The Wall Street Journal - 12.03.2020

R 8 |Thursday, March 12, 2020 THE WALL STREETJOURNAL.

A

billiondollars: That is

now the bargain-basement

priceforamajor sports

teamin America. Another

10 years from now, it

likely won’t even be

enoughtoacquireavotinginterest.

Itisn’t entirelyunreasonable. In-

vestors know they are buyinginto a

closed circle where the clubs are ex-

plicitlyin business with each other.

Profitsfrom lucrative televisioncon-

tracts are shared,drafts ensure that

talent spreads out, and thereisno

chance ofdroppingout ofthe league

after a bad season.

But as valuations climb ever

higher, a question looms: What hap-

pens when the price ofNFL, NBA and

Major League Baseball teams begins

to exceed the reach ofsingle parties?

Sportsinvestors, current owners and

otherindustryobservers saytheyen-

visionaworld where multinational

investment vehicles and sovereign-

wealthfunds will be the onlyones

that can affordtobuyhigh-profile

teams. Once that happens, what does

it meanforthefutureofthese com-

munityinstitutions?

Today, owners’ meetingsinthe

U.S. are stillfull oflocallyrich people

who bought the clubs they cheered

for as childrenor inherited clubs

from relatives,liketheownersofat

least a dozen NFL franchises. But the

crowd is unmistakably changing.

Ownership groups assembled by

investment firms are sweeping

through sports. Guggenheim Part-

ners,for instance,headlined the $2.3

billion acquisition of the Los Angeles

Dodgers in 2012. These groups are

limited bythe pressure to turn a

profit. That can be trickywhenyour

success is closelycorrelated with

paying certain employees more than

$20 million ayear.

The best advice that some sports

investing experts give prospective

buyers is often to walk awayfrom a

potential purchase. As the expense of

team ownership increases and profit

margins shrink,it takes a specific

kind ofowner tofind value. They

need to be sittingon plenty ofcash

and willingto absorb huge losses.

Theirobjectives need to be more

than sports—the slim chance oflift-

inga trophyisrarelyworthit.

It turnsout that thoseinvestors

exist. And they’ve all taken aninter-

estin sportsin the past 20years:

Theyare oil-rich nationsin the Gulf.

To trulypeerinto thefuture of

ownership and see who might have

the cash and the motivationtosink

billionsinto a sports team, the major

U.S. leagues may want to look at

what thoseinvestors have donein

the money-spinningworld ofEuro-

pean soccer. (Of the teams in the

richest American sport, football,

onlythe Dallas Cowboys and the

New England Patriots would crack

the top 10 revenuesin European soc-

cer, accordingto Deloitte.)

Take ParisSaint-Germain. Qatar

acquired the soccer club throughits

sovereign-wealthfundin 2011 and

has turned the Frenchgame upside

down. In 2017,it broke the world

transfer record and paid$252 mil-

lion to Barcelonaforasingle player,

Neymar ofBrazil, on the direct order

ofthe club’s owner,the EmirofQa-

tar. Consider that: The hereditary

rulerof the world’s wealthiest state

per capita was pulling the strings of

a French soccer team. This wasn’t

just the product of a globalized

sports world. This is the shape of

sports to come.

For sovereign-wealth funds, a sin-

gle team is rarely enough. The pur-

chase can be part of a strategy of

soft power.

Qatar picked up PSG as a compan-

ion piece to hosting the 2022 World

Cup, part of a plan to improve its im-

age and diversify its portfolio.

Saudi Arabia’s Public Investment

Fund hasyet to take control of a for-

eign sports team, but that prospect

likely isn’t far away. The Kingdom

has madeovertures tomore than

U.S. sports teams aregettingtoo priceyfor even

wealthy individuals to buy. For a sense of what’s

coming, look to European soccer.ByJoshua Robinson

one soccer clubin the U.K. and,at

home, has pushed to hostinterna-

tional sportingevents.

Abu Dhabiis probablythe most

successful ofthe newgeneration of

sports owners. The emirate put soc-

cer at the heart ofits strategyto

builditselfintoatourist destination.

Eleven years after takingcontrol of

the Manchester Citysoccer club,it

sold a$500 million stake to U.S. pri-

vate-equityfirm Silver Lake that val-

ued City’s umbrella company, known

asCity Football Group,at$5 billion.

That putitin the same rangeasthe

Dallas Cowboys—even thoughCity

has historicallybeen much less suc-

cessful. A separate 13% stake had

previouslygone to a pairofstate-

backedfundsfromChina.

What Silver Lake and the Chinese

government wereinvestinginwasn’t

simplya successful soccer teamin

northwest England. They were buy-

inginto agame-changingmodel of

sports ownership.

Plentyofinvestors own one or

twoor even three teams across sev-

eral sports—such as FenwaySports

Group, owners ofthe Boston Red Sox

and Liverpool Football Club, or the

real-estate magnate Stan Kroenke,

whose portfoliois headlined bythe

Los Angeles Rams and London-based

Arsenal. But Manchester Cityis

buildingan empire that others will

seek to replicate.

