How the NFL Became an Alternative Investment

When NFL owners voted in August to begin letting certain private equity firms buy stakes in teams, the move signaled big cash infusions for them.

For financial advisors, it signaled even wider access to the alternative space for accredited investors. A notable advantage: Sports has a low correlation with traditional asset classes.

“Sports is an innovative space. The connections driving a lot of the franchise value for sports organizations are the deals they strike for media rights,” Neil Blundell, managing director and head of investments at CAIS, says in an interview with ThinkAdvisor. “Forty-eight out of the 50 most-watched TV programs in 2023 were sports related.”

The NFL is the last major league to open its gates to private equity ownership, according to Blundell. The league stipulates that a private equity firm may own 3% to 10% of a team, in silent positions without voting power.

The alt space has gained prominence on financial advisors’ radar screens since allowing accredited investors to own such investments. Previously, ownership was limited to qualified purchasers: individuals or institutions with at least $5 million in investable assets.

In the interview with Blundell, whose firm is the leading alternative fintech platform for independent advisors, he argues that alt growth has been driven by “a product renaissance” and that for accredited investors to boost risk-adjusted returns, “the modern portfolio” should be allocated 50/30/20 — the 20% being alts.

Here are highlights of our conversation:

THINKADVISOR: What’s the significance of the NFL’s now allowing private equity firms to invest in its teams?

NEIL BLUNDELL: The entire sports universe has a $500 billion value. The NFL, with the largest franchise value, is the last major league to open up to private equity ownership — potential investment.

Previously, [team ownership] was [limited] to a handful of high-net-worth individuals. So now the ability to access the sports space is really broadening out.

What’s the downside of investing in sports as an alternative investment?

Sports is an innovative space. From a risk and return and diversification perspective, it’s very interesting. But it’s an asset class that’s less liquid. So it can be challenging depending on your liquidity needs.

You have to be willing to take that illiquidity premium, so I’m not sure it’s suitable for every investor.

Many of the sports investments today could be equity interests that have a [minimum holding] period of maybe seven or 10 years. [The NFL’s minimum is six years.]

How do media trends relate to the growth of sports alts?

The connections that are driving a lot of the franchise value for sports organizations are the media deals they strike. So media rights are connected in terms of actual value.

Forty-eight out of the 50 most-watched TV programs in 2023 were sports related. Therefore, when you think about media value and who’s watching TV today, sports has been driving it.

A sports franchise, like the NFL, strikes media deals with the networks for distribution rights.

In some cases, media values connected to the sports franchise can be over 50% of the revenue of the deal.

Overall, what has contributed mostly to the growth of the alts asset class?

Innovation is driving alts’ broad adoption.

Over the last handful of years, there’s been what I call a product renaissance where asset management firms [decided] that the wealth [space] [would be] a key strategic priority for them.

So alts managers have been creating wealth-designed products: REITs, interval funds, tender offer funds — different types of structures that make high-quality alternative firms and strategies available to accredited and, even in some cases, non-accredited investors.

There’s a handful of firms [including BlackRock, Blackstone and Reverence Capital Partners] that we think are interesting in product development capabilities for wealth and that are having deeper and deeper penetration into this channel.

What other trends are driving the growth of alternatives?

Ease of access, [thorough] due diligence, making sure that you can see all your alts in a seamless way in one place. 

Having alts within one ecosystem that’s very easy to access is the second [underpinning] — product innovation being the first — on which CAIS is very much focused.

What’s meant by “the democratization” of alternative investments?

Delivering alts to broader wealth management, including RIAs, independent broker-dealers [and more] — financial advisors across the U.S. 

Historically, alternatives’ availability and access were limited to qualified purchasers.

Many investors [permitted to invest in alts, according to SEC rules] might have a zero percent allocation to them today, but they now understand that they potentially need them in their portfolios to meet longer-term outcome [goals].

Now, accredited investors can gain access: those with $1 million or more in investable assets and/or income of at least $200,000 [for the past two tax years] and in some cases, even those that [don’t meet asset or income thresholds].

So we’re seeing more and more adoption of alts by financial advisors.

How might that change an investor’s asset allocation?

We believe the modern portfolio for accredited investors, instead of being 60/40, should be 50/30/20, the 20% being alternatives investments.

Investors think: How can I get incremental income in my portfolio and essentially increase my entire portfolio’s risk-adjusted returns?

That’s the basis of alts and the basis of transitioning the 60/40 portfolio to the 50/30/20 portfolio.

Today, the average allocation of alts is less than 5%. If that increases to 20%, that’s trillions [in assets] coming from wealth looking for access to alternatives.

And that’s massive growth.