As sport transforms into a dynamic and lucrative asset class, the environmental crisis is accelerating. Savvy sports investors are increasingly factoring in growing climate risks, recognizing their potential to disrupt operations and erode returns.
The global appeal of sport, lucrative media rights, and the potential for substantial returns is attracting private equity firms, sovereign wealth funds, institutional investors, celebrities and athletes. No longer just “trophy assets,” men’s and women’s sports now present viable investment opportunities.
Even with economic headwinds, investors are bullish on sports. Mark Cuban, Rashaun Williams, and Steve Cannon have launched a sports-focused private equity fund, looking to raise $750 million to target minority investments in NBA, MLB, and NFL teams. Rory McIlroy has teamed up with TPG to launch a sports investment fund, and Standard Chartered have launched a fund focused on sports for high net worth clients. These are just announcements from the past several weeks.
Climate Risks For Sports Investment
Financial prospects are enticing, but the escalating climate crisis creates risk for sport investments. By 2050, corporate exposure to climate risks is expected to triple, putting more than $1.14 trillion in market value at risk for companies on the world’s largest stock exchanges.
This includes sports organizations, which are particularly vulnerable due to their reliance on physical infrastructure and scheduled events. Investors in sport need to “consider how exposed their investment portfolios are to physical climate risks,” confirms Daniel Keir, climate resilience specialist at Zurich Resilience Solutions. Hazards differ according to geography, but include flooding, wildfires, extreme heat, storm surges, and other severe weather events. NFL stadiums could face an estimated $11 billion in climate-related losses by 2050.
As well as physical threats to infrastructure, such as extreme weather causing roofs to come off stadiums, or golf courses disappearing due to coastal erosion, sports face additional financial risks stemming from the climate crisis. Organisers may face rising insurance premiums and revenue disruption from ticketing, sponsorship or broadcast if events are cancelled or altered. If values aren’t aligned, revenue can be missed from potential sponsors with a strong sustainability ethos, and conversely, partnering with unethical or polluting organisations can cause reputational risks.
It’s worth noting that direct climate impacts on a stadium can have broader investment ramifications too. “Stadiums often act as economic anchors and catalysts for broader urban development,” Austin Clack, Climate X’s physical risk solutions lead for North America told me. “Climate risks that endanger these assets can reduce investor confidence and stall development plans in the surrounding area, leading to stranded project investment and overall lowered investment inflow into communities.”
Investor Perspectives on ESG and Climate Risk For Sport
Despite growing awareness and risk, these considerations are not yet central to all investment decisions in the sports sector. “If the internal rate of return doesn’t stack up, ESG won’t save the deal and if the IRR is strong but there are climate risks, the investment can still go ahead,” Michael Broughton, founder of Sports Investment Partners LLP told me.
Climate risks may currently only filter as a priority for investors when they create the potential for a tangible impact on forecasted cash flow, but they are a consideration. The United Nations-supported Principles for Responsible Investment encourage investors to always incorporate ESG issues into investment analysis and decision-making processes.
Climate risks are likely to be a larger consideration for investment in smaller sports clubs, where a more direct line can be drawn between issues such as flooding and core revenue drivers such as match-day viability and income.
It’s not only financial risk, which naturally sits at the heart of investments, that needs to be considered. Reputational risk carries greater weight in sports due to heightened media attention and public scrutiny. This includes “changing consumer preferences regarding transparency and ethical behaviour,” says Philip Cronje, business unit manager of Aon South Africa’s sports, recreation and entertainment division.
Beyond mitigating risk, climate action presents a commercial upside for investors. There is a lot of opportunity for fan and sponsor engagement on this topic. Broughton believes “the fan comes first,” and that a better understanding of fans leads to better business outcomes. With sports fans increasingly engaging on climate issues, climate-positive initiatives can enhance the appeal of a sports organisation seeking investment. Sustainability is a strong selling point as part of a pitch. It enhances the story even if it’s not the core proposition.
Overlook Climate Risk For Sports Investment At Your Peril
The integration of climate risk and ESG considerations into sports investments is evolving rapidly. As the financial implications of climate change become increasingly apparent, investors are likely to place greater emphasis on sustainability, and look more intently at risk. Although climate risk or sustainability may not yet be deal breakers in many sports investments, investors should consistently engage on these issues when considering any opportunity in the sector.
Aligning investment strategies with this engagement will not just safeguard and future-proof assets, but also unlock upsides through fan trust and sponsorship appeal. In the melting pot of an evolving sports investment landscape and accelerating climate crisis, prioritizing climate risk and sustainability isn’t just a tick-box exercise. It is a strategic imperative that is fundamental for success. Austin Clack sums it up well, saying “investors should recognize that climate risk is not a distant concern but an imminent financial reality that must be factored into investment strategies immediately.”
