The NBA Shoots It Shot At A New Investment Fund

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investment fund
Oklahoma City Thunder guard Sebastian Telfair on the court against the Denver Nuggets in the fourth quarter of the Nuggets’ 114-101 victory in an NBA exhibition basketball game in Denver on Wednesday, Oct. 8, 2014. (AP Photo/David Zalubowski)
  • The NBA is considering an investment fund to buy minority ownership interests across multiple NBA teams
  •  Michael Jordan is the only Black majority owner in the NBA

NBA team valuations have been skyrocketing and even some wealthy people are being priced out of owning a franchise in the league. They have very few foreign owners, let alone diverse owners. Now, the NBA is considering the creation of an investment fund to buy minority ownership interests across multiple NBA teams. Since high team valuations make it hard for current owners to tap out of the game, and for new ones to come in, this move could attract diverse ownership along with stabilizing team market values. 

Why This Matters: An investment fund made of small equity stakes in a team portfolio spreads out the court for potential new owners to take their shot. The average NBA team is valued at $1.9 billion, that’s up 13 percent from just a year ago. In the case of the investment fund, instead of forking over $2 billion for a team, an investor might pony up $100 million for a 5 percent interest. Teams benefit from shared revenue agreements for media coverage, licensing, and sponsorships. When most of the players are Black, the league should consider attracting high-profile entertainers and business owners to reflect the racial makeup of its organization.

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An investment fund made of small equity stakes in a team portfolio spreads out the court for potential new owners to take their shot

The NBA’s limited partners (LP), have struggled to find interested parties, due to the position’s lack of power. LP stakes are often discounted 10-to-25 percent because most don’t include a board seat or any say in team governance, according to Bloomberg.

Is the league actually interested in taking on more diverse ownership? Perhaps they are, as the Brooklyn Nets were recently acquired by Joe Tsai, the co-founder of Alibaba (BABA +1.14%) for a record-breaking $2.35 billion. The team had the worst attendance in the league, but sold at the highest price tag to date. With Tsai, the league could show its open to minority owners, given that more than 75 percent of the players are Black but the majority of owners are white. Michael Jordan is the only Black majority owner in the NBA.

Situational Awareness: The NBA has yet to outline the terms of this type of fund or even get approval from the current owners. The key decision makers all got together last week in New York to discuss the upcoming season and decide if they’re willing to let a few more folks have a seat at their table.

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