CVC’s SportsCo IPO: a new path for sports rights or an exit from an impasse?

In this week’s Member Insights, Ian Whittaker, Twice City AM Analyst of the Year explores the CVC’s SportsCo IPO.

Private equity’s love affair with sports rights continues to evolve. The latest (potential) evolutionary step comes from the news that CVC Capital Partners is actively exploring a refinancing strategy for its global sports portfolio. The strategy would see a new entity created that would hold CVC’s portfolio stakes including in Six Nations Rugby, Premiership Rugby, La Liga, Ligue 1, WTA, Volleyball World, and the IPL’s Gujarat Titans amongst others.

It is a neat idea and one that has gained attention. The plans apparently involve raising asset-backed debt, with a potential sale of a minority stake or an IPO by 2028. The question is whether it presages a new model for sports rights or is more about solving a dilemma for CVC.

If you are positive about the long-term future for sports rights, then it is easy to see CVC’s step as marking a new bold step. Unlike other listed sports entities such as Formula One, CVC’s proposed vehicle would act almost like a mini-Private Equity fund but one which is sports focused, with risks (theoretically) reduced via the diversification of rights. By sitting beneath the CVC listed entity, the new SportsCo should be able to take advantage of relatively attractive terms on any debt raised. The new vehicle could look to purchase other major rights globally, further diversifying the risks and expanding the scope of its operations.

Moreover the new entity would presumably develop centralised functions in areas such as CRM, data science and technology focused both on revenue and fan engagement maximisation. A single entity that expands best practices across its rights holdings, both at the middle / back office and in revenue generating opportunities would be an attractive proposition both to sports rights holders and investors.

Finally, it is also clear that investors like sports. To some degree, this is down to investors’ personal views. Having worked in the financial markets for 20 years, the idea that investors do not get seduced by the undoubted glamour of sports is a fallacy, especially if it is a sport for which they have a passion. However, the undoubted success of Formula One – whose shares have nearly tripled in under five years – as well as the potential cashflow offered by lucrative television deals is also attractive.

However, there are several clear issues with the new entity and I would argue these outweigh the positives. I mention the three main ones below but there are others as well.

The first is that CVC only has minority stakes in the assets it owns and, in several cases (for example, with La Liga in Spain), there are restrictions on what the receipts can be used for. Investors like control – it reduces potential squabbling and / or nasty surprises. And with the leagues still maintaining operational control, the potential for disputes is high.

The second is that several of the holdings – particularly Premiership Rugby in England and the LFP in France – have well-publicised issues which have led to serious questions being raised about their future sustainability. I would argue Premiership Rugby is a particularly important one because it is likely to have a relatively high following amongst UK investors, which may impact their perceptions if the problems are not resolved.

The third is that there are significant questions over whether the existing monetisation model, especially when it comes to the European football leagues, is sustainable over the longer-term, both because the traditional purchasers of such rights (Pay-TV operators) are under financial pressures and also due to adjacent concerns such as the rise of piracy. The impact from such pressures may become apparent over the next several years.

So why is CVC heading down this route? I would argue it is more to do with CVC’s financial priorities and the need both to show a return on its sports rights investments and to tidy up its holdings of sports rights. CVC bought the rights from 2018-2023, a time when there was more optimism in general about the future valuation of sports rights. Investors in CVC funds will want to see a return and rolling the assets into one combined entity with a potential part sale in several years arguably kicks the problem down the road. That is not to sure that the plan does not have merit – it does – but it is probably worthwhile looking more at the financial reasons for the proposed structure.

As usual, this is not investment advice.