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Sports investing has historically been reserved for the ultrawealthy. It was the billionaires' league where people like David Tepper, owner of the Carolina Panthers , and Steve Cohen, owner of the New York Mets , would stake their claims.

But a few major milestones over the past decade have paved the way for more relaxed rules around sports-team ownership, a shift that has opened the industry to investors of all levels.

Formula 1 kicked off the trend in 2006 after allowing private equity firm CVC Capital Partners to purchase it. Then, in 2021, the NBA allowed private equity to own up to 20% of franchises.

Now, investors can gain exposure in two main ways: through equity, where they can snag minority ownership of teams or franchises and bag some gains on the upside, or through credit, by providing loans or structured equity to help develop a team or stadium.

The attractiveness of sports investing has been a byproduct of the sector's outsize growth relative to the broad equity market, says Jay Serpe, the global head of strategy and business development for alternatives at JPMorgan Private Bank. The investment bank's 2025 outlook report showed that the total value of mergers and acquisitions within sports increased by more than eight times over the past five years as opposed to those within public equities, which has declined by 40%.

The sector has seen tremendous growth with rapidly expanding valuations, which is expected to continue, and that's attracting private capital, says Ted Yarbrough, the CIO at Yieldstreet, a firm that brings alternatives, including sports, to accredited retail investors.

Below is a chart from Yieldstreet that shows how sports leagues have performed over the last 10 years relative to the S&P 500. For example, the value of Major League Soccer (MLS) was up by 1,565%, or almost five times the index.

"it's reasonable to expect that returns in the sports space might have a lower correlation to other risk assets like equities," Serpe said. "It'll just have unique driving forces, mostly tied to viewership and live viewership numbers that will drive a lot of the value that, in time, could prove to be a decent diversifier in portfolios away from traditional equity risk."

The so-called asset class is an established industry with few prospects of new entrants or formations of sports franchises, making it scarce. It also has a solid future outlook. As media and, specifically, TV networks face declines in viewership, sports events continue to attract large audiences, according to JPMorgan's report.

In an era of endless content, sports events remain among the rare draws audiences demand to view live, which creates a unique opportunity to capitalize on media rights, Serpe added.

"The largest area of equity exposure we've seen so far has been in the ownership of actual leagues or teams, especially the major ones," Serpe said. "You've seen many large private equity firms participating in that space over the past five years or longer, and that certainly has seen significant valuation growth. Other areas are still emerging, so they could offer the potential to generate higher equity returns."

But betting on the sports teams isn't the only way in. There are numerous routes into the industry, including media rights, ticketing, streaming, events, college athletics, and stadium development.

Below is a table from JPMorgan's 2025 outlook report showing private equity funds planned investment themes.

On the equity side, the value of sports franchises is often driven by media rights. But outside that, there has been significant interest in investing in other areas like women's sports or emerging sports leagues, Serpe noted. On the credit side, proving debt for real estate tied to sports, such as stadiums, has been a popular strategy because there's an asset backing the debt, he added.

Like traditional investing, the more diversification, the better. For Serpe, this means gaining exposure across sports, media, and entertainment to capture potential upside and then mitigating that risk with debt or equity in more established leagues.

That said, private markets have additional illiquidity risk. Therefore, investors should be compensated with higher returns at 3% to 5% annually above public markets, Serpe noted.

Additionally, while there has been a tremendous amount of growth, there aren't decades of historical performance to go off of, Yarbrough said. So investors must know the projections and what's underlying them, including the cause and effect that would lead an investment thesis to be realized.

Read the original article on Business Insider