its opening drive for a coveted private equity (PE) investment in the NFL, becoming one of the first two firms to secure a minority stake in a team for their institutional investors.
The firm’s Arctos Sports arm, which has $9.9 billion in regulatory assets under management (RAUM), secured a 10% minority investment in the Buffalo Bills last month (further details of the transaction were not released). That’s the biggest share the league allows PE firms to hold under new rules adopted last August that cleared the way for these inaugural investments, which provide fresh liquidity to current owners and allow approved firms to help future bidders buy teams as passive minority partners.
“It felt like it was the highest and most important mountain for us to climb, and so now that it's here and we are among the few entitled to invest in this space, we are excited to get to work,” Arctos co-founder and co-managing partner David “Doc” O’Connor tells Fortune.
The Miami Dolphins also took on a private equity partner in this first wave. Arctos unsuccessfully bid to invest in the Dolphins, which included stakes in the team’s Hard Rock Stadium as well as the Miami Formula 1 race among the transaction’s assets. Ares Management (ARES) secured the entire 10% PE stake, while Brooklyn Nets owners Joe Tsai and Oliver Weisberg together took a separate 3% share of the assets.
These are big deals since the NFL is the gold standard as the world’s most valuable sports league, and it’s the last one to allow private equity firms to deploy institutional capital into its 32 franchises. These teams have traditionally been wholly owned or majority-owned by old money families or newly minted billionaires (some of whom made their fortunes in private equity), with some individuals holding small stakes.
The NFL’s rules outline how PE firms deploy capital and mandate transparency into funds to know who is investing and the size of those stakes. The firm and its institutional investors are non-voting, passive minority shareholders in the teams, so they won’t be firing coaches or trading players. Each NFL approved PE firm can invest in up to six different teams. NFL clubs must still have a controlling owner holding at least a 30% share of the team. No franchise can have more than 25 owners total, including the controlling owner.
Kicking off the sports team era for PE
Arctos was a pioneer in sports team investing in North America, and has been aggressively buying stakes in sports properties around the world. The firm’s executives have been talking with the NFL since Arctos' 2019 inception, O’Connor said, adding that the Bills’ investment is a game changer: “We’ve been out there beating the pavement at every turn trying to preach the gospel of the value of this franchise ecosystem, but when the NFL opened their doors, it changed everything...It’s a validator of our thesis.”
That persistence paid off for Arctos with this first strategic investment in the Bills, who “were at the top of our list from the beginning, before we even knew if [owner] Terry Pegula was interested in taking on minority partners,” explains O’Connor. “Terry’s orientation is very much Buffalo first and fan first. Any ownership that puts the fan first generally has a good recipe for success and their fan base is beyond local...The Bills are the most searched NFL team in Europe, and when you consider that Toronto is part of their market, you’re talking one of the top four metroplexes in North America.”
The Bills are worth $5.08 billion, ranking 26th among the 32 teams, according to Sportico. Buffalo is rolling: The team has won five straight division titles, made six consecutive playoff appearances, and plays in Kansas City this weekend with the winner advancing to the Super Bowl. It would be Buffalo’s first title game appearance in three decades (they've never won it). The team’s also building a new $2 billion stadium and quarterback Josh Allen is a superstar candidate for the league’s Most Valuable Player, making headlines off the field after his recent engagement to actress Hailee Steinfeld.
The Bills may be an undervalued asset, but the team’s value has already more than tripled since Pegula bought it for $1.4 billion in 2014. So there’s always the risk that Arctos and other new minority investors overpaid.
At the same time as the Arctos transaction, the Bills announced it was selling a handful of smaller team shares to nine other individuals, including NBA Hall of Famers Vince Carter and Tracy McGrady as well as retired U.S. Men’s National Team soccer star Jozy Altidore. All three athletes played for Toronto teams. This continues a trend of former athletes and celebrities buying into sports teams.
'You can't beat the NFL'
In the press release announcing the Arctos investment, the Bills called out the PE firm’s operational expertise, its roster of experienced advisors, and the Arctos Insights quantitative research and data science platform.
“We are not here to tell anybody how to run their franchise,” O’Connor says. “Our role is to serve the owners that we partner with. If they do want our help, we have a lot of resources that we can leverage to support our partners and help them grow.”
Another reason owners sell a slice of their team is to tap into the appreciating value. “It’s the same idea of getting a home equity loan; you have the asset but you want some money,” explains Kenneth Shropshire, professor emeritus at the Wharton School of the University of Pennsylvania. He says interest in investing in sports teams is definitely increasing, but as franchise values keep rising, “accessibility is decreasing for individuals.” That’s making private equity and minority stakes more attractive and “puts more cash into the system for current owners.”
