Institutional investors take to the pitch

This is an audio transcript of the Behind the Money podcast episode: ‘Institutional investors take to the pitch’

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Michela Tindera
Hey, Saffeya! Have you been watching the Women’s World Cup?

Saffeya Ahmed
I have. I’ve been keeping up more with the scores than watching every single game just because they’re playing all the way over in Australia, New Zealand. So the time difference is just kind of tough. But I actually did watch the USA-Netherlands game.

Michela Tindera
I watched that too.

Saffeya Ahmed
Yeah. It was quite the nail biter.

Michela Tindera
Yeah.

That’s Saffeya Ahmed. She’s a producer for this show. And I wanted to have her on for this week’s episode because Saffeya is a football, or as it’s known here in the US, a soccer superfan.

Saffeya Ahmed
I’ve been playing ever since I was a little kid. So probably like two-ish decades now. Barcelona is my favourite soccer team and Messi is by far my favourite player.

Michela Tindera
And because she’s such a fan of football, she’s also had her eye on a new team that’s starting up in the National Women’s Soccer League, or NWSL, for short.

Saffeya Ahmed
So that’s the league where a lot of the big American names like Alex Morgan and Megan Rapinoe play when they’re not playing for the US women’s national team.

Michela Tindera
So, Saffeya, what’s the deal with this new team and why are you so interested in it?

Saffeya Ahmed
So this new team, it’s called Bay Football Club or Bay FC, and it’s based in the San Francisco Bay Area, hence the name. And I’ve been really interested in it because it’s the first pro women’s team there in a while. There are actually two previous teams in this area before in previous leagues, but they both failed after just a couple of seasons.

Michela Tindera
Oh, why?

Saffeya Ahmed
They weren’t able to energise the audience and the interest that is now here in women’s soccer, right. There’s a lot of interest in women’s sports now, but when these teams were trying to get off the ground, they weren’t getting the media attention they needed and they really couldn’t build a big fan base and they ran out of funding.

Michela Tindera
So who’s behind this new team?

Saffeya Ahmed
So this club’s founders are four retired women’s pro players. Some of their names might sound familiar. A couple of them have won Olympic gold, others have won the World Cup. Their names are Leslie Osborne, Brandi Chastain, Danielle Slaton and Aly Wagner. And the four of them ended up taking a new approach to building this team. They didn’t want to end up like the last two teams that failed. So they’re actually doing something that’s never really been done in US pro sports before. So institutional investors are actually the majority owners of the team. And I had the chance to talk with Aly Wagner, who’s one of the co-founders, about this whole process and their investment decision. And here’s what she told me.

Aly Wagner
Massive respect to the two clubs that came before us, but it was a very different investment proposition. A lot of the owners, they love women’s sports and they’re doing it for the right reasons. But it wasn’t anything that they were investing in as a business proposition, as something that was gonna see ROI.

Michela Tindera
Wow. That’s so interesting.

Saffeya Ahmed
Yeah. You know, running a sports team in any professional league is getting more and more expensive. And one place that a team can turn to, to find a lot of cash is private capital. Right? And that’s actually very common for teams in Europe. A lot of them are majority-owned by institutional investors and they make decisions for the club and they help the clubs run. But this model is essentially untested in the US. Pro sports teams here have typically been owned by billionaires or super wealthy sports families. But regardless, Aly’s very confident that this team is gonna be more successful given the way they set it up.

Aly Wagner
I think as you think about private equity as a lead investor compared to, you know, what we’ve historically seen in the US landscape — by the way, not what you see in the global landscape — private equity is very much a big player in all of these clubs abroad. And I think it’s just a matter of time before we flip that script here in the United States. And, you know, maybe we’re the first in, but we won’t be the last.

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Michela Tindera
I’m Michela Tindera from the Financial Times. Professional sports is a big business that’s getting even bigger. Today on Behind the Money, we’re gonna look at how private capital could reshape professional sports in the United States.

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So, Saffeya, you spoke with Aly Wagner, who’s the co-founder of this team, Bay FC. So where did this idea come from in the first place?

Saffeya Ahmed
So Aly actually told me that a few years ago, one of her former teammates, Leslie Osborne, brought this idea to her of building a soccer team in the Bay after she had seen Angel City FC launch in Los Angeles.

