- Dyal HomeCourt bought a stake in NBA championship contender the Phoenix Suns.
- The private investor plans to build a "diversified portfolio" of stakes in NBA teams.
- Dyal execs dropped hints on the NBA teams they're looking at next.
- See more stories on Insider's business page.
Private investors have launched a full-court press to invest in the National Basketball Association. This time, on the team many pundits think will win this year's NBA championship.
Dyal HomeCourt Partners, a division of the $53 billion asset manager Blue Owl dedicated to backing NBA teams, on Tuesday bought a stake worth less than 5% in the Phoenix Suns, which valued the franchise at $1.55 billion.
The investment comes as NBA teams' valuations soar on the back of lucrative media deals, sports betting opportunities, and reliable cash sources from long-term sponsorships to stadium naming rights. While billionaires have been the typical cash cow, NBA franchises are now turning to deeper-pocketed institutional money to fuel ball clubs.
"The league saw values getting to levels where mere mortals were not likely to be the only investors," Michael Rees, co-president of Blue Owl told Insider, adding that valuations were "beginning to outstrip capacity for any one individual who wanted to write a check."
Some 250-odd minority owners within the NBA have typically sought buyers through their own sales processes. But finding sufficient cash has become difficult as teams have jumped up to five, or in some cases 10 times the valuation of their original investments.
The New York Knicks and San Francisco-based Golden State Warriors are the most valuable teams in the league at $5 billion and $4.7 billion, respectively, according to Forbes. And across the league, average team values are up 4%, with a cluster worth between roughly $1.4 billion and $2.2 billion.
HomeCourt's deal with the Suns is first in a strategy of building a portfolio of minority stakes across 10-12 different NBA teams, said Rees. And the second could occur imminently.
"It's a team that has not made a playoff appearance in a number of years, but we believe is trending in the right direction on the court, and we're supportive of what they're doing on the non-basketball operations," he said of the second prospective investment.
The NBA first allowed private-equity firms to purchase minority stakes of up to 20% in individual teams early last year. Arctos Sports Partners and Sixth Street have invested in the Warriors and San Antonio Spurs, respectively, since.
But Dyal's the only institutional investor pre-approved by the league to make these investments.
A slow burn to a full-court press
The NBA had been mulling over private equity investments in its teams for some time, according to Rees. The league treaded carefully to ensure it protected the competitive balance between teams.
While it took years for the NBA to get comfortable, Dyal came through in part, thanks to its rolodex of private investor contacts in the league.
Platinum Equity founder and Detroit Pistons owner Tom Gores, the Atlanta Hawks and Ares Management chief executive Antony Ressler, and Philadelphia 76ers principal and Apollo co-founder Josh Harris are among some of the owners who know Dyal well.
In mid-2019, while scores of private equity firms were pitching the NBA for approval to invest, the league tapped Dyal for input because of its experience buying minority stakes in money management firms.
The league asked Dyal if it would be willing to partner as a buyer, and the firm began having conversations with nearly all the 30 team owners in the league.
NBA chief financial officer JB Lockhart, alongside Joe Maczko, senior vice president and general counsel for the NBA, and David Haber, the NBA's corporate finance and strategy expert, worked with Dyal chief operating officer Andrew Polland to broker an arrangement, according to Rees.
The Phoenix Suns declined to comment. A spokesperson for the NBA said it looks forward to Dyal making more investments in the future.
Dyal settled on the Suns in part because of how its owner, Robert Sarver, runs the business. The investment firm commenced talks with Sarver about six-to-eight months ago. While at least 10 investors sold parts of their stakes in the franchise to Dyal, Sarver held all of his equity, Bloomberg reported.
"[Robert] thinks about everything. The fan experience, what the seats look like, the VIP experience for the Lower Bowl, he thinks about trends in states' legalization of gambling, and sponsorship very thoughtfully," Rees said.
By investing in the Suns' parent company, Dyal will also own part of the WNBA's Phoenix Mercury and the Suns arena in Downtown Phoenix.
Dyal managing director Andrew Laurino told Insider that for smaller franchises, national and local media deals can account for nearly half a team's revenue, while long-term contracts like product sponsorships and stadium suites make up a significant portion.
While this inaugural investment is not related to on-court performance, it's an ideal time for both Dyal and Suns fans. The team leads the Milwaukee Bucks 2-0 in the NBA Finals.