Why the Kings are the darlings of institutional investors in the NBA

While it’s widely known in NBA circles that some Sacramento Kings investors were looking for an exit, these limited partnership holdings in the franchise remained in the proverbial market for some time. The team’s lack of success on the pitch, which some blame on controlling owner Vivek Ranadive, and location (few would consider the California capital to be the sexiest NBA market) were cited as some of the reasons why .

But Arctos Sports Partners and Dyal Capital both saw inherent value in the Kings, recently gobbling up LP interests (Arctos bought stakes previously held by Mark Friedman, Brad Jenkins, Mark Mastrov, Andy Miller and Kevin Nagle). Arctos acquired 17% of the club in total, in a deal that valued the club at $ 1.8 billion; Dyal increased its stake from less than 5% to between 5 and 10% with a series of acquisitions at the same valuation. Several people familiar with the thinking of private equity firms have suggested that the bright future of the NBA, Sacramento’s status as an underrated market, the real estate ecosystem that exists around the arena, and the possibility of aligning with Ranadive entrepreneurship were among the attributes that drew institutional money to the franchise.

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Taking from JWS: Consolidating Arctos and Dyal’s stakes in Sacramento is exactly what the NBA sought to accomplish when ownership voted to allow investment firms to take LP stakes in teams, a way to bring growth capital and liquidity to franchises.

The Sacramento Kings ownership group, led by Ranadive, got together in 2013 to ensure the team stays in the market and that a new arena will be built (both have been completed). But as a result, the club had more investors – over 30 at one point – than the average NBA team. With several LPs looking to release, it became more difficult for one of them to sell a small stake (which is one of the reasons the league tried to limit the number of LPs within. a single franchise and now requires these individuals to hold at least a one percent interest).

It’s also important to remember that the pool of individuals capable of making a nine-figure investment (as Arctos did) and also looking for LP involvement in an NBA team is predictably shallow. Generally, if an investor invests this kind of money, he wants to be a controller. League rules currently prevent investment firms from realizing this possibility. Earlier this week, Sportico announced that Arctos had $ 2.9 billion in assets in its first fund.

Ranadive said in a statement, “We are delighted to welcome Arctos Sports Partners to the franchise and look forward to continuing to make Sacramento proud.”

It is understandable why growth investors would want to buy into an NBA team. “People who have held these stakes for seven, 10, 15 years, and sometimes longer durations, have likely experienced significant capital appreciation,” said Drew Laurino, senior managing director of Blue Owl Capital (NYSE: OWL), the investment firm that combined Owl Rock and Dyal Capital in a PSPC merger last year. The belief is that the potential for global growth, the expected increase in media rights revenues (both domestically and abroad) and the chance to be at the forefront of several trends related to media rights. technology (including sports betting) will ensure that the appreciation continues. For reference, Ranadive acquired majority control of the team eight years ago in a deal that valued the franchise at $ 535 million.

Sports teams are often seen as trophies, and Sacramento is certainly not as exciting a market as, say, San Francisco (Arctos bought out the Warriors in May) or even Phoenix (Dyal owns a stake in the Suns). But Arctos, who declined to comment for this story, and Dyal aren’t your typical LP investors (Arctos has a global tenure; Dyal is city agnostic in the NBA), and there are a handful of key attributes. to love about Sacramento that are often overlooked. The market has been among the biggest beneficiaries in the Bay Area Outlet State. It’s just 90 miles from San Francisco, where more than half of the country’s billionaire production has taken place over the past decade (which helps bolster market demographics), and small-market teams receive a disproportionate amount of league revenue (revenue sharing may increase in next ACA).

The Kings are also the only game in town, which makes Sacramento one of the most attractive DMAs for a professional sports team. The lack of competition also means that a long-standing and loyal fan base exists despite the lack of wins over the past decade. “We want good basic economic support for a team and the value [we’re buying in at] without having to do a playoff run every year, ”Laurino said.

The main objective of private equity is to generate a return on investment for fund investors. So the decision to align with a forward-thinking controlling owner, focused on generating local income and value beyond the club, makes sense for a passive minority partner. “We think it’s a well-managed team and Vivek is a smart guy. He built great companies, and he runs [the team] like a business. We want to partner with good people who run great companies, ”Laurino said.

Ranadive is also widely respected among his peers, playing an active role on several committees that will influence the league’s long-term direction, including the Blockchain Advisory Board and the Social Justice Coalition. In theory, this should provide access to information developed by the league nationally and globally, which can only help the franchise at the local level. And with Ranadive’s experience as a tech entrepreneur, the franchise is uniquely positioned to implement these ideas (see: The Kings were the first professional sports team to accept Bitcoin). Jordan Solomon, Partner and Co-Founder of Arctos Sports Partners, said: “We admire the way Vivek and its leadership team are data-driven and leverage technology and knowledge to create and grow the business themes we let’s adopt in establishing our own business. “

The team does not own their building (the Golden 1 Center), but the economy of the arena is attractive. “Their relationship with the city gives them full economic control, which we think is a pretty valuable asset,” Laurino said. The team also operates the adjacent real estate, which they have turned into a mixed-use development, and own land on the site of the former Arco arena, so there is a local real estate opportunity that also comes with the investment. on the team. It should be noted that the Golden 1 was named “the most technological stadium in sport” in 2016.

If the NBA ever allows franchises to expand their geographic footprint in international markets like the NFL is, Sacramento would undoubtedly be in a good position to take advantage of the opportunity. Ranadive is the sole controlling owner in the league of Indian descent. And although it’s not China, India is still a market with 1.3 billion people starting to love the game. Basketball is on par with football as the second fastest growing sport. faster in the country.