MLB Owners Raise Private Equity Cap to 20%

When the question reached Sam Porter onstage at Front Office Sports’s Asset Class event earlier this month, he answered it. He had been asked why the New York Yankees needed $2.6 billion from Apollo. Porter, Apollo’s chief strategy officer, framed the money as a set of options.

“They thought there could be a need for growth capital, refinancing existing debt, and just doing an overall holistic capital solution to give them various levers to pull financially to help grow the club,” he said.

Apollo Sports Capital had closed the investment the month before. Porter did not spell out a spending plan. He described freedom of use.

“What they do with it, they have a lot of latitude and leeway to use that to help grow the club and grow the business, and obviously standard refinancing of existing debt is part of that,” Porter said.

The $2.6 billion deal was already closed. Behind it sat a quieter fact. Major League Baseball’s owners had already changed how much of a club private equity could hold, and they had done it without telling the public.

Maury Brown tweeted the change Tuesday night. Owners had voted this summer to raise the private-equity ownership limit on clubs from 15 percent to 20 percent. The league had never announced the revision. Brown’s post made the quiet vote public for the first time. Front Office Sports reporters Ben Horney and Daniel Roberts sourced the unannounced change to a source familiar with the matter: the owners had acted over the summer, the higher limit had taken effect without fanfare, and only the Tuesday-night tweet had brought it into the open.

The vote was made for alignment. The NBA, the NHL, and MLS each already set a 20 percent maximum on private-equity ownership of a franchise. MLB had kept a flat 15 percent ceiling. The summer vote erased that difference. Twenty percent was now the shared figure.

The revised rule still left open how that ceiling would sit next to the minimum stake a controlling owner was required to hold. The controlling owner still had to hold at least 15 percent. Private equity could not exceed that stake. A controlling owner at 19 percent would stop any private-equity position at 19 percent as well. Only a controlling share at or above the new maximum left room for a full 20 percent.

MLB placed no limit on the number of clubs one private-equity firm could back, provided each stake stayed at or under the ceiling. The NBA had raised its own per-firm limit from five teams to eight. The NFL, which had opened the door only a year earlier, capped private equity at 10 percent and approved just four firms. About 10 MLB teams already carried direct private-equity investment. Nearly 20 had broader institutional connections. The San Diego Padres had sold to the cofounder of Clearlake Capital in a deal that broke the league’s sale-price record. In July the Athletics reached a deal with Harbinger Sports Partners.

Dave Checketts said rising valuations would force leagues to “open up” limitations on private-equity ownership. The higher ceiling now left space the old flat 15 percent rule had closed, and Apollo’s closed position in the Yankees sat inside it.

Last month Apollo Sports Capital finalized a 16 percent stake. Apollo pays $800 million now for 8 percent of Yankee Global Enterprises and buys another 8 percent over four years for another $800 million. Apollo will also loan the Yankees $1 billion. The first payment delivers 8 percent immediately. The second 8 percent transfers across four years. The loan is not equity; it is capital lent to the club.

Yankee Global Enterprises holds stakes in Legends Hospitality, the YES Network, New York City FC, and AC Milan. The New York Post reported that the Steinbrenner family retains “a bit more than 60% of the team.” The Post gave the deal its reason: “the impetus of the Yankees' deal with Apollo was more prosaic; a group of limited partners wanted to cash out of their investments for estate planning purposes, and Apollo was looking for an anchor investment for its newly created sports fund.”

The New York Post reported a valuation of more than $12 billion for the Yankees, the highest ever for an MLB franchise. Mike Ozanian put the figure higher still.

“They’re going to get well, well above $12 billion,” Ozanian said.

Jon Paul Hoornstra, writing in Newsweek, treated the size of the private-equity stake as the transaction’s lasting mark beyond the record valuation. The larger position set a precedent. Other private equity firms could now take bigger holdings in MLB clubs than the old rules had allowed. The prior ceiling had stopped every private-equity stake at 15 percent of a franchise. Apollo Sports Capital closed at 16 percent—one point above the former limit and four points below the revised one.