Shropshire, a former advisor to Arctos, said value plays in sports are relative to how much money an investor has. “If you have your pick, you can’t beat the NFL.”
After all, the NFL’s combined value over the past two decades has jumped eightfold to $190 billion, according to Sportico.
Sports team valuations score big gains
Private equity is already flowing freely into the five biggest men’s North American leagues, across which there are 71 teams valued at $205.5 billion with PE connections (either direct investment or owners that made their money in that world), according to PitchBook.
It’s easy to see why institutional investors such as endowments, insurance companies, and pension funds want a piece of the action, even if sports franchises are generally long-term buy and hold investments. The exit strategies are secret, but O’Connor says Arctos was “purpose-built for this strategy, so we are long-term investors and advocates of this ecosystem.”
The below chart shows the trend of franchise values in the Big Four North American sports: MLB, NBA, NFL, and NHL. Arctos has created an index with the Ross School of Business at the University of Michigan that tracks team transactions over the past 60 years.
The work finds that team values are virtually uncorrelated to other assets (including stocks, bonds, commodities, and cash) and have risen uninterrupted during six decades of wars, elections, civil unrest, recessions, crises, and a pandemic.
View this interactive chart on Fortune.com
Skeptics may see this chart and say franchise valuations are in a bubble, or predict a correction. They may be correct, but that doesn’t mean prices won’t go higher before any pullback. Some would-be buyers have been saying that for 25 years while team transaction prices, and revenue, have continued rising sharply. And for now, demand by billionaires demand by billionaires has far outstripped supply to buy these iconic franchises when they do go on sale—including the NFL’s Washington Commanders, which businessman Josh Harris bought in 2023 for a record $6.05 billion. Harris made his money as a private equity investor.
As PE firms pump institutional funds into teams, prices may keep advancing. Big tech firms are also starting to bid up broadcast and streaming rights fees, international expansion is promising, and fandom remains sticky through boom times and bad—good for selling team merchandise and tickets to boosters and for selling advertising to companies desiring to reach those fans.
“The old saying that sports are recession proof, it’s held up to be true,” says Shropshire. “During the pandemic, they were finding ways to monetize sport. It was the only live content; even with nobody in the stands, there’s value.”
PE firms bring expertise and cash to bear
Arctos Partners is the only PE firm with approval to invest in equity in the five most popular men’s North American leagues. Arctos shared its current sports portfolio with Fortune, which includes stakes in almost two dozen teams across a variety of leagues and racing circuits on this continent and in Europe: the 2024 World Series Champion L.A. Dodgers (MLB), the NBA’s Golden State Warriors, and the NHL’s Minnesota Wild as well as the Utah Royals (NWSL), Portland Timbers (MLS), French football club Paris Saint-Germain F.C., Aston Martin Racing (Formula One), Joe Gibbs Racing (NASCAR), and the Premier Lacrosse League.
View this interactive chart on Fortune.com
The company also invests in companies in the consumer-facing sports ecosystem such as ticket seller SeatGeek, sports betting geo-compliance software maker GeoComply, and sports agency and consulting firm Elevate.
But Arctos and Ares aren't alone; the NFL and other leagues have approved some of the biggest names in private equity: Blackstone, the Carlyle Group, and Sixth Street Partners to compete for stakes in teams and invest alongside them.
Arctos seeks to add value to team partners through its own bench of employees, including O’Connor. He has more than 40 years of experience in the sports and entertainment world, including operational expertise as a former CEO of Madison Square Garden (MSGS), which owns the NBA’s New York Knicks, the NHL’s New York Rangers, and the company’s eponymous “World’s Most Famous Arena”. The PE executive also spent more than 30 years at talent agency CAA, where he represented A -list celebrities and helped create the CAA Sports agency.
“We recognize that we have a first mover advantage,” says O’Connor about the initial investment in the NFL with the Bills. He says that Arctos' capabilities are differentiated even from the largest firms, with an array of operating partners and advisors and an applied research and data-science business that produces unique content and aggregates best practices and innovations that they share with partner companies and the general ecosystem.
While private equity firms can buy and control teams in some European football leagues, investors and observers don’t see the biggest North American leagues using that same playbook anytime soon. The expectation is that these leagues will continue with a single controlling owner for each team, although the rules may change again to allow greater institutional ownership.
“I don’t think they will ever cross the threshold to allow institutional capital to be controlling owners of these assets,” Arctos’ O’Connor says. “I just don’t see it happening in my lifetime. I don’t think these assets are best held by institutional investors in a controlling capacity.”
