Can You Invest in NBA Teams? What Investors Should Know

While the prospect of direct ownership in a National Basketball Association (NBA) team might seem exclusive, various avenues exist for individuals to participate financially in the thriving NBA ecosystem. This article provides clarity on how capital flows within this prominent sports league.

Direct Ownership of an NBA Team

Acquiring a controlling interest in an NBA franchise is an endeavor typically reserved for ultra-high-net-worth individuals, family offices, or specialized investment groups. The process involves identifying a current owner willing to sell their stake, which is a rare occurrence given the prestige and financial appreciation associated with these assets. Teams are not frequently available for purchase, making the acquisition process highly competitive. The financial commitment required for direct ownership is substantial, often necessitating significant liquid assets to meet the league’s stringent financial requirements.

Recent team sales underscore the immense capital outlay involved in such acquisitions. For example, the Los Angeles Lakers recently had a transaction valuing the entire franchise at $10 billion, marking a significant benchmark in sports ownership. Similarly, the Boston Celtics were acquired for $6.1 billion, and the Phoenix Suns for $4 billion. These figures demonstrate that entry into NBA team ownership is a multi-billion-dollar proposition, making it largely inaccessible to the general public.

Indirect Investment in the NBA Ecosystem

While direct ownership remains exclusive, more accessible methods exist for individuals to invest in entities connected to the NBA. One such method involves investing in publicly traded companies that either own an NBA team or have significant business relationships with the league. For instance, Madison Square Garden Sports Corp. (MSGS) is a publicly traded entity that owns the New York Knicks, offering investors an indirect stake in the team’s financial performance. Another example is BCE Inc., a Canadian telecommunications company that holds a partial ownership interest in Maple Leaf Sports & Entertainment, which in turn owns the Toronto Raptors.

Beyond direct team ownership, investment opportunities extend to businesses benefiting from the broader NBA economy. This includes publicly traded sports media companies that hold broadcasting rights, such as those that air NBA games nationally. Apparel manufacturers with official league partnerships, like the exclusive apparel provider, also offer a way to participate in the league’s commercial success. Furthermore, major corporate sponsors across various industries, including technology, financial services, and consumer goods, often have publicly traded stock, allowing investors to benefit from their association with the NBA through advertising and marketing agreements. These indirect investments do not confer direct ownership or control of an NBA team but allow participation in the league’s economic sphere.

NBA Ownership Structure and Rules

The NBA maintains strict regulations governing team ownership to ensure the league’s financial stability and competitive balance. Any change in controlling ownership is subject to a rigorous vetting and approval process by the NBA Board of Governors, which comprises a representative from each team. This approval must be unanimous, reflecting the collective decision-making process within the league. The approval process for a team sale can extend over several months, as seen with recent transactions.

A key requirement is the presence of a single majority owner for each franchise. This individual must possess at least 15% of the team’s equity to be recognized as the principal owner or “governor.” The league also imposes limitations on the number of individual owners a team can have, typically no more than 25, with each stake being at least 0.5% of the team’s equity. Furthermore, the NBA places restrictions on the amount of debt owners can leverage to acquire a team. The debt limit for owners has been set at $325 million, though there has been a proposal to increase this to $475 million. These rules collectively aim to safeguard the financial health and integrity of the league.

Valuation and Acquisition Costs

The valuation of an NBA team is a complex process influenced by numerous financial and market-driven factors. Key determinants include the size of the metropolitan area where the team is located, as larger markets often generate more media coverage, sponsorship opportunities, and ticket sales. The nature of the team’s arena deal, including ownership of the venue, also plays a significant role in its overall value.

Lucrative media rights deals, both local and national, are substantial contributors to a team’s valuation, as are merchandise revenue and the team’s historical performance, particularly championship wins. The presence of star players and the team’s consistent on-court success can also positively impact its brand value and, consequently, its market worth. With the average NBA team valued at approximately $3.85 billion in 2023, these franchises represent some of the most expensive sports assets globally.