Sunday December 3, 2023

The State of The Business of Sports

  • 2021 was dominated by private equity deals, media consolidation, and NFTs and crypto
  • We are joined by investors from across the sports and adjacent industries to break down the 2022 landscape
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It’s the most wonderful time of the year. A time when prognosticators like myself get to sit down in front of a blank laptop screen and espouse the wisdom they gained over the past twelve months. 

From private equity’s forceful entry into various league properties, to NFTs, sports SPACs, an explosion in gaming, NIL, and the metaverse, 2021 was a year of radical innovation and change.

2022 could bring about much of the same as avenues for engagement and monetization open up through new technology. Here’s what industry investors had to say about the recent past and near future.

What trend do you think most underscored you and your firm’s investing thesis in 2021?

Josh Chapman – Managing Partner, Konvoy Ventures

One of the most notable shifts for both our fund and the broader gaming market was the convergence of blockchain and video games. For example, “Axie Infinity” (Konvoy initially invested through their Series A) created a cultural phenomenon by enabling players to own and monetize their assets and earn financial rewards from playing.

Considering our team hadn’t previously invested heavily in content, this was a notable transition that was driven by a new paradigm for how game economies can be designed. We’re now active investors in this space through our investments in Genopets, Sipher, and more that have yet to be announced.

Adrian Williams – Vice President, SC.Holdings

On one hand, we have benefitted from investing in strategies that we believe have significant long term tailwinds: recurring revenue DTC business with sticky cohorts (Athletic Greens); the rise of alternative assets such as collectibles and NFTs and the platforms that enable them (Certified Collectors Group); the powerful convergence of content, commerce, and technology (SpringHill Company).

Though we view these as important characteristics of world class companies, what is most important to us is partnering with meaningful, sustainable brands that are empowering people and attempting to make a positive impact.

Alex Michael – Co-Head, LionTree Growth

While we are always thinking long-term and on a multi-year horizon, we were happy with a few areas in particular. One area that stood out was sports tech. We really started pushing the bounds on sports tech and more specifically fan engagement which is a theme we anticipate to continue into 2022.  

William DiBlasi – Director, Inner Circle Sports

Expansion and fan engagement. The performance of sports media assets during the later phases of the Covid-19 pandemic has driven home the value of sports and live entertainment content across the globe. As a result, investors and operators alike have been looking for new ways to expand their content offering to drive fan engagement and monetization.

What trend in the sports industry that was widely adopted in 2021 will you carry through 2022 and beyond?

Melanie Strong – Managing Partner, Next Ventures & Jordan Pascasio – Investor, Next Ventures

How can we not acknowledge NIL and the downstream effects of the policy change that freed college athletes from outdated ideas of amateurism and exploitation. NIL not only affords the chance to make some money in college, but it also serves as the onramp to the burgeoning world of the creator economy, representing a greenfield of opportunity for these athletes post-graduation. 

This is a natural segue to web3. Rapidly advancing technology will put ownership and value capture back into the hands of these athlete creators, allowing them to create direct relationships with fans and to eliminate centralized platforms acting as middlemen. We’ve already seen more progressive NCAA athletes launch social tokens and NFT projects.

Adrian Williams – Vice President, SC.Holdings

The legalization of sports gambling will only drive further engagement and value up and to the right. As FOS has covered comprehensively, media rights are in very high demand — a critical piece of the streaming wars, with technology companies continuing to bid up and acquire.

And finally, private equity companies have recognized sports as an attractive asset class, looking to acquire interest in teams and media rights. We have a lot of Knicks fans in the office so I’m hoping that maybe some of this translates into more Knicks wins for team morale sake. That said, I’m from Atlanta and a die hard Hawks fan so I won’t direct too much energy towards that.

Lloyd Danzig – Managing Partner, Sharp Alpha Advisors

M&A and partnership activity during 2021 confirmed that the sports industry’s biggest stakeholders, including leagues, teams, venues, and broadcasters, will be incorporating betting and gaming into their core business models to an extent many thought to be impossible. We are investing heavily in the infrastructure that is critical to this transformation.

What trend are you most bullish on going into 2022?

Adrian Williams – Vice President, SC.Holdings

I hate to say NFTs….but NFTs. Specifically, functional NFTs.

