The Business of Sports: Three Leagues, Three Models

The Business of Sports: Three Leagues, Three Models

With the NFL season kicking off last week, and in honor of two recent episodes (our interview with A-Rod and our Moneyball analysis), this seemed to be a great week to finally cover Sports Teams Investing 101.

It’s a timely topic given two record-breaking NBA sales earlier this year: the Boston Celtics sold in March 2025 for $6.1 billion, and the LA Lakers sold a majority stake for $10 billion. Add to that the 2024 ruling that private equity firms can now invest in NFL teams, and the question becomes: what exactly drives the valuation of an individual team?

While all three major leagues in the US, the NFL, NBA, and MLB, generate billions, they operate under very different economic models. The way they share revenue, structure salary caps, and reward owners varies dramatically. That’s why in some leagues (like the NFL) geography barely affects valuation, while in others (like MLB), location can make or break a franchise.

In this deep dive, we’ll walk through:

• How revenue sharing works in each league

• Why hard vs. soft salary caps matter

• What makes baseball both a local business and why many teams have quant departments that are larger than many hedge funds

• How private equity is reshaping sports investing

The NFL: The Gold Standard

If you buy into an NFL team, say the Patriots (given we are native Bostonians), roughly 80% of what you’re purchasing is tied to “NFL, Inc.” — meaning, at the league level. Until 2015, this entity was technically a nonprofit. It’s not anymore, but in practice the league negotiates on behalf of all the teams and signs for national TV contracts (there is currently a $100+ billion, 11-year national TV deal), national sponsorships, Madden royalties, Nike deals, playoff income etc. Those revenues are split evenly among the 32 teams. NFL Inc. is also currently in negotiations for a deal with ESPN. Regardless: each franchise earns around $400 million ($100bn / 11 / 32) before even playing a game.

The remaining ~20% of revenue comes from local sources related to the team itself. Think: tickets for home games, suites, and local sponsorships. But even if you didn’t sell a single home game seat, 80% of your cashflow is baked and profitable.

On the expense side, the NFL enforces a hard salary cap. For 2025, it’s about $280 million per team. No roster can exceed that combined payroll. This system is why the New York Giants and the Cincinnati Bengals are valued similarly, despite market size differences. It also explains why Tom Brady, despite being the GOAT, consistently took below-market contracts to give the Patriots flexibility to build balanced rosters. His willingness to play at a discount became a competitive edge. Guess we should all thank Gisele for helping to subsidize our NE Patriots during the years we reigned supreme…!

MLB: The Local Game

Baseball sits at the opposite extreme. Unlike the NFL where geography hardly matters, in MLB it’s everything. If the Yankees are worth roughly $8 billion, the Kansas City Royals, a team in a smaller, tertiary market, are valued closer to $1–1.5 billion. The reason? Roughly 80% of MLB revenue is local: tickets, suites, naming rights, parking, merchandise, and especially regional sports network (RSN) TV deals. National broadcasting contributes only about $1.7 billion annually split among all teams, compared with nearly $10 billion in the NFL.

On the expense side, MLB operates without a hard salary cap. It relies instead on a “soft luxury tax” — sometimes dubbed the “Steve Cohen tax,” after the Mets’ hedge fund billionaire owner. In 2024, Cohen signed Juan Soto to a record-breaking $765 million, 15-year contract. Wealthy franchises like the Yankees and Red Sox can spend far beyond smaller-market teams, and only a handful of MLB’s 30 clubs consistently turn profits.

What also makes baseball unique is the central role of statistics. MLB has a 162-game season, compared to just 17 games in the NFL or 82 in the NBA. Baseball is both an individual sport — where each at-bat or pitch can be isolated — and a team sport, where those individual efforts combine into collective outcomes. This dynamic makes data an especially powerful tool for evaluating players. Michael Lewis’s Moneyball captured this story through Billy Beane, the Oakland A’s manager who, in the early 2000s, defied conventional wisdom by using advanced statistics to win more games despite a budget roughly 1/3rd the size of the Yankees’. Yet today, as those strategies have become commonplace, financial disparities remain as stark as ever.

NBA: The Middle Ground

The NBA lands somewhere between the NFL and MLB. About 60% of its revenues come from national media contracts (a $77 billion deal currently), while 40% are local.

On expenses, the NBA uses a soft salary cap. Teams can exceed the recommended cap but face escalating penalties. The system works in tiers:

• Luxury Tax Line: The first threshold, set for the 2025-2026 season at $187mm. Go over, and you pay penalties.
  

• First Apron: Introduced in the 2023 collective bargaining agreement, this threshold which for the 2025-2026 season is around $195mm and brings added restrictions on trades and roster flexibility.
  

• Second Apron: The true deterrent. Go beyond it, and penalties explode. Penalties aren’t like 10% here, 20% there; it’s 420% or 4.2x. So for example, the second apron starts at $207mm. If you add an additional player and pay him enough so the all in salaries are say $217mm, you went $10mm over the second apron which means you’d be hit with a 4.2x penalty times that $10mm, so you’d be hit with $42mm in fines. 

Sure you can go over, but it’s a huge disincentive not to. This structure discourages overspending while still giving deep-pocketed owners the option to push limits. It’s also why the Celtics deal was so interesting because despite the lofty valuation, the Celtics don’t own the arena they play in.

Sports as an Asset Class

Until recently, sports ownership was the domain of billionaires. The lone exception — the Green Bay Packers — sold novelty stock with no real rights. That’s changed…kind of:

• NBA & MLB now allow private equity firms to own up to 30% of a franchise.

• The NFL approved PE ownership in 2024, but capped it at 10% per team.

Why it matters:

• Franchise values have exploded, from ~$250 million for the Sixers in the early 2010s to $8–10 billion for top teams today.

• Private equity unlocks liquidity for owners who couldn’t otherwise sell partial stakes.

Sports franchises are a compelling alternative investment, not because of traditional cash flows, but because unlike many other businesses, the value of sports teams is largely uncorrelated with public markets. In fact, during periods of broad economic downturns such as 2008–2009 and even COVID-19, team valuations continued to rise. 

That resilience underscores their rarity: while the number of billionaires keeps climbing, the number of available franchises remains relatively fixed.

Over the last decade, valuations have soared. Teams that sold for $250–350 million only 10-15 years ago now routinely fetch prices between $5-10 billion. 

The problem? As valuations climb, the universe of buyers even for minority stakes and liquidity for team owners narrows. A $500 million check that once bought an entire team now would buy a mere 10%. 

That’s where private equity comes in. With billions in capital to deploy, PE firms can provide liquidity to existing owners and capture the upside of an asset class that has compounded at 15–17% annually.

Leagues have begun opening the door to this capital,  with the NBA and MLB allowing PE stakes of up to 30%, and the NFL recently approving up to 10% in 2024. However, these investments come with strict rules: private equity cannot have general partner control and can only use limited leverage. 

Bottom Line

The health of each league dictates the health of player salaries, franchise values, and investor appetite. NFL owners enjoy structural advantages that make every team lucrative. NBA franchises balance strong national contracts with global growth potential. MLB, meanwhile, remains a local-driven, high-risk, high-reward play.