Sports franchises may be safe from some of the worst effects of the economic turmoil, new investor research suggests.
President Donald Trump’s tariff policy incited investor panic and sent markets on a roller coaster this month.
But sports have proven relatively resilient to outside chaos during recent market downturns, Arctos Insights, the research and content arm of private-equity firm Arctos Partners, outlined in a note shared with Business Insider. The firm expects the industry to remain a relatively stable area for investment.
“Sports franchises have proven to be remarkably resilient assets during periods of economic instability,” Arctos Insights wrote in a research summary. “While trade wars and macro volatility will likely disrupt many sectors of the economy, North America’s professional sports franchises will likely emerge largely unscathed.”
Arctos Partners has invested in sports teams, including the Golden State Warriors, Tampa Bay Lightning, and Los Angeles Dodgers.
Arctos Insights wrote that loyal fans, revenue from long-term media deals, and fixed costs have helped sports franchises remain relatively stable.
There are still potential risks. The National Hockey League and the National Basketball Association have franchises based in Canada, which could pose exchange rate issues. The tariffs could also affect stadium construction as the cost of steel and other raw materials goes up.
Tariffs also slashed the value of sports stocks by $318 billion in a week, roughly 10% of the sector’s value, Sportico reported Wednesday. Companies like Under Armour and Nike, which produce apparel outside the US, were some of the hardest-hit sports companies.
But, some investors have continued flocking to sports teams and leagues in recent times of uncertainty.
“Over the past three market cycles—including the Tech Bubble, the Global Recession, and the COVID-19 shock—sports franchise valuations have not only held firm but in many cases appreciated,” Arctos Insights wrote.
Fixed costs, media rights revenue, and fan engagement help keep sports stable
One of the biggest reasons sports could be relatively insulated from the impact of the trade wars is that its supply chain — namely its players — is largely US-based, according to Arctos Insights. Player salaries, which typically represent about 45% to 50% of revenue, aren’t subject to tariffs and are fixed per their respective collective bargaining agreements.
“Beyond athlete compensation, franchise operations rely heavily on local human capital — executives, coaches, marketing teams, and stadium staff — whose wages are unaffected by trade policy,” said the note.
Media rights deals between leagues and broadcast companies, apparel deals, and stadium naming rights run for years at a time, with some lasting decades. The revenue these deals generate helps build up sports’ resilience to market instability because they may not need to be renegotiated for a while.
The NFL and NBA, for example, have media deals that run into the 2030s, though some sports organizations like the Ultimate Fighting Championship are looking to renew their media contracts this year.
Additionally, sports teams can lean on fans during hard times. While the rising cost of consumer goods could hit consumer’s wallets and make them wary of spending on tickets to a game, history suggests the impact won’t be alarming. Arctos Insights found that the Big Four sports leagues — NFL, NBA, NHL, and MLB — experienced “marginal declines in attendance” during the 2008 financial crisis.
Risks of a global trade war could affect money and stadium development
Still, there are risks for some corners of the industry, such as Canadian teams within US-based leagues. The NHL, for example, has several teams in Canada. Those teams tend to generate a lot of revenue in Canadian dollars but pay expenses like player salaries in US dollars. Arctos Insights said there could be potential issues with exchange rates tied to a global trade war.
Construction for new arenas and stadiums could also face challenges. According to Arctos Insights, roughly one-third of the cost of a new stadium goes toward raw materials. Though Arctos said recent US stadium projects, such as SoFi Stadium in Los Angeles and Allegiant Stadium in Las Vegas, relied largely on domestically sourced materials. Still, projects in the planning phases could face supply-chain issues depending on the tariff situation.
Stadium development and upgrades have been big draws for some PE firms investing in sports franchises. While stadiums and arenas are largely used by the professional teams that call them home, these investors see an opportunity to expand events like concerts as alternative ways to grow revenue.