Aly Wagner
I think this is a time period that everyone will be familiar with. When we first started on this endeavour, it was actually 2020, so Covid had actually just splashed around the world, for lack of a better term. And so we were actually home and had a lot of time on our hands and we had just seen Angel City do their launch. So a group of us led by Leslie Osborne got together saying what they had really pulled off in LA and coalesce the troops around the idea of we absolutely need to have an NWSL team here in the Bay Area. This is one of the hotbeds of women’s football globally, and there’s a ton of support here. This is one of the perfect communities for supporting the sport.

Saffeya Ahmed
And what Aly noticed wasn’t just in her head. There are numbers to back up the fact that women’s soccer has pretty high demand.

Aly Wagner
When you consider that the top two NWSL teams of the past few years in average attendance is over 20,000 fans, that’s actually greater than the average attendance for NBA, greater than the average attendance for NHL. Just the NWSL this year, halfway through the season, up 48 per cent in average attendance. It’s up 20 per cent in TV viewership. I think their streaming numbers are up, something like 50 per cent on Paramount+. So the appetite is there, the demand is there, but we haven’t actually matched that yet with the economic reality or the investment dollars flowing into the space.

Saffeya Ahmed
So Aly’s hoping that this team, Bay FC, can be as big as any global men’s teams.

Aly Wagner
Whether it be the New York Yankees, whether it be Real Madrid, Barcelona, different sports, everyone you can think of that is a top sport brand is a man’s brand. And we want to change the narrative on that and show what’s possible in women’s sports and that there’s no reason that we can’t have a women’s sports brand be as iconic as some of those men’s brands. And hopefully with that to forever shift with the landscape of what it looks like in sports.

Michela Tindera
So clearly there’s a ton of passion there to develop this team. But you mentioned that the other two teams have failed in this area because of a lack of funding. So how much funding does a team like this need to get off the ground?

Saffeya Ahmed
Yeah, it’s definitely not cheap to enter the NWSL or to add a team to the NWSL. There’s actually, for the Bay specifically, there was an expansion fee that had to be paid to the league that was $53mn. And then on top of that, building a soccer team is gonna be expensive, right? You’ve got to hire players and pay coaches. You’ve got to build a stadium and training facilities, design jerseys and logos and do marketing. So you’re looking at, like, tens of millions of dollars, if not more.

Michela Tindera
Yeah. So how’d that search go for them to actually find that funding?

Saffeya Ahmed
Yes, they went through funding rounds kind of similar to how tech start-ups do, and that’s probably not that surprising given they’re from the Bay. Silicon Valley is right there. So they went through these funding rounds and Aly says the first few went pretty well when they got a few angel investors to support their team and their vision. But they were still looking for a lead investor because the NWSL essentially requires every club to have one lead investor that has at least a 30 per cent stake. But they’d gone through all these funding rounds and they just haven’t found the investor that seemed like the right fit yet.

Aly Wagner
As you can imagine, there’s just a limited pool of people that would match that requirement and also have the capital to back up what they were about to invest in.

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Michela Tindera
The challenges around funding pro teams is something I wanted to learn more about. I was curious how what’s happening with the NWSL fits into what’s happening in the broader pro sports ecosystem here in the US. And I actually asked our colleague Sara Germano who’s the FT’s US sports business correspondent about this.

Sera Germano
I think maybe to start off, we have to understand that if you own a professional sports team in the US, you don’t just own a club, you own one fraction of the NFL, you own one-thirtieth of the NBA. It’s more than just the team itself. Like you are actually taking a piece of this wider pie. And for that reason, historically, a lot of the ownership of US sports teams have been these kind of dynastic, wealthy families. But what’s happened, basically, is that in the latter half of the 20th century and, you know, the beginning of the 21st century, the franchise valuations of all these clubs have gotten so much richer because, you know, media deals have paid so much more to broadcast their games. Ticket revenues have increased. Overall, the pie of wealth has gotten so much larger. It costs so much money to own these teams and the number of people, the number of wealthy families that there are to buy into pro sports at, like, high valuations is getting smaller and smaller.

