Sovereign wealth funds are just getting started in sports

As Andy and I discussed in our most recent video podcast, Saudi Arabia's Public Investment Fund (PIF) effectively controls the PGA and European golf tours. But what we didn't talk about is that the PIF isn't the only sovereign wealth fund investing in American sports.

Qatar's sovereign wealth fund, the Qatar Investment Authority (QIA), bought about a 5% stake in Monumental Sports & Entertainment. Monumental owns the Washington Wizards (NBA), Washington Mystics (WNBA), Washington Capitals (NHL) and a regional sports network. And it would like to buy the Washington Nationals (MLB).

The United Arab Emirates sovereign wealth fund, Mubadala Investment Company, is raising its profile in the U.S. via sports as well. Washington's Citi Open is merging with the Mubadala Silicon Valley Classic. The move will make the new Mubadala Citi Open an elite women's tour stop.

Sports leagues and teams are embracing sovereign fund money for one reason -- they need the cash.

Last month, Michael Jordan sold the Charlotte Hornets at a $3 billion valuation. But the list of billionaires that can buy a team for $3 billion and then operate it without missing the money is incredibly small -- maybe 50 people. There are 30 teams in the NBA. There are 32 teams in the NFL. And we still haven't talked about baseball or hockey. There aren't enough individual buyers for all of the sports teams and leagues.

Limiting team ownership to individuals puts a ceiling on how high valuations can rise. If nobody can afford to buy a team for $10 billion, then you can't sell a team for $10 billion.

That's why NBA league rules require the controlling owner of an NBA franchise to own at least 15% of the team. It's also why the NBA allows sovereign wealth funds to own 5% of an NBA team.

With these rules, the math changes. The minimum investment to buy the controlling share of a team valued at $3 billion -- like the Hornets -- is $450 million. That's much more affordable for the ultra rich. And it allows other investors to write some big checks to cover the full price.

The NBA and other sports leagues need a larger pool of people/companies that can write big checks. It's the only way team valuations can continue to rise.

NBA Commissioner Adam Silver said this week that sovereign wealth funds won't be able to buy NBA teams for the "foreseeable future."

"I don't want to say what could ever happen, but there's no contemplation right now," Silver added at the Associated Press Sports Editors convention.

So why are sovereign funds investing in sports?

First, they're playing the long game. They're assuming that in the near future, team or league valuations will reach a point where leagues will have to let sovereign wealth funds assume a controlling stake. It's already happened in golf. It's bound to happen in other sports.

The other big reason sovereign wealth funds are investing in American sports is it buys them access to critical decision makers. How many government officials and lobbyists are Qatar the QIA going to host at a Wizards or Capitals game?

Remember, when you work with a sovereign wealth fund, you are working with that fund's government.

For better or worse, the role of sovereign wealth funds is increasing in sports. The Saudi takeover of golf is just the latest -- and most visible -- example of that trend.