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For some of my cold-blooded business school classmates, their nascent scepticism about private equity comes from perhaps an unlikely source: the Wall Street takeover of the sports their kids play.
To support their children in their athletic endeavours, they have faced new and escalating costs for everything from fancy uniforms to being pushed towards video recordings of games, the latter costing parents hundreds of dollars when they could just use their own iPhones. Parents tell stories of being charged to watch games, to have their child try out for teams or pay for parking at matches.
And it is not just pursuits that have traditionally been for the well-heeled that have been targeted — the monetisation trend is now spreading across sports and so are the concerns.
Chris Murphy, Senator for Connecticut, wrote an essay early this year complaining about his teenaged son’s hockey league, describing the private equity firm behind it as attempting “to make a grotesque amount of money”, adding “kids’ sports is a cut-throat business, a way to make a handful of people very rich”. Murphy and several other members of Congress have since introduced legislation to “kick private equity out of kids’ sports and stop the rip-offs”.
One former business school classmate told me the backlash was about Gen X “nostalgia” for our childhoods when soccer or baseball was organised largely by municipal parks departments, YMCAs or mom-and-pop local enterprises.
Those days are over, like it or not. Something like 30mn American children now play some form of organised sport and the arrival of big money has added to a broader debate about American capitalism, social equity and even the innocence of childhood.
Youth sports is now a big enough marketplace that the consulting firm LEK recently published a detailed industry map for potential investors, citing an overall sector size of $40bn with parents spending on average $1,000 a child by 2024. Their analysis shows that operators are not just running teams, leagues and tournaments but that big adjacent opportunities exist in facilities, software and analytics. Put another way, players and parents have access to a product with more features, even if it is a more expensive one.
Some families that can afford it increasingly justify the spending as an investment to help their children position themselves for college athletic scholarships and lucrative endorsement deals that college players have become eligible for in recent years. But for others, the costs will put sport out of reach.
I asked several private equity firms involved in youth sports including Harris Blitzer Sports Enterprises, Juggernaut Capital and TZP Group if they would explain what value they were adding; all declined except for one, Brand Velocity Group. BVG recently acquired RCX Sports, which operates leagues for flag football and other youth sports, from another private equity firm, Raine.
Austin Ramos, an investor at BVG and former college athlete, told me that at this point, the genie was out of the bottle in terms of private equity involvement. He said that youth sports enjoyed “inelastic demand” as parents typically prioritise their kids. “This is America . . . a lot of families want to buy a $400 baseball bat,” he said.
Ramos added private equity investment can also bring benefits. “I want my kids to learn life lessons; the only way to get that is if there is infrastructure that delivers a quality season every year,” he said, adding that he enjoyed being able to stream his children’s games on his phone when he travels, a service provided only by more sophisticated league operators. At the same time, he said expensive equipment or fees must not become a barrier to participation, adding that RCX emphasises “access and affordability”.
But like many aspects of American life — travel, dining, housing, education — private enterprise is going to slice and dice market segments to extract every dollar of consumer spending that it can. Exploitative practices by private equity alleged in hospitals, nursing homes and even prison telephone systems and school bus operators have attracted criticism and media scrutiny.
With private equity now involved across youth sports, parents who are also well-off business school graduates may be getting a direct insight into why some of the industry’s methods have drawn so much ire. Maybe that could help prod change.
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