Five innovations in private debt: Sports lending in a league of its own

One area of alternative lending attracting growing investor interest is the opportunity presented by professional sports. Ares Management last year raised $3.7 billion of dedicated capital to invest across the capital structure in sports leagues, sports teams and sports-related franchises, as well as media and entertainment companies. It has already lent to teams including Atlético de Madrid, the San Diego Padres, McLaren Racing and Inter Miami CF.

Mark Affolter, partner and co-head of Ares’ US direct lending and sports, media and entertainment strategies, says: “We very much believe that the demand for content, and the uniqueness of some of the content in sports, is sustainable and set to drive valuations in the sector. We have already seen sports franchises grow their valuations, especially in European football, and those growth dynamics have been uncorrelated to the broader economy and haven’t experienced the level of volatility seen elsewhere.”

There are also substantial sums involved. In March, the NFL issued $1.27 billion of 2023 term notes under a league-wide credit facility, and the NBA sold $271 million of new debt in June.

George Pyne, founder and chief executive officer of Bruin Capital, pointed out the attractiveness of sports lending in a recent article: “For lenders, the stability of recurring revenue flows, multi-generational fanatical loyalty among consumers, and the upside of thriving adjacent markets like sports betting, are an enticing mix that insulates professional sports from many of the macroeconomic stressors that impact other areas of the economy.”

In March, UK-based firms Fasanara Capital and Tifosy Capital & Advisory teamed up to launch a credit fund focused on sports receivables, targeting professional football teams in Europe. Francesco Filia, founder and CEO of Fasanara, says: “We have helped more than 10 teams across Europe and there is huge demand for our services because we live in credit-starved times and clubs are in need of finance. The double-digit yields available are appealing to investors and the probability of defaults is quite low. Plus, there is an emotional element that LPs enjoy feeling close to the teams.”

Elite game

There are few lenders active in the space thanks to high barriers to entry that require investors to be plugged into the space. Ares has established an advisory board that includes high-profile former players, athletes and executives.

Affolter says: “We think the addressable market opportunity – including for media and entertainment – is quite significant. There are great underlying fundamentals, but it is a more specialist industry vertical when it comes to capital provision.”

Ares can offer flexible capital across senior debt, junior debt, preferred equity and minority equity. “This requires a differentiated insight from the LP base to provide more patient capital and more flexibility,” says Affolter. “The primary areas of focus for us continue to be the US sports leagues, while we expect to see more opportunities within global women’s sports, across European football and in other sports like cricket and rugby.”