In July, he became America’s first sports owner invest in the Middle East. As team values skyrocket and given the increasing costs of running a franchise, Leonsis expects others to follow suit.
“You’ll see,” he said in a recent interview. “I believe that other teams and other leagues will all adopt pension funds, college endowments, university endowments and sovereign wealth funds as investors, as part of their capital base. investment.”
As head of Monumental Sports & Entertainment, Leonsis, 66, owns seven professional teams, including the NBA’s Wizards, the WNBA’s Mystics and the NHL’s Capitals. The huge amount of money suddenly available from oil-rich countries in the Persian Gulf, such as Saudi Arabia, Qatar and the United Arab Emirates, coincides, he said, with a period when many teams are increasing their value and seek how to make the underlying economy work. .
The owners regularly took on limited partners as minority stakeholders, saw their team’s value rise sharply, but then struggled to find the money to satisfy investors who wanted to cash out.
“We all feel good when Forbes comes out and says, ‘This is how much you’re worth and how much the teams are worth.’ But when the rubber hits the road and you say, “Well, the company is worth X; write us a check” – most of us who are in sports are not profitable; we’re not extremely profitable,” Leonsis said. “So that was a real problem.”
In 2020, two sports-focused private equity firms were allowed by U.S. leagues – the NFL being the only exception – to begin making minor investments in teams with certain restrictions: no more than five deals per league, no more than 20%. participation in a team, and companies could only be passive investors.
Arctos Sports Partners and Dyal Capital Partners quickly built funds and acquired minority stakes in more than a dozen U.S. franchises, including the Los Angeles Dodgers, Boston Red Sox and Golden State Warriors.
“For the owners, it was really great,” Leonsis said. “When you have a sponsor as an individual, he feels like an owner – he wants to get into the owner’s box, he wants to know what the team’s budget is, who’s going to be our new coach? But the funds, they weren’t administratively authorized to do any of that. They are investors.
Although they provided an instant influx of cash to a handful of franchises, Leonsis said, the funds were too small to help every team that might be interested. As a partner in his own investment firm, he knew there was still a lot of money left untapped. “It’s not like the faucet turned on because of these funds,” he said.
Leonsis was working with Middle Eastern interests before many American team owners. Monumental Sports partnered with UAE-based Etihad Airways in 2015, and a year later Capitals great Peter Bondra traveled to Abu Dhabi to help coach at a hockey school.
In 2021, Leonsis presented to the NBA’s financial/advisory committee at the annual owners’ meeting, highlighting how closed off the league had become: for example, the 10 largest sovereign wealth funds in the world control over 8 $500 billion in assets. . Norway’s is the largest in the world with $1.47 trillion in assets – and some sovereign wealth funds are controlled by states, including Alaska, Hawaii and West Virginia.
Sovereign wealth funds might be better investors for teams, Leonsis said, than private equity or some other limited partners.
“(A sponsor) expects to get their money back and come back within five to seven years. A sovereign wealth fund invests directly – it has no time horizon,” he said. “They want to invest and keep this money for a very long period of time. »
In 2022, NBA team owners unanimously approved changing the league’s rules, capping investments at 20% and ensuring the funds could only be passive partners. This summer, Leonsis became the first NBA or NHL owner to take advantage of these rules, selling a 5% stake in Monumental Sports to the Qatar Investment Authority for about $200 million. For Leonsis, it is the ideal commercial relationship and he affirms that the Qatari fund will have no influence on the Monumental teams.
“I don’t consider QIA a partner. I view them as investors,” he said. “And I’m aligned with their investment philosophy, which is: ‘We believe in you, Ted, and in the direction of Monumental as managers, where you are fiduciary to all your partners to do the right things in the right way.’ And we are not involved.
“I went to have breakfast with them. I can’t even tell them, ‘Oh, here’s what…’ They’re not interested,” he added. “They are not involved at all. In fact, it’s designed so that they, as investors, are several clicks away from the league and team operations. They therefore have no influence.
NBA Commissioner Adam Silver said he doesn’t expect a sovereign wealth fund to become majority owner of any franchise in his league “in the foreseeable future.”
“I don’t want to say what might happen one day, but nothing is being considered at the moment,” Silver said at a gathering of U.S. sportswriters in July. “It is very important for us, apart from sovereign wealth funds, that individuals are able to control our teams, to be responsible to the fans, to their partners and to the players.
The Hamas attack in Israel on October 7 and the subsequent war in Gaza focused attention on the agreement. In the past, Qatar has shown support for Hamas and allows the organization’s leaders to live and have an office in Doha. Rep. Jack Bergman (R-Mich.) wrote letters to NBA and NHL commissioners last month, saying it was “not only wrong but dangerous” to allow Qatar to invest in NBA teams. DC, asking leagues to preserve all documents. and communications related to the deal “for possible congressional investigation.”
“There is no doubt that the Qataris intend to exploit their 5% stake in the Washington Wizards to enhance their already considerable influence in our nation’s capital,” Bergman wrote in his October 27 letter to the NBA.
Monica Dixon, a Monumental executive, responded in an Oct. 30 letter, saying “we absolutely share your horror at the recent atrocities perpetrated by Hamas against Israel,” but also noting that QIA’s “minority investment is passive and that QIA has no governance rights.” and no ability to lead, control or influence our teams or our business.
Leonsis, in a September interview, said Qatar would have no visible presence at Capitals, Wizards or Mystics games and fans would see no evidence of the investment. He said he was not concerned about the backlash, pointing out that Qatar had a range of relationships beyond sports – including a Georgetown campus in Doha, a major investment in the CityCenterDC mixed-use development in downtown Washington and vast real estate holdings from New York to London.
“When I heard, ‘Oh, you’re doing sportwashing,’ I said, ‘Well, that’s going to be pretty hard to do when we’re not talking about QIA and QIA can’t talk about its investment in our teams.’ ” he said.
Leonsis called the Qatar Investment Authority a “small, sophisticated, long-term investor” and predicted it was the first of many that would permeate the U.S. sports ecosystem. The pool of billionaires who can afford rising franchise prices is shrinking — one reason the NFL is considering changes to its ownership rules, which could include allowing investment in capital groups- investment, pension funds or sovereign wealth funds. Leonsis noted that Josh Harris had to recruit 20 sponsors to buy the Washington Commanders. for a record amount of $6.05 billion in July.
“Josh is one of the greatest investors, the richest man on the planet and a great guy – and he couldn’t afford to write the check to buy the Commanders,” he said. “That’s in a nutshell why it’s a really good thing for the leagues: you want other pools of money to be released to help you buy teams, to help you do things.”