Case Study: Private Equity's Foray into the NFL – Ares Management's Stake in the Miami Dolphins

The National Football League (NFL) has long been a fortress of traditional ownership structures, with stringent regulations limiting team ownership to individuals or small groups. However, in August 2024, the NFL owners voted to approve a measure allowing private equity funds to acquire stakes in teams, signaling a significant shift in the league's ownership policies (NFL, 2024). This policy change paved the way for Ares Management Corporation's acquisition of a 10% stake in the Miami Dolphins in December 2024, valuing the franchise at $8 billion (Miami Dolphins, 2024). This case study examines the factors leading to this landmark investment, its implications for the NFL, and the broader trend of private equity's involvement in professional sports.

The NFL's Traditional Ownership Model

Historically, the NFL has maintained strict ownership guidelines to preserve the stability and integrity of its franchises. Ownership was typically restricted to individuals or small groups, with corporations, religious groups, governments, and non-profit organizations prohibited from owning stakes in teams (Wikipedia, 2024). This conservative approach aimed to ensure that team owners were deeply invested in the sport and their communities (Clifford Chance, 2024).

Rising Franchise Valuations and the Need for Liquidity

However, in recent years, the valuations of NFL franchises have soared, driven by lucrative broadcasting deals, sponsorships, and merchandise sales. The average NFL team is now valued at approximately $6.49 billion, with no team valued at less than $5.25 billion (Clifford Chance, 2024). While this increase in value is a positive indicator of the league's success, it has also led to liquidity challenges for team owners. The high valuations limit the pool of potential buyers, making it difficult for owners to sell minority stakes or raise capital for investments in team infrastructure and operations (Clifford Chance, 2024).

The NFL's Policy Change to Allow Private Equity Investments

Recognizing these challenges, the NFL owners voted on August 27, 2024, to permit private equity funds to acquire minority stakes in teams (NFL, 2024). This policy change allows approved private equity firms to own up to 10% of an individual team, with a minimum investment of 3% (Clifford Chance, 2024). The decision aligns the NFL with other major professional sports leagues in the United States, such as the NBA, MLB, and NHL, which have already embraced private equity investments (Villanova University, 2024).

Ares Management Corporation's Investment in the Miami Dolphins

Following the NFL's policy change, Ares Management Corporation, a global alternative investment manager with approximately $378 billion in assets under management as of 2023 (Wikipedia, 2024), acquired a 10% stake in the Miami Dolphins. The transaction, approved at the NFL's league meeting on December 11, 2024, valued the franchise at $8 billion (Miami Dolphins, 2024). Alongside Ares, Brooklyn Nets owners Joe Tsai and Oliver Weisberg collectively acquired a 3% interest in the Dolphins (Miami Dolphins, 2024).

Evolving Ownership Structures

The NFL's decision to allow private equity investments reflects a broader trend of professional sports leagues adapting to new capital sources. This shift addresses the liquidity challenges faced by team owners and opens the door for institutional investors to participate in the sports industry. By permitting private equity firms to acquire minority stakes, the NFL aims to infuse fresh capital into teams, facilitating investments in infrastructure, operations, and global expansion (NFL, 2024).

Attractive Asset Appreciation

Sports franchises, particularly in major leagues like the NFL, have experienced significant valuation growth over the past decade. This appreciation is driven by factors such as increasing media rights deals, global fan engagement, and the scarcity of professional sports teams. For private equity firms like Ares Management, investing in an NFL team offers the potential for substantial returns as franchise values continue to rise (Clifford Chance, 2024).

Stable Revenue Streams

The NFL's business model provides stable and diversified revenue streams, including broadcasting rights, sponsorships, ticket sales, and merchandise. These consistent income sources align with private equity's pursuit of steady returns. The league's long-term media rights agreements, valued at $111 billion through 2033, ensure financial stability and predictability for team owners and investors (Clifford Chance, 2024; Financial Times, 2024).

Implications for the NFL and Professional Sports

Enhanced Financial Flexibility

The introduction of private equity investments offers NFL teams greater financial flexibility. Owners can leverage new capital to invest in stadium upgrades, player development, and marketing initiatives, enhancing their franchises' overall competitiveness and profitability. This financial flexibility is crucial in an increasingly competitive sports landscape where teams must continually innovate to attract and retain fans (Hogs Haven, 2024).

Potential Influence on Team Operations

Although private equity firms typically acquire non-controlling minority stakes, their involvement could influence team operations over time. Private equity investors often seek to optimize operational efficiency and maximize returns, which may lead to changes in management practices, cost structures, and strategic priorities. However, the NFL's regulations ensure that controlling ownership remains with individuals or groups deeply invested in the sport, mitigating potential conflicts between financial objectives and the league's core values (NFL, 2024).

Broader Adoption Across Professional Sports

The NFL's embracing private equity investments may encourage other professional sports leagues to reevaluate their ownership policies. As franchise valuations continue to rise, leagues may seek alternative capital sources to support growth and maintain competitiveness. The successful integration of private equity in the NFL could serve as a model for other leagues that have yet to embrace institutional investment fully. The increased financial stability of private equity backing could lead to enhanced player salaries, improved fan experiences, and expanded global reach for professional sports teams (Financial Times, 2024).

