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The rise of artificial intelligence is likely to boost the valuations of sports teams and media rights, making sports an even more attractive asset class for investors, according to Ian Charles, managing partner of Arctos Partners.

With AI-generated video and online content becoming more ubiquitous, live sports will become even more important in the battle for attention, Charles told Inside Alts. Since fans will pay more for live experiences and in-person games, team values will continue to climb and generate strong returns, he said.

“Sport is the only must-see, appointment-viewing content,” Charles said. “In a world where people are increasingly lonely and looking for a connection — for the communal, tribal connection you get from watching a sporting event with your friends, being part of your community, crying and screaming and cheering — the value of that to the media landscape and ecosystem is just becoming exponential.”

Arctos is at the center of an investing boom in sports. With $15 billion in assets under management, the Dallas-based firm has helped pioneer the growing role of private equity in sports team ownership and capital raises. It’s the only private equity firm approved to own equity in teams across all five major North American professional leagues – the NFL, NBA, MLB, NHL and MLS.

The firm has gained such a big lead in sports that it’s become an attractive target for other private equity firms. Bloomberg reported last month that private equity giant KKR has agreed to buy Arctos at a $1 billion valuation, keeping Charles and other top management. Arctos and Charles declined comment on the report.

Yet despite concerns over a bubble in team valuations, Charles said the thesis for sports as an investment is in the early innings.

Team values have two drivers, he said. The first is league revenues, which are distributed among teams and equates to intellectual property. The second is the live entertainment business, driven by stadiums and other revenue that are protected since “no one is allowed to compete with you in your particular form of live entertainment.”

“Those two assets are quite unique,” Charles said. “You have this very durable, very important IP piece, and then this local live entertainment piece.”

Those twin drivers have given major-league sports teams unique characteristics as investments.

Charles said North American sports teams have mostly outperformed public equities during a 3-year, 5-year and 10-year period, with only occasional exceptions. Team values have increased steadily in value, with little volatility. They are also largely uncorrelated with stocks, delivering the elusive “alpha” that many wealthy investors and family offices are always searching for.

Once seen as trophy assets and unprofitable vanity plays for billionaires, sports teams have become more rigorous businesses that are increasingly accessible for investors through private equity funds. In 2024, the NFL voted to approve select PE firms to buy minority stakes in teams, becoming the last of the major U.S. pro leagues to welcome private equity investors. 

Nearly 1 in 5 professional sports teams now has some kind of private equity investment, according to JPMorgan. The cumulative returns of the four big major sports leagues – NFL, NBA, MLB and NHL – have surpassed the S&P 500 since 2014, the bank said.

Charles said sports are also “anti-cyclical,” meaning they are less vulnerable to economic cycles and recessions.

“They’ve got this sort of monopolistic local live-entertainment business in sports, that’s really interesting,” he said. “And 70% to 80% of the total revenue in premium sports is long-term and contracted through sponsorships, through media rights, with guaranteed payments and escalators. So it doesn’t matter if GDP goes down or up.”

Not every team or league is a sure bet, however. Charles said Arctos sticks only to the five major leagues. He said emerging sports, like padel, pickleball, E1 Series electric-powerboat racing and others, have yet to prove themselves as durable investments.

“I have no idea which of the professional pickleball leagues is going to be the premium source of content in 20 years,” he said. “I do know that when there is a Super Bowl in 2045 it’s going to command the attention of the entire world.”

If there is one new leagues that can could break out and become a big business, it’s likely to be in women’s sports, he said.

“I think that one of the women’s sports leagues is going to ascend and command global attention,” he said. “I don’t know which one it is. I don’t know where it will be based. One of them is going to capture the energy and the fandom of the globe.”