Michela Tindera
And so how does that compare — this kind of owning a piece of the pie structure — compare to sports team ownership in other countries around the world? Specifically, I’m thinking of Europe, the major football clubs there.

Sera Germano
It’s quite different. So Europe has been a little bit more progressive in terms of who’s permitted to own a football club or a soccer club. We see private equity firms taking control of clubs, you know, over the past 20 years or so. We also see sovereign wealth funds — Qatar, Saudi Arabia, the Emirates have all taken control of some of the biggest and most prestigious football clubs in Europe, like Man City, like Newcastle, like PSG.

Michela Tindera
So various private capital groups have been expanding into European pro sports for a couple of decades now. But what about in the US?

Sera Germano
What happened was, in 2019, even before the pandemic, Major League Baseball was seeing this increase in valuations and individuals who had minority shares in these teams couldn’t afford to sell their stakes if they wanted liquidity, you know, like if you had put in like $1mn to take a small, small stake of a club decades ago, you couldn’t find someone to now pay like tens of millions to buy you out. So they changed the rules to say, we’re going to allow institutional investors to take small, what they call limited partnership stakes in teams. We’re becoming the first US league to do this. And they kind of changed the blueprint.

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Michela Tindera
OK. So institutional investors have been able to hold small stakes in teams within the MLB since 2019, but they’ve never been the majority owners until this new women’s pro soccer team, Bay FC, entered the picture. So what’s the motivation here for private capital to do this here and now?

Sera Germano
It’s actually pretty simple. It’s that they are looking at them for the first time as assets. We tend to think of sports as like the toybox of life — they’re entertainment, they’re fun. But the truth is that they’ve become these incredibly attractive investments. We even saw valuations of some of these teams progress through the pandemic. You know, when things started shutting down, there was a lot of concern about how teams and leagues would fare without ticket sales, without being able to, like, put their matches on television. But a lot of teams have made it through relatively intact. We’re not seeing, like, the collapse of any sports teams here. And that has solidified this view that pro sports are kind of an almost recession-proof investment opportunity.

Michela Tindera
Why do you think that the NWSL — or women’s soccer, specifically — is such an attractive investment?

Sera Germano
Something you hear talked about a lot in women’s sports, particularly in the US, is that in the recent past people would invest in women’s sports because they thought it was the right thing to do. It made them look more progressive. It made them look more open-minded or perhaps opportunistic in the best sense of the word. What you hear a lot more now, and we’ve heard this both from the NWSL commissioner and from the commissioner of the WNBA, the women’s professional basketball league, is that women’s sports are making sense as a financial investment as well. The returns on watching women’s sports are growing faster in some cases than even the men’s sports.

Michela Tindera
What would you say, I guess, are kind of like the pros and cons of private capital firms weaving their way more into team ownership?

Sera Germano
So the pros would definitely be, you know, much more liquidity for the team itself. That’s more money that’s coming into the club. It allows them, you know, greater leeway in how they grow their team, appreciate the overall value of the franchise. But the big question by private capital coming into sports is, traditionally private equity firms have bought and held assets for a fixed term and try to make a profit on them. And that’s basically anathema to pro sports, which have shepherded these teams and clubs and owned them as long-term investments. You’re basically taking, like, the shortest-term investment philosophy and bringing it into an asset class that has traditionally held for long, long periods of time. And that’s a clash. That’s not something that we’ve really ever seen before. You know, these firms basically operate by buying things up, flipping them around and turning a profit. Like, at some point, won’t one of them want to do this? And what will the effects be for the overall ecosystem? It’s a big mystery.

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Michela Tindera
So, Saffeya, we know Aly Wagner was still looking for a lead investor when we heard about her last. How did she find one?

Saffeya Ahmed
So she had actually been looking for a lead investor for quite a while. And like I said, the right match just . . . they hadn’t found it yet. And then last year, Aly actually came across someone who seemed pretty promising. And he’s a man named Alan Waxman. He’s actually the CEO and co-founder of the investment firm Sixth Street Partners. And Sixth Street isn’t particularly new to investing in sports. It has minority stakes in a bunch of different teams, but they’ve never been the lead investor of a sports team. And like Sarah said, US sports teams have always just been owned by, you know, a small group of wealthy individuals and families. So Sixth Street getting involved would be a pretty big deal because, again, private capital never involved in the space in the US.

