NEW YORK – The two-year marriage between J.P. Morgan Partners and Sports Capital Partners is nearing its official end, and it looks like Morgan will be left with the short end of the stick.
Early last month, the California Public Employees’ Retirement System (CalPERS) announced that it had committed to invest $122 million into Sports Capital Partners, an agreement which includes the acquisition of the partnership position J.P. Morgan Partners had bought in 1998 when it was still known as Chase Capital Partners. What the official statement did not reveal, however, was that Morgan was so desperate to exit the investment that it consented to take an approximate 25% loss on the deal.
The investment bank had originally paid out $100 million for its partnership interest, of which between $38 million and $42 million had already been drawn down. While CalPERS paid face value for the $58 million to $62 million of undrawn Chase funds, it only shelled out a severely-discounted $13 million for the remainder.
“Valuations are down, and the only way for this deal to happen was for it to happen at a big discount,” said a source familiar with the situation.
As for why Morgan wanted out of the sports and leisure-targeted private equity firm in the first place, a company spokeswoman would only say that the investment no longer played to the bank’s core strengths. However, what other sources claim is more likely is that Morgan was disappointed with the fund’s slow investment pace – just seven deals to date – and a focus on sports content companies like Sports.com and SportsYa.com that have seen their private valuations sink alongside their public dotcom peers.
What is important to note, is that Morgan was not a silent limited partner subject to the investment whims of Sports Capital executives. Instead, the bank had a trio of professionals on the Sports Capital investment committee, and occasionally took advantage of its given right to opt-out of any deal it deemed undesirable.
Moreover, the slow investment pace is said by some sources to have been, in fact, caused by Morgan itself as last year’s merger distractions slowed down its investment decision-making processes.
None of the J.P. Morgan investment professionals involved with Sports Capital agreed to be interviewed for this article.
“This [deal] will really help give Sports Capital a fresh start,” said David Mazza, managing partner with Grove Street Advisors, which worked with CalPERS on the transaction. Mazza added that he expects to take a seat on Sports Capital’s advisory board, alongside fellow Grove Street Partner Clint Harris and a representative from CalPERS.
David Moross, managing partner with Sports Capital, echoed those sentiments when he noted that the firm has expanded from its sports-centric investment focus, and is now looking to also participate in offerings from mainstream media outlets like television channels and publishing companies. He also mentioned that the split from Morgan was amicable and that Sports Capital had concluded a major investment right before the secondaries sale agreement, but declined to identify the company.
The deal with CalPERS will bring Sports Capital Partners’ total capitalization up to $214 million, although it is still awaiting various shareholder approvals. The vehicle was originally funded with $170 million and was called IMG/Chase Sports Capital. IMG is a global sports management company that is maintaining its affiliation with the private equity group.
In related news, Sports Capital portfolio company Tickets.com Inc. last month received a $15 million PIPE infusion, although Sports Capital did not participate. Existing investors General Atlantic Partners and International Capital Partners provided the additional capital.