Sixth Road Companions is a 13-year-old international funding agency with greater than $60 billion in property beneath administration. Nevertheless it wasn’t till January 2021 that it made its first funding in sports activities, when it purchased a controlling share of Legends.

Sixth Road has since invested within the San Antonio Spurs (June 2021), Actual Madrid (Might 2022) and FC Barcelona (June 2022). Every of the 4 offers is completely different in nature, which is indicative of the agency’s versatile method. However they’ve one factor in frequent—in every case, Sixth Road opted to again a premium franchise (its companions in Legends are the New York Yankees and Dallas Cowboys). A supply acquainted with the agency’s pondering defined that its mannequin works greatest when utilized to top-tier, globally related groups. Sixth Road declined to touch upon its current sports activities investments.

JWS’ Take: Sixth Road invests in 15-25 themes throughout a number of industries at any given time. It could possibly be avocados. It could possibly be wind farms or actual property. However as soon as it has a theme, the agency fairly aggressively pursues it—as evidenced by the three sports activities offers accomplished in a 13-month interval.
Sixth Road’s sports activities thesis started with the premise that the hardships introduced on by the COVID-19 pandemic, coupled with shifts in client habits, have pressured groups to consider their companies in a multi-channel, 365-day-a-year style. To be honest, some have considered their enterprise in that method for a very long time; the Cowboys and Yankees choice to type Legends over a decade in the past is proof.

Hungry to recoup revenues misplaced to the pandemic and to diversify their companies in its wake—and having seen others efficiently obtain these goals—many extra groups are actually exploring the prospect of changing historically seasonal companies into year-round enterprises.

Moreover, franchises that didn’t actually need or need outdoors traders previous to the COVID-19 sports activities hiatus have since come to view entry to capital and the capabilities that include institutional funding as a horny avenue.

One other catalyst for Sixth Road’s sports activities theme growth was league-level rule modifications, which permitted funding funds to purchase stakes in groups. As quickly because the NBA approved institutional traders, the agency approached the Spurs about shopping for into the franchise; it believes the five-time NBA champions have the most important worth creation alternative within the league.

The rise of digital media has helped to boost the TAM for sports activities groups, making them extra engaging to institutional traders. Thirty years in the past, the enterprise was largely native; now golf equipment can take into consideration partnerships on a regional, nationwide or international foundation.

Sports activities groups have traditionally been restricted of their capacity to monetize followers overseas. The league controls worldwide media rights and all merchandise gross sales outdoors the venue, so sponsorship has largely been the one lever to tug. However that has modified over the past decade or two as digital media expertise has developed. Groups can now interact with followers, bringing them extra customized and intimate experiences by way of direct-to-consumer channels that attain past the native market.

As a result of Sixth Road’s sports activities thesis is essentially constructed across the concept of accelerating the transition from native, seasonal companies into all-year, international manufacturers, the agency has centered on funding alternatives related to the highest groups within the prime leagues (suppose: model worth, organizational high quality, competitiveness). The logic is easy: It believes these organizations have a a lot larger chance of being a worldwide enterprise than the underside 25.

Former Goldman Sachs associate Eric Grubman believes that specializing in the highest of the pyramid is a smart method to take contemplating the present market circumstances. “In any trade—not simply sports activities and leisure—properties which have engaging markets, with well-structured financial fashions, which can be worthwhile and will not be over-leveraged—these properties can stand up to powerful markets. Issues that lose cash or are over leveraged–on these, I might be a lot much less sanguine.”

Sixth Road could be a passive investor or extra concerned, if the state of affairs arises. The agency’s $380 million funding in Actual Madrid’s Santiago Bernabéu stadium is an instance of the latter. In coordination with Legends, Sixth Road will, amongst different issues, assist the membership flip the stadium right into a year-round vacation spot. The renovated venue will host non-soccer sporting occasions in addition to concert events, company occasions and stay leisure packages. The funding agency is entitled to take part within the proceeds generated by the stadium for the following 20 years.

The flexibility to mix Sixth Road capital (suppose: capacity to fund future initiatives) with Legends’ capabilities and experience was seemingly a differentiator for the agency in that deal. A Actual Madrid spokesman mentioned, “The Membership has been counting on Legends’ expertise over the last years and subsequently the partnership Sixth Road-Legends-RMCF made a variety of sense.”

Sixth Road’s funding in FC Barcelona (it purchased 10% of the membership’s media rights for the following 25 years for $215.6 million and rumors counsel it’s going to purchase an extra 15% subsequent week) is essentially a guess on the model, the league and the worth of premium sports activities rights. The agency believes the secular modifications introduced on by the evolution of streaming have given stay sports activities even higher utility in a streaming world than that they had in a non-streaming world. And that the evolution is simply originally. For reference, LaLiga not too long ago bought its home package deal in a five-year deal for $5.59 billion {dollars}.

The info collected from streaming ought to open up further types of income for the membership and allow it to make smarter choices. If Barcelona is working at the next stage on and off the sphere, presumably the worth of its media rights will proceed to climb. Dan Cohen (EVP international media rights consulting, Octagon) confirmed that may be the case. “Massive manufacturers appeal to huge eyeballs and massive eyeballs appeal to contractually obligated income streams (media rights, sponsorships, information and betting). Tier 1 properties will solely proceed to develop and when weighing returns on this down inventory market towards manufacturers like Barca and others—it’s a no brainer.”

Reviews have prompt Barcelona will not be “round in a single or two years’ time.” If true (a query contemplating the claims got here from a rival membership), it might seemingly make a 25-year cope with the workforce a dangerous endeavor. However Sixth Road has no issues in regards to the LaLiga membership’s stability sheet and believes its nine-figure funding places FC Barcelona ready the place it might probably reset after which proceed to develop.

Whereas Sixth Road’s final two investments had been in European soccer golf equipment, its pipeline contains property from across the globe. Anticipate some further sports-related bulletins from the agency inside the subsequent six months.