Michela Tindera
So Aly basically had to convince Alan Waxman to take a chance on this new type of investment. How’d that go?

Saffeya Ahmed
Yes. So she told me that she actually went to his house and she had a whole presentation prepared to pitch this team to him. And she thought it was gonna be, like, a super formal meeting, but then it ended up being very casual.

Aly Wagner
He liked the vision. He loved the idea. You know, he just needed more data on everything that we were parlaying. And so they went back and they did their homework. And that’s when they fully recognised and supported the idea that this is an undervalued asset. And there’s a massive opportunity here.

Saffeya Ahmed
It basically just clicked for the two of them that this was gonna be the right partnership. And so Sixth Street, after doing that homework that Ali was saying, they ended up committing $125mn as the lead investor. So that covered the expansion team fee, but also gave Bay FC quite a bit of money to get off the ground.

Michela Tindera
Yeah. Wow. So how long is Sixth Street planning to be this lead investor on this team? As we heard from Sara, you know, if there’s a short-term investment philosophy, that sort of clashes with what’s typically done with US sports teams. Does Bay FC have any idea of the timeline?

Saffeya Ahmed
Yeah. Yeah. So Sixth Street’s investment in Bay FC isn’t like your traditional private equity approach where, you know, they typically buy a company, they restructure it, make it efficient and then sell it off. And it happens usually very fast. But this is actually gonna be more of a long-term investment. So Sixth Street is gonna be the lead investor and majority owner for at least a decade. And Aly said she feels pretty good about that set-up.

Aly Wagner
That gives me great comfort because they know we know that this isn’t going to be something they’re gonna flip the way that you think private equity typically does. This is a long-term investment play. And knowing that we have that stability alongside them is a massive advantage. While I understand people might view it as risky, in this situation it’s actually quite comforting.

Michela Tindera
So now you might be thinking Bay FC has the hard part figured out. They’ve gotten off the ground with all this hefty funding from different sources and a big 10-year investment from majority owner Sixth Street. But, Saffeya, is that really the case? Is the hard part over?

Saffeya Ahmed
Well, that may have sounded like the hard part, but Aly doesn’t feel that way.

Aly Wagner
I think the toughest part, quite honestly, is yet to come. I really do. I think we’re living it right now, which is standing up a company in a very short timeline. So by the time we got the bid, I think it was April of this year, we’re gonna have to turn around and stand up a company within 11 months, basically, because our team will kick off in March of ‘24. So that is a condensed timeframe to do things and to do them well.

Michela Tindera
Wow. That’s so interesting. Well, I’ll definitely be curious to see just how it turns out in 2024.

Saffeya Ahmed
Yeah, yeah, same. I’m excited to start watching the games just because as the league’s expanding, it’s a lot more fun to watch. There’s more competition. And I actually asked Aly how she’s gonna be feeling when her team finally hits the field.

I want you to picture, it’s next year. It’s the first game of the season for Bay FC in their new stadium. What do you think you’ll be feeling at that moment?

Aly Wagner
I am pretty sure I will be crying. Yeah. I think it’ll be very emotional. I know we’re gonna be there. And the sleepless nights, you know, the highs, the lows, all of that is gonna come flooding back.

Saffeya Ahmed
Yeah. And I’m sure that will be even more surreal given that you used to play. So it’s not, like, when you play soccer and you’re watching soccer, it’s different from when you’re just watching it, right?

Aly Wagner
It’s so true.

Saffeya Ahmed
Because you really know what it means to be on that field.

Aly Wagner
Yes. Yeah. Everything will come full circle. I think of that moment knowing that we created an incredible environment for athletes to go be celebrated. And in time, you know, from a business perspective, we’re hopefully changing the narrative of what it’s like to invest in women’s sports.

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Michela Tindera
Thanks for listening. Don’t forget, there’s still time for you to submit your business and finance questions to our show. We’ve already received some really interesting ones, ranging from how the Federal Reserve works to the fallout from the global financial crisis. So keep them coming. There’s details on how to get in touch with us in our show notes. Also, if you want to read more from the FT on what we talked about during this week’s episode, the articles linked in our show notes are free to read right now.

Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Special thanks to Sam Agini. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

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