U.S. stocks made a ton of money for investors in a decade-long bull market that lasted through the end of last year.

But those returns pale in comparison to the windfall from sports investing, particularly in the National Basketball Association.

The NBA has the highest price return compared to other leagues, as basketball’s globalization has expanded to other markets, including its more than $5 billion China operation and the newly launched $1 billion NBA Africa venture.

Between 2002 and 2021, the average price return for an NBA team was 1,057% compared to 458% returns on the S&P 500, according to estimates from PitchBook.

But other sports offered solid returns, too. PitchBook estimates Major League Baseball stakes offered a 669% price return from 2002 to 2021, and the National Hockey League returned 467%.

Now, private equity investors are rushing in for a piece of the action. PitchBook’s 2021 private equity breakdown estimated over $1 trillion in total deals last year, and roughly $2 billion of that was spent purchasing equity stakes in franchises.

Investors are attracted to “the overall professionalization of sports,” said Wylie Fernyhough, PitchBook’s private equity lead analyst.

“It was certainly the beginning,” Fernyhough said of deals in PE sports deals in 2021. “We’re going to see a lot more deals going forward.”

Sports leagues including the NBA and Major League Soccer started allowing private equity to invest early in the pandemic. But Major League Baseball was the first league to eye private equity money.

In a 2019 interview with CNBC, MLB commissioner Rob Manfred explained, “Franchise values have escalated, the capital structures in the clubs have become more complicated. The idea of having a fund that would essentially be a passive equity investor in a club or clubs is one that is helpful in terms of facilitating sale transactions in clubs.”

Firms including Arctos Sports, Dyal Capital Partners, RedBird Capital and Sixth Street established funds to buy minority shares in teams in 2021, attracted to the economic moat around sports leagues, including the increasing value of media rights and and global expansion.

This is where the NBA is most attractive. Tennis, motorsports, and golf are considered the most global sports, but basketball is creeping up with its growth outside the U.S.

In 2020, the NBA announced the Basketball Africa League, run by its NBA Africa entity. Friction remains from a 2019 dispute involving team executive Daryl Morey, but NBA China is still operating, and games are streaming on Tencent. The league is targeting India’s massive population of more than one billion, too.

In addition, the league’s WNBA operation lured a $75 million raise last week that reportedly values the league at $1 billion. The WNBA will use those funds to grow the women’s game.

Factoring in the established global footprint and “younger fans on average,” Fernyhough called buying minority stakes in NBA clubs a “gigantic” opportunity.

“I think there are a lot of reasons to be bullish on the NBA,” he added.

Chris Lencheski, chairman of private equity consulting company Phoenicia, agrees.

“The NBA has a clear, more straightforward, and well-defined path to a global consumer than just about every other major league that’s stick and ball related,” he said.

“And eventually,” Lencheski added, “within the next 20 years, you’ll have supersonic travel, which will allow an NBA team to travel within three hours anywhere in the world. So, it’s easy to see a Madrid versus the New York Knicks. And the NBA, by the nature of their product, is perfectly suited for that.”

NBA teams, including the Golden State Warriors, Sacramento Kings, and San Antonio Spurs, sold stakes to private equity firms in 2021.

Reports have Arctos taking a 13% stake in the Warriors, a franchise valued at $5.6 billion, according to Forbes. Using that valuation, Arctos’ shares in the Warriors are worth more than $700 million.

“NBA teams are trading at more expensive valuation because they are expecting to grow more over the next decade or so,” Fernyhough said. “You just have to make sure it’s done at the right price.”

PitchBook estimates Arctos raised roughly $3 billion to buy stakes in sports clubs, including NBA and NHL teams, as well as in the Fenway Sports Group, which owns the MLB Boston Red Sox and NHL Pittsburgh Penguins. 

Dyal, a division of Neuberger Berman Group, took a minority stake in the Atlanta Hawks. RedBird, run by former Goldman Sachs executive Gerry Cardinale, made a splash with its $750 million investment in Fenway Sports Group. In addition, Ares Management Corporation invested $150 million in MLS franchise Inter Miami CF.

Private firms make money on the funds by collecting management and incentive fees. Fernyhough estimates most of the stakes sold in NBA teams is for growth capital, allowing clubs to expand franchises, including upgrades to facilitates.  

The NBA doesn’t allow private equity to own more than 30% in teams, with a maximum of 20% ownership for one fund. Fernyhough said there are no “ownership accoutrements” with PE stakes. Instead, those perks – like courtside seats – are reserved for limited partners like Michael Dell, who buys direct.

MLS has similar rules to the NBA, with a minimum investment of $20 million. MLB doesn’t have a set limit but evaluates investments on a deal-by-deal basis.

There is a tax deduction known as “roster depreciation allowance,” allowing sports owners – even limited partners – to delay paying taxes on revenue earned from clubs. Former MLB commissioner Bud Selig mastered this tax loophole while owning a baseball team.

“We’ve seen these pro sports franchises go from something that was a trophy asset for rich guys to show off their wealth and be a part of an elite club to something that runs like a business,” Fernyhough said.

While private equity has invaded the NBA, MLB, and NHL, the National Football League remains on the sidelines. The NFL is contemplating adding the capital safety nets, but it could take a while to figure out its plans.

The NFL has more important concerns to address, including the Class Action complaint former Miami Dolphins coach Brian Flores filed last week. That lawsuit claims Dolphins owner Steven Ross offered Flores $100,000 to lose games – a violation of a federal law known as the “sports bribery act.”

The forthcoming Denver Broncos sale will be telling. According to industry sources, the NFL could allow a private equity firm to get in on that transaction and obtain minority shares.

Sports bankers estimate the Broncos sale could fetch $4 billion. That would be a record amount paid for a U.S. sports club, surpassing the $2.2 billion private equity tycoon David Tepper spent to buy the Carolina Panthers in 2018.

Fernyhough said the league would likely approve an established fund if private equity is allowed in the NFL deal. 

“The NFL is not likely going to let allow some new firm or group to come in and buy stakes of it,” he said.