The democratization of investment in sports franchises and leagues has been driven by a confluence of factors, namely the National Football League (NFL) permitting private equity investment; the rise of the Major League Soccer (MLS); the impact of Caitlin Clark’s basketball stardom on women’s sports; and, of course, the consistent and steady increase in franchise valuations. Now, more than ever, investing in sports has become a reality for a broader subset of investors.

Frequently, the allure of the deal overwhelms any formal process-oriented approach to assessing the investment’s merits. However, it remains important to establish a standardized process for all private and alternative investments, even if it’s a favorite team since birth.

This three-part series covers strategic considerations for evaluating potential investments in sports franchises, including:

1. Understanding the key revenue drivers, operating model, and legal/regulatory considerations.
2. Building a diligence framework.
3. Exit scenarios and liquidity considerations

Part I. Understanding the Key Revenue Drivers and Operating Model

As with any investment, the investor must first assess their primary goals. While returns are paramount, most investors have traditionally viewed sports investments as something that would mature in value over multiple generations. As investments in sports teams have become more transferable, allowing for shorter holding periods, that view has shifted.

In assessing the investment, core elements of analysis will include a broad understanding of i) league-wide media rights, ii) team-specific media rights, iii) league and team operating model, iv) team control of monetizable assets, and v) league and franchise governance and rules.

League-Wide Media Rights

In general, leagues vary as to whether media rights are owned and governed by the league or by individual franchises. Understanding each league’s specific media rights structure is critical to evaluating franchise economics.

The NFL, for example, operates under a fully pooled national media rights model, where all broadcast, cable, and streaming rights are negotiated centrally by the league, and revenue is distributed equally among all 32 franchises regardless of market size or team performance. This creates exceptional revenue stability and parity. The National Basketball Association (NBA) similarly pools most national media rights (e.g., ESPN, TNT, ABC), but allows teams to retain local broadcasting rights, creating meaningful revenue differentiation between large-market franchises (e.g., Lakers, Knicks) and small-market teams (e.g., Bucks, Pacers).

Major League Baseball (MLB) takes the most decentralized approach, with teams controlling local media rights entirely while participating in a small pool of national rights. This structure has historically created vast disparities in team revenues, with large-market clubs such as the Yankees and Dodgers generating substantially more media income than smaller-market franchises such as the Pirates or Royals.

Investors should evaluate when the current media deal expires and whether market trends suggest that media rights values will increase upon renegotiation. Additionally, consideration should be given to whether macroeconomic trends support continued growth in media deal valuations and whether international media rights could become meaningful revenue drivers for the league.

Team-Specific Media Rights

As noted above, some leagues allow individual franchises to retain control of local media rights or to control media distribution through specific channels (i.e., radio, streaming, social media, etc.). This allows for differentiation across markets and leads to disparity in franchise valuations. While all teams may have the same national television media deal, a franchise may be able to improve its economics by leveraging other media rights. As noted above, the extent of franchise-level media control varies significantly, which can create the potential for team-owned regional sports networks or lucrative local broadcast partnerships.

Key considerations include whether the franchise controls any of its own media rights, whether the franchise operates in a media market that is experiencing growth, and whether individual stars within the franchise may assist in increasing media revenue.

League and Team Operating Model

For most leagues, the most significant expense will be player compensation. Leagues differ widely on the compensation models, with some sharing employment costs at the league level and others managing player salaries at the franchise level. In some upstart leagues, players are partial owners of franchises, such as Premier Lacrosse League and Big3 basketball league, while in others, there are long-standing player unions. Understanding the compensation structure and any key collective bargaining agreements is important to understanding team economics.

Team Control of Monetizable Assets

Having a good venue to play in is important, but more important to your valuation is ensuring team control of monetizable assets. Does the team own the stadium and practice facilities? If so, what key assets might be available for sale or rental to drive revenue? It is not uncommon for teams to play in stadiums outside of their ownership; regardless, does the team have the contractual right to most revenue streams? If league media rights are shared, the stadium is often the key asset in ensuring differentiation in franchise financial performance. There are other marketable assets, such as merchandising, but these generally tend to be a smaller portion of the revenue makeup for all teams.

League and Franchise Governance and Rules

Every league has different rules regarding governance. How difficult is it to move an asset for estate planning purposes? Does the league require investors to be Qualified Purchasers? What is the approval process and minimum investment required by the league? How much control over your franchise does the league possess?

Legal and Regulatory Considerations

Legal and regulatory issues are critical factors when evaluating a sports franchise investment.

Investment Structures

The first step is determining the method of investment, whether through direct ownership, joining a group of investors, or using an institutional structure such as a private fund or a special purpose vehicle (SPV). Each method carries different implications for governance, liability, and league approval. Many sports investment opportunities are now structured like true private equity investments with management fees, capital calls, and carried interest benefiting the manager. In this structure, investors can expect fewer prerequisites and some of the allure of being an “owner.” SPVs and co-investment models are becoming more common, particularly for smaller stakes or consortium deals. However, league acceptance of institutional capital varies, and some leagues impose specific limits or conditions. Many leagues require investors to be individuals or qualified purchasers, and they often retain broad authority to reject ownership changes that could negatively affect the league’s reputation or operations.

Ownership Transfer and Minority Protections

Ownership transfer rules also differ significantly by league. Some leagues restrict the sale or transfer of equity interests without league approval or impose minimum holding periods. Investors must understand whether their investment will include control rights or simply enable them to share in the economic returns. Minority investors frequently have limited influence over major decisions, though certain contractual protections may be available.

When acquiring a minority stake, investors should pay particular attention to the contractual protections available to them. Key negotiable rights include: (1) tag-along rights (allowing minority holders to participate proportionally in any sale by the majority owner), (2) right of first refusal (ROFR) provisions (giving existing owners the opportunity to match third-party offers before a sale can proceed), and (3) information rights (guaranteeing access to financial statements and operational metrics). Evaluating access to financial information, voting rights, and participation in management is an important part of diligence.

Legal Compliance and League-Specific Issues

Existing litigation or other legal issues involving the team or league can present material risks and should be thoroughly reviewed. Legal compliance obligations, including required filings, labor standards, and public funding agreements also warrant close attention. Government involvement may come into play where municipalities subsidize stadium construction or where teams operate in jurisdictions with heightened regulatory or political scrutiny.

Finally, the legal frameworks governing collective bargaining agreements, antitrust laws, and player unions are foundational to franchise economics. These structures determine rules around player salaries, free agency, revenue sharing, and salary caps. Each of these elements influences not just short-term profitability but also the investment’s long-term value and stability.

Now that you understand the revenue drivers and legal and regulatory landscape, it’s important to build a diligence framework to analyze them. We will look at the factors to include in that framework in the second article in this series.

Taft partner Rob McDonald co-authored this article with Zahki Davis, former Taft associate and now vice president of legal, Harbinger Sports Partners, with assistance from Taft attorneys Kiley Bizzle-Brown, Blake Hale, and Chase Morris.