In a different league
The US is leading the pack here…
Many major sporting leagues in the US have already opened up to private equity and other institutional capital, including the National Basketball Association, the National Hockey League, Major League Basketball and Major League Soccer. And, just last year the National Football League (NFL) passed a resolution to allow private equity investment into individual teams. “The train has left the station,” says Andrew Durgee, President of Republic. “The recent NFL decision was a huge shift in strategy. Professional investment is happening now and as soon as you have private equity or credit, all of a sudden you can start doing real price discovery and understand what the real value of an asset is. If you’re interested in sports or you’re involved in a club, you should spend your time educating yourself on this to some degree. You will see a lot of investment happening across sports in the next two years.”
…but big changes are also coming to European sports.
Football in particular is set for a shake-up as rules and regulations around cost capping mechanisms are put place to bring an element of financial discipline and control. “Football is the last major sport that doesn’t have universal cost capping in place,” says George Cadbury, sports adviser to family offices. “It encourages fiscal irresponsibility and so there’s a genuine desire to change that. Private equity is finally moving into football and more has been happening in European sport over the past five years than in the past 50 as clubs start being held to account.”
Charlie Methven, CEO of Charlton Athletic Club agrees. “Cost control and regulation are descending on our industry like a blanket,” he says, pointing to the UK’s Football Governance Bill that is currently going through parliament and is designed to put English football on a financially sustainable footing, together with the cost control rules introduced by the Union of European Football Associations. “This is a huge relief for operators like me because there is so much pressure from fans, the media, even your own football department to spend money you do not have on players. If we bring that to an end, it will make the whole ecosystem more valuable. Ultimately, we’re also going to see some redistribution of TV rights money from the Premier League to the rest of the professional English clubs, so that will force a fundamental re-valuation of English football assets.”
Investors are injecting discipline and governance into sports.
“One of the things I’ve seen as an operator and now a lender is that when you ask, say, a football club for a three-year forecast, most of them don’t have it,” says Massimo Marinelli, Operating Partner for Corrum Capital. “They might say they don’t know which league they are going to be in so they can’t forecast. That’s true, but some of these businesses have a lot of visibility – there aren’t many businesses that go into the beginning of the year with 80% of their revenues in their pocket and 100% of their cost base. There’s no reason why you can’t improve financial and operational controls here.”
“As someone who wants to be a responsible operator, I welcome the advent of professional investors,” adds Methven. “I want to have a sensible discussion with an investor about a two to four-year outlook. In the past, investors – who are almost always new to the industry - have all too often got caught up with the pressure to buy a new striker or whatever.”
Women’s sports are a fast-developing market for investment.
It may still be way behind men’s sports by value of annual investment, but women’s sport is now catching up. One of the advantages of this is that women’s sport can learn lessons from its male counterpart, while also innovating. “We’re still in the process of growing the fanbase in women’s sport,” says Nicki Boyd, Managing Partner of Sphera Partners. “Some of the myths about poor quality play and a lack of interest in watching are being debunked. Quality is improving exponentially with investment and the high profile of flagship competitions, such as the Euros in football. Live attendance and traditional and digital viewers are growing fast as products are becoming more available. Standout events – such as Arsenal’s focus on commercialising its women’s team and playing all its matches at the Emirates stadium - are now driving interest and demand.”
She adds: “We don’t yet have the same evidence base and data that exists in men’s sport and we still need to build out the full ecosystem. Investors at this point in the cycle do need to be bold. Men’s and women’s sport are at different maturity levels – one is like running an established corporation; the other is more like a startup or growth business, where it’s more about developing product and fan base than marketing existing oversubscribed assets.”
“There needs to be a lot of support around the technology piece,” adds Nicola Moffat, Co-Founder of Viveda Consulting. “There’s a lot of learning that women’s sport can do and AI is going to be important in cutting and translating content efficiently and scaling that across different markets. There is a lot of scope for innovation.”
Social media is helping new sports emerge...
“Social media is having a massive impact,” says Cadbury. “There are so many grassroots sports now that have been popularised by social media by encouraging participants and therefore investors across all parts of the sporting spectrum with renewed vigour after COVID. Who would have thought that pickleball would have been relevant five years ago? It’s now the fastest growing sport in the US. You will see more sports come through and more investors recognising their unique value.”
…and it’s changing the way fans view sports.
“You need to make sure you have the right spectacle to get people engaged,” says Marinelli. “That varies from sport to sport, but it is also different across generations. The established model of watching 90 minutes of football may not appeal to younger audiences, many of whom prefer to watch the highlights. My sense therefore is that the highlights need to be re-priced. They tend to be cheaply priced today, but it is likely they will need to cover for the decline in full match viewing.”
Liquidity mechanisms are developing.
“The advent of US international capital and the development of minority stake trading are going to make a big difference to liquidity profiles,” says Methven. “This will make the whole ecosystem better and more investable for everyone.” He points to US investor Brett Johnson’s acquisition of Ipswich Town Football Club in 2021. “He and his partners were backed by Arizona Public Safety Personnel Retirement System, but they were able to divest a minority stake at a strong valuation after a few years.”
Innovation is opening up sports to new investors.
Much like the broader private markets space is democratising, so sports are starting to attract retail investor bases. Tokenisation and blockchain are key here. “These technologies are unlocking an entire new asset class for all ranges of wealth,” says Durgee. “Fans can gain attachment not just from the emotional side of supporting a club, but now also the financial upside and success.”
“There are now endless possibilities for sports rights-holders to make these assets investable and unlock fanbase financing,” says Jonathan Ludwig, Co-Founder and CEO of Fantium. “Fans can participate financially as well as emotionally. We want to bring fan ownership to sports.”
This may open the door to institutional capital sitting alongside fan finance, he adds. “In future, we will see more hybrid deals,” he says. “You’ll see professional investors buying stakes in clubs and teams, but then also inviting fans to participate.”
And, as athletes themselves start investing in sports, they are bringing new ways to add value to investments. “Athletes have social capital and influence” explains Arthur Bernard, Founder and General Partner at Athletico Ventures. “That gives them access to deal flow, helps them close deals, and support portfolio companies, across almost any sector and not just the adjacent sports or consumer spaces. Athletes’ value comes not just from endorsements but also - and actually more from - opening doors to B2B partners.”
As soon as you have private equity or credit, all of a sudden you can start doing real price discovery and understand what the real value of an asset is.
The train has left the station.
Who would have thought that pickleball would have been relevant five years ago?
