NBA Courts Investment by Sovereign Wealth, Pension Funds

Move seeks to cash in on surge in alternative investments

SAN FRANCISCO, CALIFORNIA - JUNE 13: Jayson Tatum #0, Jaylen Brown #7 and Robert Williams III #44 of the Boston Celtics compete for the rebound against Klay Thompson #11, Kevon Looney #5, Andrew Wiggins #22 and Gary Payton II #0 of the Golden State Warriors during the third quarter in Game Five of the 2022 NBA Finals at Chase Center on June 13, 2022 in San Francisco, California. The Golden State Warriors won 104-94. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement. (Photo by Ezra Shaw/Getty Images)
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The National Basketball Association is ready to play ball with sovereign wealth, pension, and endowment funds, provided these investors pass the money.

The NBA's owners recently voted to allow the increasingly flush institutions to buy relatively small, passive stakes in the league's teams, the sports business publication Sportico reported Thursday. The league had previously authorized investments by private equity funds.

The new entrants will operate under similar terms, under which minority investments are approved by the league on a case-by-case basis and don't allow funds to have a say in how the business is managed. Private equity funds can own no more than 20% of a single team, and no team can sell more than 30% to any combination of such investors.

Key Takeaways

  • NBA owners have voted to let sovereign wealth funds, pensions, and endowments buy minority stakes in league teams.
  • The league already permits private equity stakes, limiting them to 20% for any one fund and 30% in total per team.
  • The NBA is following the money as fund flows into alternative investments soar.
  • Selling team stakes to some sovereign wealth funds risks controversy over the countries' human rights records.

NBA team stakes are among alternative investments that have been all the rage: The asset class was valued at $13 trillion at the end of 2021 and is expected to reach $23 trillion by 2026. Portfolio allocations to alternative investments by state and local public pension funds reached 34% this year, from 9% in 2001, by one estimate.

Because alternative investments have traditionally had less correlation with those in the public stock and bond markets, they've reduced the volatility of portfolio returns.

NBA teams, like North American sports franchises in general, have a particularly glitzy recent performance record as investments. Team values have increased five-fold over a decade, pushing the estimated value of the average NBA team to almost $2.6 billion.

The league's increasingly lucrative long-term television contracts insulate it from the effects of economic downturns.

The NBA's popularity also increases the risk that minority investments in its teams might be used by sovereign wealth funds to legitimize repression by the governments that run them. The English Premier League drew criticism last year after it let Saudi Arabia's Public Investment Fund acquire 80% of the Newcastle United soccer club.

Manchester City in the same league is owned by the investment group of the Abu Dhabi royal family in the United Arab Emirates (UAE). Qatar's sovereign wealth fund has owned the French soccer club Paris Saint-Germain since 2011 and is now marketing a minority stake in the team.

NBA commissioner Adam Silver sidestepped concern about UAE's human rights record and anti-LGBTQ laws in announcing NBA exhibition games in the country earlier this year.

The NBA also became enmeshed in political controversy in China. The league's games were banned from Chinese TV for almost three years after an executive at an NBA team tweeted support for Hong Kong protesters demanding democracy.

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  1. Sportico. "NBA to Accept Investment From Pension and Sovereign Wealth Funds."

  2. CNBC. "The NBA’s Private Equity Plan Is in Motion and It’s Betting on the Allure of Sports Ownership."

  3. S&P Global. "Global Alternatives AUM Forecast to Double by 2026, Topping $23 Trillion."

  4. The Wall Street Journal. "Calpers Names New Private-Equity Head as Pension System Aims to Increase Alternatives Exposure."

  5. Center for Retirement Research at Boston College. "Public Pension Investment Update: Have Alternatives Helped or Hurt?" Page 2.

  6. Pensions & Investments. "Higher Alts Allocations May Help Cut Volatility But Not Necessarily Increase Returns – CRR."

  7. PIMCO. "How Can Alternatives Help During Periods of Market Volatility?"

  8. CNBC. "NBA is Next Up for a Big Rights Increase, and $75 billion Is the Price."

  9. Global SWF. "Most English Fans Feel Negative About SWFs, but Newcastle and Man City Reap Rewards."

  10. Bleacher Report. "The Remarkable Story of Manchester City's Rise Under Sheikh Mansour."

  11. Bloomberg. "Qatari-Owned Football Club PSG Draws Interest From Three Bidders for Minority Stake."

  12. The Athletic. "NBA Allowing Sovereign Wealth Funds to Invest in Teams: What It Means and Why It’s Risky."

  13. ESPN. "ESPN Analysis: NBA Owners, Mum on China Relationship, Have More Than $10 Billion Invested There."

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