Potential Influence on Team Operations

While private equity firms typically acquire non-controlling minority stakes, their involvement could influence team operations over time. Private equity investors often seek to optimize operational efficiency and maximize returns, which may lead to changes in management practices, cost structures, and strategic priorities. However, the NFL's regulations ensure that controlling ownership remains with individuals or groups deeply invested in the sport, mitigating potential conflicts between financial objectives and the league's core values (NFL.com, 2024).​

Broader Adoption Across Professional Sports

The NFL's embrace of private equity investments may encourage other professional sports leagues to reevaluate their ownership policies. As franchise valuations continue to rise, leagues may seek alternative capital sources to support growth and maintain competitiveness. The successful integration of private equity in the NFL could serve as a model for other leagues that have yet to fully embrace institutional investment. The increased financial stability provided by private equity backing could lead to enhanced player salaries, improved fan experiences, and expanded global reach for professional sports teams.

Challenges and Considerations in Private Equity’s Involvement in the NFL

Regulatory and Governance Considerations

The NFL’s decision to allow private equity investment came with strict regulatory guardrails to ensure that financial investors do not interfere with the day-to-day operations of teams. Unlike traditional private equity investments, where firms often seek active control and restructuring opportunities, the NFL mandates that private equity firms maintain only minority, non-controlling stakes in teams. This restriction prevents external investors from making operational decisions that could conflict with the league’s long-term objectives and cultural identity (NFL.com, 2024).

Exit Strategies for Private Equity Firms

One of the main challenges private equity investors face in sports is the limited liquidity and lack of quick exit strategies. Unlike stocks or real estate, sports franchises are illiquid assets, meaning there are fewer potential buyers when it comes time to sell. Ares Management’s investment in the Miami Dolphins is expected to be a long-term play, relying on capital appreciation rather than short-term gains (Clifford Chance, 2024). However, with rising valuations and a growing pool of institutional investors entering the sports sector, secondary transactions of minority stakes could become more common in the future.

Potential Risks for Investors

Although investing in an NFL franchise presents an attractive opportunity, it also carries inherent risks. These include:

• Team Performance and Valuation Fluctuations: While NFL franchises are considered stable assets, team valuations can be affected by on-field performance, coaching changes, and organizational instability.
• Economic Downturns: The sports industry is not immune to economic fluctuations. A recession or major downturn could impact sponsorship deals, ticket sales, and media rights revenue.
• Regulatory Uncertainty: Changes in NFL policies, broadcasting agreements, or tax laws could impact investment returns (Villanova University, 2024).

Despite these risks, the broader trend suggests that private equity investments in sports will continue to grow, driven by high valuations and stable revenue models.

Implications for the Future of Sports Investing

The Ares Management-Miami Dolphins deal is a clear signal that institutional investors view sports franchises as lucrative long-term assets. Given the continued rise in valuations, increased media revenue, and globalization of sports, private equity’s role in professional sports ownership is expected to expand significantly.

Globalization and Market Expansion

One of the most compelling aspects of private equity's entry into the sports world is its potential to accelerate globalization. As seen in the NBA and English Premier League, institutional investors are drawn to teams with strong global fanbases, making them attractive international assets. The NFL, which has already expanded its presence with international games in London, Germany, and Mexico, could leverage private equity investment to further global growth (Forbes, 2024).

Technology and Digital Innovation

Private equity firms have a history of leveraging technology and data analytics to enhance business operations. In sports, this could translate to better fan engagement strategies, personalized digital experiences, and enhanced sports betting integrations. The Miami Dolphins, under Ares Management’s investment, may explore new revenue-generating technologies such as NFT-based ticketing, AI-driven fan engagement, and augmented reality experiences within stadiums (Bloomberg, 2024).

Further Institutional Interest in the NFL

The success of the Ares investment in the Dolphins could lead to other major firms, such as Blackstone, KKR, and Apollo Global Management, exploring similar opportunities. If the NFL allows further expansion of private equity ownership, it could fundamentally alter the landscape of sports finance and ownership (Financial Times, 2024).

Conclusion

Ares Management’s acquisition of a 10% stake in the Miami Dolphins represents a groundbreaking moment in NFL history. As private equity firms seek new high-value investment opportunities, the sports industry has emerged as a prime sector for long-term capital appreciation. While challenges exist, including regulatory limitations and illiquidity concerns, the benefits of institutional investment—such as financial stability, enhanced strategic planning, and global expansion—suggest that private equity’s presence in professional sports will continue to grow.

The increasing convergence of private equity and professional sports underscores a broader transformation in sports ownership. The introduction of sophisticated financial strategies, innovative digital engagement initiatives, and global market expansion will likely redefine how sports franchises operate in the coming years. As the industry continues to evolve, private equity investors will play a crucial role in shaping the future of the NFL and other major sports leagues worldwide.

References

1. Bloomberg. (2024). How Private Equity is Reshaping the Sports Industry.
2. Clifford Chance. (2024). Private Equity’s Expanding Role in Professional Sports.
3. Financial Times. (2024). Why Private Equity is Betting on the NFL.
4. Forbes. (2024). The Globalization of the NFL and its Investment Potential.
5. MiamiDolphins.com. (2024). Official Statement on Ares Management’s Investment.
6. NFL.com. (2024). NFL Approves Private Equity Ownership of Teams.
7. Villanova University. (2024). Legal and Financial Implications of Private Equity in Sports.
8. Wikipedia. (2024). Ares Management Corporation and its Sports Investment Strategy.
9. Bloomberg. (2024). Technology’s Role in Sports Investment Growth.
10. New York Times. (2024). Private Equity’s Impact on Franchise Valuations.