Taking Over Professional Sports: An Empirical Study Identifying Ideal Franchise Candidates for Private Equity Firms

Abstract

This thesis seeks to provide empirical evidence to two questions: 1) What are the determinants of revenue in professional sports, and 2) What are the determinants of revenue multiples in professional sports. My goal in exploring these two questions is to start the conversation surrounding private equity investments in professional sports leagues as well as suggest ideal candidates for their investment. Over the past few years, we have seen numerous private equity firms invest great sums of capital into professional sports franchises in the NBA, MLB, and NHL. Though since these types of investments are novel, we are constrained from conducting empirical analysis on the impact of these investments. Nonetheless, we can perform empirical analysis of the economics of professional sports to gain a better understanding of the environment these private equity firms are getting involved in. The main findings of this paper update the limited and outdated research and theories of professional sports leagues. The overarching conclusion we can formulate is that as market trends shift over the years, the economics of professional sports also evolves into new trends of their own. This suggests that research is required to be updated consistently in this field to continuously be aware of the current trends and consumer demand for sports. Furthermore, we concluded from our results that an ideal candidate is a franchise that is: successful as measured by past and current win percentage and postseason involvement and either has a strong and loyal fan base or can increase their popularity amongst their market.