You have just closed on one of the largest first-time funds in history. To what do you attribute your success?
Arctos has a differentiated strategy predicated on a compelling investment thesis in an exciting and growing sector. Given how many private equity funds are seeking to raise capital at any given point in time, having a clear and unique strategy is critical.
In addition, most of our team has had a history of working together prior to forming Arctos. Ian Charles spent most of his career at Landmark Partners where Joe Nasr previously worked. Doc O’Connor and Jordan Solomon both worked together at Madison Square Garden Group before Arctos. So, while we were a first-time fund, we are not a first-time team.
Can you tell us more about Arctos’ strategy and how the members of your team complement one another?
Arctos Sports Partners is the first private equity firm focused exclusively on the professional sports industry. We invest in teams in multiple ways, including growth capital on a team’s balance sheet, financing to help a new buyer acquire a team and liquidity solutions for owners looking to sell out or down their stake in a franchise.
Our team has a deep and complementary skill set across sports and entertainment operations and private equity investing and is uniquely positioned to act as a collaborative partner for sports ownership groups and leagues.
What makes the sports industry an attractive area to invest?
The sports ecosystem sits at the center of a series of compelling secular trends, including live events, digitization, data analytics, legalized sports betting and international growth with strong tailwinds that have accelerated post-covid.
Historically, sports returns have been uncorrelated to other asset classes. They have high levels of recurring revenues at between 70 and 80 percent plus, and benefit from consumer preferences for live entertainment and appointment viewing content. Franchises enjoy strong customer loyalties that span generations. Teams are currently seeing the benefits of this loyalty in the form of pent-up demand as cities have reopened to live events.
Finally, the business of sports is evolving quickly in exciting ways, with the advent of digital technology and growing financial sophistication in the space. Team properties are becoming anchor assets within broader content platforms that incorporate everything from physical real estate to mobile sports betting and gaming, with exciting potential for growth.
How can private equity impact the sports industry?
This industry has historically had to fund growth organically. We think private capital will allow for high ROI investing and growth acceleration whether it be in real estate and new stadium development projects, technology, gaming, the fan experience or the acquisition of another franchise. We also believe institutional capital will help to simplify ownership structures of teams where there may be dozens of limited partners. The industry, with access to private capital and alongside increasingly sophisticated ownership groups and management teams, will generate stronger revenue growth and profitability, and, as a result, higher valuations going forward.