CityFootball Group now owns

eight soccer clubs world-wide,from

New York toIndia. While American

owners shylytest theirinternational

appeal with a few games held out-

side the U.S., City is planting its flag

abroad.

“We’re not a football club,we’re

actuallya sports media entertain-

ment company,” former Manchester

Citychief executive GarryCook told

club employees after the Abu Dhabi

takeover. “Sowe must create con-

tent. We must provide events, we

must create shows,we must create

drama... Am I competing with the

other football club down the road,

Manchester United, or am I compet-

ing with Walt Disney, with Ama-

zon?”

Soccer fans tend nottocare who

owns their teams—or why—as long

as they’re winning. But the implica-

tion of clubs existing as global en-

ILLUSTRATIONS BY: DANIEL HERTZBERG

(TOP

); KYLE HILTO

N

tertainment companies rather than

localinstitutionsis alreadyscram-

blingpriorities. The questioninside

every major soccer club, and seeping

into American teams as well,is

downright existential: Who do they

exist to serve? The 40,000 or sofans

who mightfill the stadium or the po-

tential audienceofhundredsofmil-

lions around the world whoidentify

as supporters but might never set

footintheircity?

City has alreadyimagined techno-

logicalinnovation one day allowingit

to replicate the stadium experience

thousandsofmilesfrom Manchester.

Picture standsfull offans watching

holograms run around afieldin real

time. Asformer Arsenal manager Ar-

sène Wenger summed it up, “They

have petrol andideas.”

In the Wild West thatis European

soccer, regulation struggles to keep up.

Though thegame’s Europeangovern-

ingbody recently came down on City

for overstatingthe value ofcertain

sponsorship deals tofunnel even more

state moneyinto the club, others like

PSG continue to avoidmajor on-field

consequencesfor the same allegations.

Both clubs have denied wrongdoing.

Ofcourse,soccer has some sub-

stantial differences from the way

American sports are set up now. Sal-

arycaps are effectivelynonexistent.

More clubs are also available to buy

across more countries and theyall

come with thegreater risk created by

relegation—the worst teamsin Euro-

pean leagues every season are

bumpedintoalowertier.

But global sports owners agree that

the U.S. is the market they’re most

desperate to conquer. When an Ameri-

can franchise is finallyput up for sale

for a price north of $5 billion, the uni-

verse of possible buyers will be minus-

cule. And they may have the weight to

force through changes that alter the

clubby nature of the U.S. leagues.

One thing is already clear. When

the superrich owners arrive—wher-

ever theyarrive from—the teams will

no longer be the status symbols or

familyinheritances theyhave always

been. At hyperinflated prices, they

might not even be sound financial in-

vestments. Those sports teams of the

future, affordable onlywith state-

level wealth,will be subsidiaries of

global multinationals.

Professional drone racing, which began in 2016 in the U.S.,

isn’t exactly mainstream, but itsfan base is growing.

NBC andNBC Sportsbeganbroadcasting Drone

Racing League raceslast year, andmore than 10 0

million viewers have watched the DRL’sfirstfour

seasons, according to theleague.

In the races, specializedracingdronesbuiltby

theleague, typically10inches indiameter, zip

aroundacourseat 9 0miles anhour. Pilots wear

goggles that give them afirst-person view ofthe

drone’scourse,througha camera mountedon thema-

chine. Races typicallylast about a minute.

Spectators seedroneslightedup withcolors that cor-

respondto theirpilots. Thedrones traverse neon-lit

tracks over andaroundtheaudience,diving throughrect-

angular gates andother obstacles.

At live events, somefans usefirst-person-view goggles

to tap into thefeeds oftheirfavorite pilots, giving specta-

tors the same view ofthe action as competitors. Blending

thedigitalwiththerealaddsallure, says Nicholas Horbac-

zewski, the league’sfounder and CEO.“Ourfans call it a

real-life videogame.”

DRL pilots, who are paidbytheleague, can makealiv-

ing at the sport. In the past, winnershavebeen given six-

figure salaries to compete thefollowing year, according to

theleague. Sponsorships are available too.

The sport’s biggest hurdle appears to be the difficulty

some spectatorshave tracking a small drone traveling ata

highspeed.

Continues on page R1 0

Drone

Racing

THE FUTURE OF EVERYTHING |SPORTS

“We’re not

afootball

club, we’re

actuallya

sports

media

entertain-

ment

company.”

—GarryCook,

former chief

executive of

Manchester City

$2.3

Billion

The amount

that a

Guggenheim

Partners-led

ownership

group paid

for the

Los Angeles

Dodgers

in2 012

Who do

teams exist

toserve?

The 40, 000

or so fans in

the stadium

or the

potential

audience of

hundreds

of millions

around the

world?

THE

CONGLOMERATES

EYEING YOUR

HOME TEAM