Investing in Canadian Sports Teams: Private Capital and the Investment Canada Act

Introduction

The economic landscape of North American professional sports ownership has shifted dramatically over the past decade. Team ownership was once exclusive to high-net-worth individuals and families, and teams were held as assets for prestige rather than profit.^[1] Today, team ownership is a growing investment opportunity – raising questions under the Investment Canada Act (“ICA”) for investments by private equity funds owned or controlled by non-Canadian investors.

Since 2020, average team valuations in the “Big Four” North American leagues – the National Hockey League (the “NHL”), the National Football League (the “NFL”), the National Basketball Association (the “NBA”) and Major League Baseball (the “MLB”) – have increased dramatically, outpacing traditional market indices and proving to be a lucrative investment opportunity. This growth is due, in part, to perceived opportunities connected to soaring media rights deals, sports betting, the growth of women’s sports and international expansion.

The increasing value of professional sports also expands to other North American leagues, such as Major League Soccer, and professional women’s sports, such as the Professional Women’s Hockey League and the Women’s National Basketball Association.

The focus of this article is on the “Big Four” leagues. Since 2020, average team valuations have increased as follows:

• MLB teams: average growth of 38%
• NFL teams: average growth of 105%
• NBA teams: average growth of 152%
• NHL teams: average growth of 241%^[2]

By way of illustration, in 2025, the Buss family agreed to sell its majority stake in the NBA’s Los Angeles Lakers to Mark Walter, giving the team a $10-billion valuation; in 1979, they purchased the team for $67.5 million.^[3]

This exponential growth in team valuations has naturally led to interest from private equity (“PE”). North American sports leagues have traditionally restricted PE investment in individual teams. However, since 2019, the “Big Four” leagues have relaxed their bylaws to permit varying levels of private capital investment.^[4] Among the “Big Four” leagues, 20 NBA teams, 18 MLB teams, 10 NHL teams and 10 NFL teams now have a PE connection.^[5] This shift has allowed PE funds and, more controversially, sovereign wealth funds (“SWFs”) to purchase minority stakes in teams. These investments bring benefits to teams through capital inflows that can support improved marketing strategies and infrastructure development.^[6] However, these investments, particularly those made by SWFs, raise concerns about the source of the funds – or “sportswashing” (discussed further below).

Regulatory Shift Toward Allowing Private Capital Investment

Each of the “Big Four” leagues has created a structured framework for permissible PE investment. The current landscape is as follows:

• Since 2019, the MLB has allowed private funds to own an aggregate interest of up to 30% of a team. A single fund must own a minimum of 2.5% of a team and up to a maximum of 15% of a team. The minimum hold period of such investment is five years. A sale or transfer of a non-control interest in an MLB team requires the MLB Commissioner’s approval.^[7]
• Since 2020, the NBA has allowed private funds to own an aggregate interest of up to 30% of a team. A single fund must own a minimum of 0.5% of a team and up to a maximum of 20% of a team. The minimum hold period of such investment is five years. The NBA has allowed SWFs to invest in teams but will adopt specific “passive” investment rules in each situation to limit the SWF’s influence. The NBA Commissioner, as well as three-fourths of the NBA Board of Governors, must consent to a transfer in ownership of an NBA team.^[8]
• Since 2021, the NHL has allowed private funds to own an aggregate interest of up to 30% of a team. A single fund must invest a minimum of US$20 million in a team and is permitted to own up to a maximum of 20% of a team. The minimum hold period of such investment is five years. Team ownership cannot be sold or transferred except with the consent of three-fourths of the members of the league.^[9]
• Since 2024, the NFL has allowed private funds to own an aggregate interest of up to 10% of a team.^[10] A single fund must own a minimum of 3% of a team and up to a maximum of 10% of a team. The minimum hold period of such investment is six years. Notably, SWFs are not permitted to invest in NFL teams, but they are permitted to own up to 7.5% of an entity that owns up to 10% of an NFL club.^[11] The NFL Commissioner, as well as three-fourths or 20 of the members of the league (whichever is greater), must consent to a transfer in ownership of an NFL team.^[12]

Most private capital investments to date have been in U.S.-based teams. However, the seven Canadian NHL teams, the NBA’s Toronto Raptors and the MLB’s Toronto Blue Jays represent an additional opportunity for this new injection of capital in North American sports. In addition to meeting league requirements, an investor looking to purchase a stake in a Canadian team would be subject to compliance with the ICA.

Triggering the Investment Canada Act

Any foreign investor, including PE funds and SWFs, looking to buy a stake in a Canadian team must navigate the ICA. The ICA creates separate review processes to ensure that acquisitions of control of existing Canadian businesses are of “net benefit” to Canada and that any foreign investment in a Canadian entity is not injurious to Canada’s national security.

Net Benefit Review Under the ICA

Under the “net benefit” review process, non-Canadians seeking to acquire control of an existing Canadian business must file either a notification of the investment or an application for review of the investment. An application for review of the investment is triggered if the monetary value of the investment exceeds specified thresholds. Whether an investment is considered to be to the “net benefit of Canada” involves a number of considerations, which may include, but are not limited to, impacts on economic activity, Canadian participation, productivity, technological development and competition. The review thresholds are lower where the investor is a foreign state-owned enterprise (“SOE”); moreover, other factors may be considered where the investor is a SOE, including, but not limited to, the investor’s governance structure, the extent of state control and commercial operability.

