Sportonomics: Why Investing in American Sports Franchises Has Doubled The Returns Of The Market
Investments in American professional sports franchises have more than doubled the equities market returns since 2000. The outperformance is attributed to lucrative media rights deals and the dawn of streaming.
The Data: The first-of-its-kind Ross-Arctos Sports Franchise Index (RAFSI), released in June, tracks the valuation of NFL, NBA, MLB and NHL franchises against the SPDR S&P 500 ETF Trust (NYSE:SPY).
According to the index, sports franchise investments have seen 13% annualized returns over the past 60 years. Since 2000, the RAFSI recorded 1,260% returns while the S&P 500 appreciated 620%. In the past 20 years, the only asset class with higher annualized returns is private equity.
Franchises’ value appreciated by 28.1% year-over-year, lagging slightly behind U.S. equities in the past 12 months.
Why it Matters: Historically, sports have been more resilient than the overall market during economic downturns and have rarely faced sustained drawdowns. The index did not see substantial value losses during the Dot-com bubble, the 2008 financial crisis or the 2020 COVID-19 pandemic.
Given recent performance, it is unsurprising that several private equity companies have looked toward sports in their investment strategy. Blackstone Inc (NYSE:BX), Ares Management Group (NYSE:ARES), Carlyle Group Inc (NASDAQ:CG) and even energy drink conglomerate Red Bull have eyed sports investments.
Red Bull already owns two Formula 1 teams and Major League Soccer's New York Red Bulls, among other sports-related investments.
Of course, past performance does not necessarily indicate future results. Future value is dependent on the success of the entertainment industry as a whole and whether media rights remain lucrative.
The University of Michigan Ross School of Business is one of the top collegiate business schools in the world. Its namesake, alumnus Stephen M. Ross, owns the Miami Dolphins. Arctos Partners is an investment firm specializing in sports ownership.
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