Investment firm Momentous Sports is launching a fund targeted at sports teams and related real estate this year amid growing interest in the asset class.
Led by Marley Hughes and Kyle Israel, the $100 million fund will look for opportunities in the sports sector and surrounding real estate assets. The initiative is already a lead investor in Sporting Jax, the Florida-based soccer club that this year launched a women’s soccer team and intends to start a new men’s team to compete in the MLS. The development will include a new stadium, surrounding real estate, and public sports fields.
Seed investors include football legend John Elway, NFL alumni Tim Tebow and Blake Bortles, Chick-fil-A CEO Andrew Cathy, and John Shain, a co-founder of FS Investments.
The firm claims to have several other sports-related deals in the pipeline, including teams and real estate deals in some of the biggest sporting cities in the U.S., as well as further afield in Europe.
Momentous Sports is a breakout from Magnolia Hill Partners, an Orlando-based family office that focuses on real estate and is led by Hughes and Shain.
Bobby Henebry, who manages Elway’s family office, said that the collaboration is a way to engage and funnel opportunities in the space and gain exposure to sports as an asset class. This emerging asset class is interesting because of the peripheral add-ons beyond just owning a team, he said, specifically those teams looking to develop or expand.
“One of the reasons we like teams that include real estate is because it becomes its own distinct asset class; if you own a stadium, you could also own multifamily, commercial, retail, and/or mixed use around the stadium. It is a great opportunity,” he said. “The team is important, but there’s a huge real estate play with all sorts of other return potential in it. So, we’d rather invest in something like a mid-market team that’s looking for a new stadium, or a bigger team that is preparing for a World Series or the Super Bowl, or some other catalyst that could require real estate development.”
These real estate opportunities can also include things like parking or restaurants that can provide cash-flowing business opportunities, as well as help develop local communities. However, Henebry warned that the opportunities need to justify the cost.
“You can’t overlook the numbers and the inherent risks when you’re developing real estate or building a new franchise in a new market. If you’re buying an established team at a valuation that you may think is rich, you have to kind of walk around that and look at the risks and tradeoffs in each investment you’re making, despite the cool factor or the prestige,” he said.
He stressed that all sports teams are different. For some teams or sports, investing may involve working at a loss in the short term and writing regular checks to fund a project; for others, the potential for growth might be significant.
“We have some individual positions that we find interesting that are growing, and although you never know (and there are no guarantees), if we can have a diversified portfolio of positions in these teams with trusted partners that help us participate in a diversified way in the sports as an asset class, then we can hopefully do bigger things, maybe more programmatically, with partners over time,” he said.
Henebry’s views contrast with the common perception that investing in sports teams is more about the prestige and satisfaction that comes with owning a stake in a historic franchise. Case in point: The principal of a single family office told II that the firm had taken a position in a Major League Baseball team purely because of his own personal connections with the team.
But sports investing is also big business: The recent sale of NBA team the Boston Celtics, for example, raked in a cool $6.1 billion for the selling Grousbeck family, from an asset they bought for $360 million just over 23 years ago.
In the U.S. there are also some potential tax breaks that come with team ownership. Owners can deduct certain intangible assets such as brand, revenue, and sponsorships as business expenses over the course of 15 years. This has allowed owners to write off assets that have traditionally declined over time. As helpful as this potentially is, it is only applicable to owners with an active participation in the team, putting some potential owners off of minority investments.
The CIO at a different family office told me he had passed on the Celtics deal because of this very reason, saying that because they would not have time to attend every game and be involved in on-field decision making, they would not be able to access the tax break. “The GP gets all the tax benefits, and the LPs get nothing, which to me, is completely worthless,” they said.
