The business of sports investing is getting its own index, with one of the firms behind private equity’s incursion into the industry looking to bring a more scientific approach to the burgeoning asset class.

Dallas, Texas-based Arctos Partners LP, which runs about $7 billion in funds with stakes in teams including the Los Angeles Dodgers and the Golden State Warriors, on Tuesday unveiled a new financial benchmark for North American sports franchises.

The Ross-Arctos Sports Franchise Index is based on the sales of team stakes across Major League Baseball, the National Basketball Association, the National Football League and the National Hockey League. Compiled in partnership with the University of Michigan’s Ross School of Business, it samples more than 400 transactions since 1960.

The index delivered an annualized return of 12% over the past two decades. That compares with 10% for the S&P 500 and nearly 15% for private equity. But more importantly, Arctos says it shows sports investing has been less sensitive to the swings of bonds and stocks.

“We’re pitching this new end-market for institutional investors,” said Zach Baran, a director at Arctos, who said he hopes participants in the sector will use it to assess performance. “That’s the power of finally having a rigorous underlying mark.”

North American sports have seen a flurry of deals in recent years as PE firms like Arctos and Blue Owl Capital snap up minority stakes. That’s set to grow if the NFL joins other leagues in allowing PE investments.

Arctos, co-founded in 2019 by the PE veteran Ian Charles and former Madison Square Garden President Doc O’Connor, is hoping its index can bring a bit more scientific rigor to an asset more commonly seen as a vanity investment or family business.

That’s a challenge because, as with many PE investments, valuations are only updated in infrequent transactions, making the asset class appear more stable than it probably really is.

After big selloffs like the dot-com crash and 2008 financial crisis, the sports index posted a smaller drawdown compared to listed stocks. But even in the period since 2020, one of its busiest periods, the benchmark has recorded an average of only about 17 transactions annually.

As a result, Arctos and its academic partners at the Ross School — whose namesake Stephen Ross, a sports investor, brokered the collaboration — have to rely on some statistical guesswork to generate the quarterly index.

Yet Baran argues the top sports leagues are inherently more stable than traditional financial markets, thanks to contractually guaranteed media revenue and the collective bargaining agreements that set player salaries. The public’s love for sports also appears to be sticky.

With a three-year lag, the new index’s beta (statistical jargon measuring how much it moves along with the broader US stock market) adds up to only about 0.5. For PE as a whole, that’s usually estimated at above 1, Baran says.

“You have clarity in terms of the value to your largest customer, which are fans,” said Daniel Sillman, CEO at Ross’s Relevent Sports Group, who also worked on the index. “You have controlled costs and then you have scarcity. So if you believe that people in 10 years are going to be wealthier than they are today, then you believe that sports values are going to continue to increase.” 

This article was provided by Bloomberg News.