However, the gating question of whether a non-Canadian is seeking to acquire control of an existing Canadian business requires an assessment of whether the business is Canadian and whether control thereof is being acquired.

(a) Is a Sports Team a ‘Canadian Business’?

The threshold question asks whether a Canadian sports team qualifies as a “Canadian Business.” Under the ICA, a Canadian Business is defined as having a place of business in Canada, individuals who are employed in Canada in relation to the business and assets in Canada used in carrying on the business.^[13] A professional sports franchise meets these criteria.

(b) ‘Control’ of the Business

Section 28(1) of the ICA determines control based on the acquisition of voting shares or interests. The acquisition of one-third or more of the voting shares of a Canadian corporation is presumed to be an acquisition of control, unless the investor can establish that the corporation is not controlled in fact by the acquirer. Conversely, the acquisition of less than one-third of such voting shares is deemed not to constitute an acquisition of control.^[14]

Based on NHL, MLB and NBA bylaws, a standard minority investment would mathematically fall below the one-third threshold for control. However, investors could still be subject to review under the national security provisions of the ICA.

(c) National Security Review Under the ICA

Part IV.1 of the ICA casts a much wider net over investments in the context of national security. This is where the distinction between a foreign PE fund and a SWF becomes critical. Section 25.1 of the ICA applies to an investment by a non-Canadian to acquire a Canadian entity “in whole or in part.”^[15] The phrase has been widely interpreted to capture minority investments, regardless of whether control is acquired. Part IV.1 of the ICA would be implicated as long as the entity in question carries on any part of its operations in Canada, based on the same criteria as listed above for defining a Canadian business.

Under the “national security” review process, any investments by a non-Canadian in a Canadian business may be reviewed if the Minister of Innovation, Science and Industry has reasonable grounds to believe that such investment could be “injurious to national security.” This applies to any amount of investment and affords the federal government a large amount of discretion in undertaking a national security review. National security reviews may be triggered by investments that do not meet the “control” of the business threshold under Section 28. As such, an investment in a Canadian sports team that could be deemed injurious to national security, even if it is below the relevant control thresholds, would be subject to review.

The Canadian government views investments by SOEs with greater scrutiny. While the term “injurious to national security” is not defined by the ICA, the Guidelines on the National Security Review of Investments (the “Guidelines”) assist in this determination as it relates to SOEs. This reflects a geopolitical concern that SOEs may not operate solely on commercial principles but could serve as a medium for foreign state influence.

The Guidelines outline a number of specific criteria that may assist in determining whether an investment is injurious to national security, including:

1. Access to Personal Data: The review will consider whether the investment would enable access to sensitive personal data that could be leveraged to harm Canadian national security.
2. Commercial Orientation: The review determines if the investment is commercially motivated or politically motivated.
3. Influence: The review will consider if investment gives the foreign state influence over the Canadian business in any other way that could be detrimental to national security.

The above considerations are relevant to sports-related investments by SOEs. Additionally, a further concern raised by critics of SWFs is “sportswashing” (i.e., the practice of SWFs to use international sports investments to boost their international reputations while distracting from domestic human rights issues, or the idea that SWFs are using team ownership as a medium for foreign interference). The Canadian government may view ownership of cultural assets as a medium for foreign influence, particularly if the SWF attempts to become involved with media surrounding the local team.

The Path Forward

In July 2023, the Qatar Investment Authority became the first SWF to own equity in a “Big Four” North American sports franchise through its acquisition of an approximate 5% stake in Monumental Sports & Entertainment, which owns and operates the NBA’s Washington Wizards and NHL’s Washington Capitals. At the time the investment was made, the NBA’s Board of Governors also decided to allow “passive, non-controlling, minority investments in NBA teams by institutional investors, including university endowments, foreign and domestic pension funds and sovereign wealth funds, subject to a set of policy guidelines adopted at that time.”^[16]

A key element of the NBA’s decision to allow the Qatar Investment Authority to invest in Monumental Sports & Entertainment was its agreement to take a passive investment in the teams. The NBA investment necessarily depended on the Qatar Investment Authority taking no involvement in the team’s operations or decision-making. From this perspective, the investment was purely financial, and the potential harms that might arise from being affiliated with a SWF investor could be mitigated. The NBA’s insistence on “passive” investment bolsters the legal defence for SWFs in Canada. By agreeing to have no governance rights, a SWF can strengthen its argument that its investment is purely financial.

Further investments by SWFs in North American sports teams can be expected in the future, as has continued to be the case outside of North America in leagues such as the Premier League, Serie A and Ligue 1. However, despite the financial benefits, SWF investments could raise concerns amongst fans. Local teams are often essential to the city’s culture and the involvement of SWFs may create a perception of distance between team ownership and the communities, especially if a financial objective appears to outweigh community commitments. SWF investment in Canadian teams could deter fans and isolate teams from their local markets.

Despite the potential drawbacks, the door to private capital in Canadian professional sports is open and presents an opportunity for investors to access a unique and valuable asset. As PE funds and SWFs invest further in North American sports teams, Canadian teams may become attractive. In choosing to so invest, they would be subject to additional scrutiny under the ICA.

The Sports, Media & Entertainment Group at Aird & Berlis LLP advises clients on private capital investment, regulatory compliance under the Investment Canada Act, team ownership transactions and related matters in professional sports. Please contact the authors or any member of the group if you have questions or require assistance.