Strategic Decision Making in Sports Final

What are the risk factors specfic to private equity in sports?

• illiquidity

• Valuation opacity

• Regulatory and rule risk

• No governance remedy

• Stakeholder and reputational risk

Why are baseball franchises selling at a discount?

Unlike other leagues, the MLB doesn’t have cost containment through a salary cap

What is the cause for team valuations to skyrocket?

• Media rights, games being live, expansion and entry fees, stadium and district economics, globalization and new formats

What don’t passive PE investors get when investing in sports teams?

1. No votes, no board

2. No preferred equity

3. Look-through on owners

4. Sovereign wealth limits

5. Owner exit priority

6. Approval is political

Four ways capital actually gets deployed:

1. Passive minority stake

2. League-level vehicle

3. Hybrid capital solution

4. Control ownership

Why does private equity targets sports?

1. Scarcity

2. Contracted revenue (CGI)

3. Live-content premium

In which areas can private equity enhance commercial operations and drive local revenues?

• Corporate partnership optimization

• Premium hospitality & private events

• Ticketing & membership

• Real estate & mixed-use development

• Licensing and merchandising 

• Alternative revenue streams

How must schools adapt to thrive in an evolving landscape?

1. Maximize commercial revenues

2. Realize operational efficiencies

3. Invest in talent to win

What 4 forces have reshaped the economics of college sports?

1. Revenue sharing (house settlement)

2. NIL

3. Conference Realignment

4. Transfer Portal

How is PE funding being used in sports?

• Build new stadiums/venues and mixed-use areas

• Pay players and coaches

• Expand commercial partnerships 

What are some examples that Aaron Brewer stated about how STL City is using AI?

STL City is ahead of the game in regards to digital activations and engagement

• Ace: AI-powered fan personalization engine

• Mobile app

Time savers: order food, get tickets, shop for merch

AI creates value when it turns what we know about fans into action that improves their experience

What are the 4 key areas where AI shows up on the business side of sports?

1. Tickets and pricing: AI repricing seats in real time as demand moves

2. Event & Venue Ops: Face-scan entry is already in use in several leagues

3. Digital Media & Fans: AI assistants answer fan questions 

4. Partnerships and Marketing: AI showed up in 25% of Super Bowl ads this year

What are some upsides and downsides of AI?

Upsides of AI:

• Detect patterns humans may miss

• Tailor training and recovery

• Improve scouting and opponent preparation

• Support faster, evidence-informed decisions

Downsides:

• Inaccurate predictions and false confidence

• Biased data or models that fit some athletes poorly

• Sensitive biometric and health data exposure

• Unequal access that widens competitive gaps

What are some ways generative AI creates new commercial and integrity issues?

1. Content at scale (personalized digital experiences)

2. Rights and Compensation (use of athlete likeness, voice, performance, content, etc)

3. Trust and Misinformation (deepfakes, fake endorsements, manipulated footage, etc)

How is AI used in sports?

• Performance and health

• Coaching and strategy

• Fans and commercial growth

• Media and officiating

• Venue operations

• Business operations

Why is the NBA salary cap “soft”?

• Gives teams financial and roster flexibility: Only 5 players on the court at a time, teams are smaller and a soft cap allows teams to keep their core players more easily

What are some of the NBA’s salary cap exceptions and why do they exist?

• Bird Exception: You can re-sign your own free agent up to their max contract and go over the salary cap

• Rookie Scale Exception: First round picks can exceed the salary cap

Allows for roster flexibility

What are the aprons in the NBA?

Additional barriers that prohibit roster and financial flexibility (additional fines)

• Hard cap for teams that use certain salary cap exceptions

What was Kwesi’s conumdrum?

 Key decisions he did and didn’t make that ultimately sunk him:

1. Released Sam Darnold: Do I keep him on a long term deal or explain his performance as a fluke and let him go and roll with rookie qb McCarthy?

2. Drafting JJ McCarthy

• He chose to roll with JJ McCarthy, who was a much cheaper option and had emotional ties to considering he drafted him

What is hockey’s long term injury exception?

Allows teams to put someone who has a long-term injury on this list and is allowed to exceed the salary cap by signing someone else to fill the spot for the time being. 

What is the rookie wage scale?

Construct that keeps rookie salaries down

Benefits: Prevents hold outs, salary cap flexibility, risk aversion, stops rookies from getting obscenely large contracts

What is the franchise and transition tags in the NFL CBA?

Franchise tag: 1 year deal at average amount of top 5 position for that position 

Transition tag: Allows other teams to bid on the player but the current team has the right of first refusal and matching said offers

What is dead money?

Unamortized signing bonus acceleration that occurs when a player is released or traded before his contract is fully paid out

What is the point of a salary cap?

• Salary cap makes the league more competitive, allowing small market teams to compete and win Super Bowls (Green Bay, KC, etc.)

• It is also a form of cost containment

What are some similarities and differences between the Vegas Golden Knights’ and LAFC’s expansions?

Similarities: 

• Unbelievable branding

• Well-supported financially

• Sports operations got it right from the start

Differences: 

VGK:

• First pro team in the market

• Already had an existing venue to play in

• How tragedy impacted their community relevance

LAFC:

• Joined a crowded sports market (with another MLS team)

• Had to build a stadium from scratch

• Celebrity ownership helped the branding

What were Jen Millett’s 3 differences between the launch of Denver Summit vs Bay Area FC?

1. Denver Summit began their push for purpose-built venue and practice facility BEFORE actual launch of the franchise

2. Bay FC had access to private equity money (Sixth Street)

3. Fan response/demand has been 10x in Denver what it was in the Bay Area

What must a franchise build internally on the business side of the house once they are approved for expansion?

• CMO: marketing through social media, partnerships, ticket pricing

• Food and beverage - retail

• Media deals (local TV, local radio, streaming) 

• Gameday operations and presentation

• Finance department

• Community relations

• Legal department

What must a franchise do to prove to the league that they are worthy of being a member of that league?

• A good venue

• Local support - fans and corporate

• Strong ownership group

What are some factors of St. Louis City’s successful expansion to the MLS?

• Built the stadium in a great location

• Local ownership group with ties to the city

• Partnership with a female-owned, local firm, Purina

• Brought in local restaurants as vendors to better connect to the community