A question of sport: 3 ways you can get involved in investing's next big cash cow

In 2010, Liverpool FC, one of the world's most successful and storied football clubs, was on the brink of administration. Its US owners had left it close to bankruptcy, racking up £350 million of debt and losses of £55 million. 

In swooped Fenway Sports Group (then New England Sport Ventures), owner of the Boston Red Sox, to buy up the fallen giant for the princely sum of £300 million.

15 years and multiple trophies later, Liverpool Football Club is worth north of £4 billion and growing.

Fenway Sports Group (FSG) was the brainchild of John W. Henry, an experienced futures trader, and other investors, who were early adopters of the data-driven "Moneyball" approach.

FSG has since taken ownership stakes in the Pittsburgh Penguins NHL team and the Roush Racing NASCAR team and continues to grow its interests in other sports and sporting organisations. 

They're just one of many investors who have noticed the outsized growth potential of professional sport and put their money where their mouth is. 

Sport is big business, with teams like the Dallas Cowboys and New York Yankees generating billions in yearly revenue and reaching valuations up to US$10 billion. 

Unsurprisingly, investment firms of all shapes and sizes are taking a deeper interest in some of the sporting world's biggest institutions and competitions. 

At Livewire Live this week, Ares co-president Kipp deVeer dived into its sporting business dealings. 

It has minority interest in the NFL's Miami Dolphins (valued around US$6 billion), Leo Messi's Inter Miami, Chelsea FC, Atletico Madrid and even France SailGP. 

Closer to home, it financed the embattled Rugby Australia with a $40 million loan in 2021 to help it survive the Coivd pandemic. 

For Ares and DeVeer, the sporting opportunity was obvious. 

He estimates the sports media and entertainment market could exceed $1 trillion in future, driven by strong fundamentals and with further room to grow.

It was also uncorrelated to other markets and "lacked creative financing" of the kind Ares could offer.

Covid crystallised an interest in the sport industry as the ramifications of a year and a half of no sport would have huge economic ramifications down the business food chain.

They've since invested in or financed stadiums, concessions, media deals and sporting leagues themselves. 

As entertainment companies battle it out in an increasingly-competitive market, sports has a natural advantage - a fanatical and unwavering global customer base that can be monetised in many different ways. 

Throw in the rise of esports, women's teams, myriad merchandising opportunities, bespoke media and broadcast deals, and the opportunities for growth are endless. 

Even streaming giant Netflix is making the move into sports streaming, as well as expanding its library of sports documentaries like Formula 1: Drive to Survive and America's Sweethearts, a documentary series that follows the Dallas Cowboys cheerleaders.

Along with the evident growth opportunities, sporting teams could also offer a level of diversification for investors. 

A report by Prime Financial argued that sport could be uniquely-resistant to wider economic cycles. 

"Unlike traditional industries, professional sports have proven to be non-cyclical and resistant to economic downturns," wrote CIO Benjamin Harrison. "For example, just after the 2008 financial crisis, valuations of major American sports leagues such as the NFL, NBA, MLB, and NHL dropped only 1% collectively—the sole negative year in the past two decades."

They also boast a long tracked record of impressive, equity-beating growth. 

"According to the Ross-Arctos Sports Franchise Index sports team valuations in the US have compounded at over 13% p.a. for over 60 years (RASFI). Valuations from 2000 have outperformed the S&P 500 by over 6x."

How investors can get involved

1.  Invest in sports clubs

Unfortunately, the majority of US sports teams are privately-owned, but there are some exceptions. 

The Atlanta Braves (NASDAQ: BATRA) are publicly-traded, as is Madison Square Garden Sports Corp (NYSE: MSGS), which owns the New York Knicks and New York Rangers.

Similarly, Rogers Communications (NYSE: RCI) owns a majority of MLSE, the company that owns the Toronto Maple Leafs, Toronto Raptors and other Canadian sports franchises. 

Some of the world's largest football clubs are publicly-traded, including Manchester United (NYSE: MANU), Juventus (BIT: JUVE), Ajax Amsterdam (AMS: AJAX) and Borussia Dortmund (ETR: BVB). 

Further afield, Ferrari NV (BIT: RACE), TKO Group Holdings Inc (NYSE: TKO), which owns the WWE and the UFC, and Liberty Media (NYSE: FWONA), which owns the F1, are also publicly-traded. 

2. Invest in sport-adjacent companies

Obvious names like Adidas (ETR: ADS) and Nike (NYSE: NKE), who could both benefit from the increasing merchandisation of sporting brands. 

There's also local companies like Catapult Sports Ltd (ASX: CAT), a sports performance data company that is up 183% over the last 12 months, and PWR Holdings (ASX: PWR), which produces specialised cooling systems for high-performance racing cars and counts the F1 as a client.  

3. Invest in eSports

Another option is the eSports industry, which is predicted to reach a market value of US$6 billion by 2030, growing at a rate of 19% a year, according to the 2024 GlobalData Esports report. 

In Australia, the VanEck Video Gaming and Esports ETF and Betashares Video Games and Esports ETF were both in the top 10 best-performing ETFs for 2024.