We believe that we’re still in the very early innings with NFTs (we could still be in warmups) and that the majority of value extracted from NFTs will come from those with functional utility beyond simply being a digital asset.

ZED RUN is a great example of an NFT that serves a functional purpose allowing it to effectively become a differentiated entertainment platform where the asset you own generates revenue in various ways, participates in competitions on the platform, and is a source of entertainment for the owner and viewers. Just like real sports.

It’s easy to see how these concepts can translate well beyond ZED RUN. Web3. Decentralization. Digital ownership. Sports as an asset class. The convergence of content, commerce, and technology. It’s all happening in 2022.

Josh Chapman – Managing Partner, Konvoy Ventures

From a gaming perspective, we expect user-generated content to continue its impressive growth in 2022. The gaming value chain has historically been very linear: studios create content that is delivered to a player base in exchange for some form of monetization. 

However, low-code and no-code UGC engines are rapidly disrupting this approach by allowing any player to become a creator. This is not only unlocking platforms with incredibly diverse pools of content, but also allowing individuals to monetize their creations. Blockchain technology is further innovating the way in which creators can be rewarded, which is a strong tailwind in the year to come.

Wayne Kimmel – Managing Partner, SeventySix Capital

With more than 30 states now taking legal sports bets, traditional sports media has been confronted with the need for round-the-clock sports betting coverage like SeventySix Capital’s portfolio company, VSiN, The Sports Betting Network. Networks will look to bring the best sports betting data and information to their viewers, requiring new technologies to power both the media and sports betting platforms. 

What trend are you most bearish on for 2022?

Lloyd Danzig – Managing Partner, Sharp Alpha Advisors

While we are very optimistic about the role of blockchain and NFTs in the world of sports and entertainment, we are bearish on projects lacking utility that ties back to inherent properties of the underlying technology.

Melanie Strong – Managing Partner, Next Ventures & Jordan Pascasio – Investor, Next Ventures

More data across siloed experiences is not better — unless it’s paired with personal context and credible recommendations. Wearables now measure everything from heart rate variability and body temperature to blood glucose and dehydration. That data is only valuable when it can be interpreted in a way that creates positive behavior change. Data fatigue is the enemy of wearable technology that cannot make data mean something real and actionable.

Alex Michael – Co-Head, LionTree Growth

I’m bearish on the sports betting space from an investment standpoint. Given the amount of capital that has already flowed into the industry and the amount of consolidation, it’s going to be hard for a new entrant to really gain any traction, particularly with high cost to acquire customers.

That does not mean that some company can’t come up with some disruptive elements to the space, but I don’t see how they would hope to effectively compete these days against some of the well-capitalized players in the space. I’ll caveat that as a growth equity investor, if you’re looking early enough in the investment lifecycle then of course there could be some potential.

What is a specific company, trend, or market dynamic, that you believe is not receiving enough attention?

William DiBlasi – Director, Inner Circle Sports

The growth of women’s sports. Studies show that a vast majority of general sports fans self-identify as being interested in women’s sports, which is something we see borne out in recent viewership numbers across women’s leagues and events.

Leagues like the WNBA and NWSL are seeing record viewership, multi-million-dollar sponsorship deals are becoming the norm across European football leagues, and newer leagues like the PHF are signing tier-1 broadcasting partners for the first time.

Alex Michael – Co-Head, LionTree Growth

The youth sports industry. From both a growth and M&A perspective, youth sports is ripe for investment and consolidation. There are just massive amounts of money that are being poured into youth sports properties as parents want to continue to invest in their kids. 

Additionally, with the introduction of NIL, there is a huge opportunity for athletes to monetize earlier and earlier.  This is going to promote more and more capital flowing into an industry that is undoubtedly flushed with cash.

If you look up market size for youth sports, one of the main search results is still a 2017 Time magazine article. It’s just a space that, for some reason, receives a disproportionately low amount of attention relative to the opportunity. It is also so fragmented. There is so much room for growth and consolidation across all the verticals. 

Signing Off

A special thank you to all of the contributors who made this piece possible and happy holidays from all of us at Front Office Sports. We hope you’ve enjoyed reading the Sunday edition as much as we’ve enjoyed putting it together.

We’ll be back with another Sunday edition in a few weeks and whatever happens in 2022, you can count on us to break it down for you in excruciating detail.

Editor’s Note: SC.Holdings is an investor in Front Office Sports.

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