What Private Equity Can Learn From Music Mega-Deals When Approaching Investment in Sports Sports-related deals are flourishing even in a deteriorating economic environment.
By Matthew Baxter Edited by Bill Schulz
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Bob Dylan, Bruce Springsteen, and Sting's recent multi-million dollar transactions got musicians like John Legend and Shakira to tune in and, last February, 81-year-old, Neil Diamond, became the latest to capitalize on his songwriting catalog.
Songwriting sales broke through $5 billion in 2021 and the volume is up again this year.
The underlying logic is well established: The artist takes a capital payment that amortizes annual royalty revenues to achieve immediate financial stability, bringing with it the freedom to develop career direction and opportunities.
This capital sum is easier to manage and distribute than royalties revenue, while older artists can use it to crystalize their generational wealth and solidify their reputational standing.
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Private equity's upside
For private equity groups, the upside lies in stable assets which can deflect macroeconomic turbulence and offer realistic growth profiles on the back of digital innovation and new platform developments.
Now savvy firms are responding to a corresponding harmony in sports investment. Like entertainment assets, live sports are ingrained in people's hearts and are embedded in a global culture.
CVC Capital Partners alone invested nearly $3 billion in sports deals in 2021, with firms like RedBird, Silver Lake and Arctos getting in the game. Sports-related deals are flourishing even in a deteriorating economic environment as Apple's $2.5 billion engagement with MLS testifies.
Like royalty revenues, media rights are largely insulated from macroeconomic shocks and have underpinned recent eye-catching deals for Chelsea, AC Milan and the Denver Broncos.
Investments like these allow clubs and leagues to progress their development, build their international profile and harness new digital and gaming opportunities. Freed from short-term financial pressures they can focus on the things that matter most, the game, the team and the fans.
So, what can private equity take from the music business experience to inform future investment in sports?
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Stopping the "sell out" stigma
At Stellwagen Ventures, our role as a global firm connecting investors with entertainment and sports entities is a matter of adapting the narrative.
Any "sell out" stink attached to music catalog deals has long since left the building and they now look like industry standard. This is partly because private investors have successfully demonstrated their understanding of the emotional heft of the artist's work, not solely its legacy revenue growth.
Win/win
This sensitivity should form the basis of sports deals too. These transactions commit both parties to the long-term view so mutual respect and recognition of a shared desire to fit a well-loved team or league for the future are big players in the mix.
At heart, we're just fans too. As partners, we care about the future trajectory more than most and encourage our clients to approach investment in a similar frame of mind.
Like it's match day, ticket in hand, jersey on, ready to go, fully invested.
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