Asset Allocation with Premium Sports Assets

Abstract

This paper examines the role of North American professional sports franchises—specifically those in the MLB, NBA, NFL, and NHL—as a potential fit for a strategic allocation for long-horizon, institutional investors. Using the Ross-Arctos Sports Franchise Index (RASFI) as our benchmark, we analyze historical return and risk characteristics of these assets and find that they have delivered strong average annual returns with relatively low observed volatility, resulting in favorable Sharpe ratios, which we attribute to structural features of premium sports (e.g., league design, visible economic model for owners, etc.). Through a series of asset allocation exercises, we show that even under conservative assumptions about future performance and with high investor risk aversion, sports assets improve portfolio efficiency and merit non-trivial allocations. While practical constraints such as limited market size and access may limit implementation to allocations below our model recommendations, the analysis supports the conclusion that premium sports are candidates for inclusion in strategic asset alllocations. Finally, we address other aspects of the sports investing universe, including which most resemble the assets captured by RASFI and which investment goals are most appropriate for each.