Sports Taking the Lead in the Mergers and Acquisitions Industry
General M&A Market Trends
The global mergers and acquisitions (“M&A”) market has been considerably slower than usual this year, particularly as compared to the deal flow seen in both 2021 and initial quarters of 2022. With economic uncertainty due to factors such as rising interest rates, high inflation, and geopolitical conflict, there has been a cool down in M&A activity across many industries. The global deal volume in the first quarter of 2023 was $559 billion, the third-lowest in the last 10 years. Deals valued over $10 billion have also drastically decreased, contributing only $102 billion in deal value compared to $272 billion last year. Low deal flow continued in the second quarter of 2023, falling 36% year-on-year.
However, there are positive signs that the M&A market will trend upwards, attributable to factors such as surprisingly resilient economic strength in some sectors and opportunities for market consolidation. Mid-market deals are expected to lead the way as these are often less affected by market uncertainty. Despite the slowdown in the M&A market, there have also been some sectors that have continued to show significant activity, with one industry, in particular, performing very strongly: the sports industry.
The Sports Industry
Amidst the general M&A market slowdown, the sports industry has continued to see significant deal volume. From the beginning of 2023, it has been hard to miss headlines about top sports teams selling for large valuations. 2023 has already shown an inordinate amount of activity in the sports world, with sport team valuations the highest they have ever been in the NFL, NBA, MLB, NHL and more. Some recent noteworthy transactions include:
- A consortium led by the Michael Andlauer Group purchasing 90% of the Ottawa Senators for a reported $950 million.
- Harris Group purchasing the Washington Commanders for a record $6.05 billion.
- The ongoing multi-billion dollar sales talks of Manchester United, with reported third-round bids sitting in the region of £5 billion.
- The merger between LIV Golf and the PGA Tour.
- Mat Ishbia purchasing 57% of the Phoenix Suns and Phoenix Mercury, valuing the two teams at $4 billion.
While these valuations stand out amidst the current economic landscape, M&A activity in the sports industry is understandable as this industry has consistently shown resilience. While many other industries have pulled back during the economic downturn, the sports industry continues to pull in record numbers for viewership both at home and in person. With such high viewership and support, business owners and celebrities alike have been looking to jump in.
Hurdles to Closing
While a large number of deals have made the headlines, some of these have hit considerable roadblocks toward closing. Like most industries, M&A transactions within the sports industry involve numerous legal considerations before a deal closes, ranging from matters involving tax and real estate, all the way to antitrust and First Nations considerations.
Examples of some of this year’s sports M&A deals that have been accompanied by pre- and post-closing legal hurdles include:
- The Washington Commanders sale being delayed as the result of questions regarding the financing structure of the purchase, with the high amount of unsecured debt to finance the down payment being reported as a major stumbling block. The sale was subsequently approved as a result of a special session between Harris Group and the NFL Finance Committee.
- The PGA-LIV merger facing antitrust competition law concerns, pending board approval, and more. With both parties to the merger previously accusing each other of anticompetitive behavior, there are now concerns that the merger may create a total monopoly within the professional golf industry, thus raising competition law consequences. It is expected that LIV may attempt a ‘failing company’ defense if met with legal resistance, although commentators suggest that defense is unlikely to be successful due to the large investments into the organization by the Saudi Public Investment Fund.
- The Manchester United being presumably delayed due to sale structure and valuation considerations. Following five months and three rounds of bidding, the sale process remains ongoing.
- Ottawa Senators new ownership group undertaking negotiations with the National Capital Commission and other stakeholders in connection with a potential new arena.
How McCarthy Tétrault Can Help
Sports M&A deals – like all M&A – involve the need to consider a whole range of legal, business and statekholder considerations. McCarthy Tétrault has extensive experience in M&A, including sporting matters, such as previously advising Maple Leaf Sports & Entertainment with respect to receiving regulatory approvals for the return of the Toronto Raptors to Canada after COVID-19,representing BCE in its C$1.07 billion acquisition of interest in Maple Leaf Sports and Entertainment with Rogers, and acting for Bell Media/TSN on its landmark deal to integrate FanDual’s leading sportsbook application into TSN’s sports media properties. We are uniquely positioned to successful navigate novel and complex transactions for our clients.
Acting on some of Canada’s leading transactions, our M&A Group specializes in advising clients on the largest and most innovative domestic and international deals. With offices across Canada’s major commercial centres, New York and London, our firm has substantial presence and capabilities to help domestic and international businesses complete M&A transactions across Canada.
Our team at McCarthy Tétrault always remains committed to helping our clients navigate the challenges they face in a M&A transaction. Please contact Matthew Kelleher, or any other member of the M&A Practice Group at McCarthy Tétrault, with any questions or for assistance.