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Components of Transactions for Acquiring Professional Sports Teams
Sports team acquisitions have garnered headlines over the past few years, with several recent team prices ranging in the billions of dollars. Since 2000, the top five U.S. team sales were at prices in excess of the billion dollar threshold, the highest being the $2 billion sale of the NBA's Los Angeles Clippers in 2014 and the $2 billion sale of MLB's Los Angeles Dodgers in 2011. In New York, the NFL's Buffalo Bills were purchased in 2014 for $1.4 billion. Not long ago, sports franchises were run like small businesses, with any net profit generated being an additional, but not always expected, benefit. Today, given rising acquisition costs and the lucrative revenue opportunities teams offer, they are run as sophisticated enterprises with the purpose of yielding profit for their well-heeled investors.
On the surface, the buying and selling of a professional sports team may seem like a regular M&A transaction. However, the many issues unique to the sports industry give these deals complicated twists that require extensive due diligence and the guidance of experienced counsel well-versed in a number of areas specific to the sports landscape. Potential team buyers and sellers need to be able to navigate the transaction process under the watchful eyes of respective leagues and governing bodies, while negotiating a plethora of business and legal issues.
However, professional sports teams are limited commodities. Within the four major leagues, there are only 122 teams. As team values increase, the pool of potential buyers who can afford to purchase them dwindles. With a limited pool of qualified potential buyers, competition among them is fierce, as teams do not change ownership often. This trend is common to all of the major leagues. The limited supply and large demand further contributes to the rise in team valuations, thus creating a continuous cycle that drives team prices upward.
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