Penn State Law professor studies private equity in sports organizations

UNIVERSITY PARK, Pa. — Penn State Law professors engage with issues all over the world. Stephen Ross, Lewis H. Vovakis Distinguished Faculty Scholar and professor of law at Penn State Law in University Park, and co-director of the campus-wide Center for the Study of Sports in Society at Penn State, recently studied private equity investment in New Zealand non-profit sporting entities, and their social responsibility to promote the sport.

“I was on leave last term in Australia to research the trend of investment of private equity in global sports," said Ross. "Unlike the U.S., where sports leagues are all controlled by clubs owned by private owners, most of the world sports, and in particular national teams, are operated on a non-profit basis by governing boards. Recently, we have seen private equity investments, as with New Zealand rugby and Australian soccer."

Through literature review, careful case studies of historical incidents from books and journals, and off-the-record interviews with key participants with permission for quotation, Ross analyzed how sporting entities in New Zealand and Australia worked. Organizations like Cricket Australia, Australian Rugby League Commission, Australian Football League, Rugby Australia, and New Zealand Rugby, which develop professional national teams, are also in charge of the sport at the youth level. These organizations take measures to bring the sport to non-traditional communities and those who wouldn’t have the opportunity to experience the sport otherwise.

For some, the cost of “pay-to-play” is often a major barrier. However, according to Ross, with a grassroots approach the organization can help reach those groups and develop young athletes.

“Unlike American sports leagues, these organizations undertake to promote the sport at the grass-roots level," he said. "In so doing, they can promote greater health and social benefits of participating in sport.

"Outside of football and baseball, these opportunities are largely available in the U.S. only to youth from families who can afford pay-to-play private clubs,” said Ross.

The Australian and New Zealand Sports Lawyers Association (ANZSLA) invited Ross to present his findings at their 2022 annual meeting.

When Ross presented his research on private equity in New Zealand sports organizations, primarily in the New Zealand Rugby Union, at the ANZSLA annual conference, he pointed out the different avenues that a sports organization could take if they have private equity investments.

“Private equity typically creates a new governance structure where a unit controlled by market experts are in charge of enhancing the value of a sport’s commercial assets, allowing the traditional association to prudently spend the money on the promoting of the sport," said Ross.

Ross also found that while the idea of opening up a sports organization to the financial opportunities of private equity investing can be compelling to the organization, it doesn’t necessarily mean that the organization will use those funds to bring the sport to disenfranchised groups. In some cases, he added, it can result in excessive exploitation.

“Boards often fail to prudently manage assets, which require a careful balance of profit maximization and adherence to non-economic values,” he said.

Ross explained that when private equity is part of how a sports organization is set up, this route can be successful, given that there are guardrails initially in place. While a separate commercial company manages commercial assets, the sports organization’s non-profit board retains the power to decide where to allocate those funds with social responsibility at the forefront of their values.

Ross' research is ongoing and he plans to pursue writing a book discussing private equity investment.

"The book will highlight historical shortcomings where non-profit sports leaders put their own political philosophies over the chance to growth their sport, and the role of players associations in 'growing the pie,'" said Ross. "The book will also discuss the necessity for ‘guardrails’ and how these can be drafted effectively to preserve important cultural and other values, without allowing a rump group of leaders to limit the sport; and also how private equity can facilitate growth otherwise potentially hijacked by parochial interests with influence on a governing board.”