Pro June Update - Front Office Sports

July 8, 2022

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Pro June 2022 Update

Design: Alex Brooks

Reports This Month

One Big Thing

Sports betting sponsorships might soon be a thing of the past for English Premier League teams.

Recently, the EPL asked many of its biggest clubs to begin phasing out sports betting sponsors in an attempt to help the U.K. government curb what it deems as gambling addiction and “other gambling-related issues.”

British regulators are planning to decide on a potential shirt sponsor ban by July 21. Sky News reported last week that the league had approached the government with a compromise to stave off anticipated reforms.

This involved a gradual phasing out of front-of-shirt sponsorship over the next few years, allowing contracts to run their course.

In an effort to ward off legislation, the Premier League is asking clubs to agree to a voluntary ban on new gambling shirt sponsor deals.

Premier League clubs will vote on phasing out existing gambling shirt sponsors — 14 of the league’s 20 teams are required for the measure to pass.
Under the proposal, clubs would end any existing shirt deals within three years.
Gambling in the U.K. exploded after the 2005 Gambling Act, with nearly 50% of adults in the U.K. actively engaging in legalized sports gambling.

Last season, 10 teams in the Premier League had gambling companies as sponsors on their shirts.

Why is the Government Pushing for Legislation?

The U.K. isn’t looking to simply ban jersey sponsorships, either. They are considering sweeping updates to 17-year-old gambling laws to combat addiction and other gambling-related issues.

The changes related to the Gambling Act left all forms of gambling in England, Wales, and Scotland regulated, with the main change being that it transferred the authority for licensed gambling from the magistrates’ court (equivalent to a federal level of legislation) to local authorities, leading to a huge increase in gambling activities, ads, and marketing campaigns. Soccer was no exception.

This exacerbated some larger issues. In September 2021, the British government issued a press release outlining the severe economic costs that gambling was placing on society. The report indicated that $1.53 billion has been lost, in large part due to gambling-related suicide and homelessness.

The review found a clear link between higher levels of alcohol consumption and harmful gambling, with only 35.4% of non-drinkers participating in gambling compared to 74.4% of those consuming over 50 units of alcohol per week (equivalent to 16 pints of beer or large glasses of wine).

All in all, the prospects for sports betting sponsorships in British football are not looking great. While the six largest EPL teams do not have existing deals in place, smaller English clubs are already bracing for a loss of revenue. The second-tier English Football League, whose title sponsor is Sky Bet, said its clubs would lose $47.8 million per year.

Betting companies are looking to get ahead of the curve. The four biggest gambling companies, Entain, Flutter, William Hill, and Bet365, have pledged to pay 1% of their gross gambling yield — which are the retained revenues after payment of winnings — for gambling prevention and treatment initiatives by 2024, but many firms make limited donations.

Among the reported changes under consideration are a betting limit on online casinos of $2.40 to $6 per wager, bans on games that allow users to lose lots of money very quickly, and a ban on free bets.

U.S. Markets

The U.S. has been dealing with its own issues unrelated to sports betting. For months, sports betting stocks have tested 52-week lows, as the combination of continued inflation and long-term concerns on profitability have dragged stocks down as much as 80% from last year’s highs.

Experts, however, seem to believe that the sports betting business as a whole should be able to weather the current economic storm. DraftKings CEO Jason Robins recently indicated that he wasn’t concerned about the continued lackluster performance of gambling stocks.

“Gaming has generally been performing very well during economic downturns, recessions, and inflationary periods,” Robins said. “This is not a new thing. This is something that’s been well known about the industry for quite some time. We’re certainly seeing the same thing materialize in our numbers.”

The three companies, BetMGM, DraftKings, and FanDuel, comprise 70% of the U.S. market share for legal sports gambling. Despite their market leadership, the companies haven’t seen that dominance translates to stock gains.

Last month, all three companies slumped more than 14%, extending losses over the first six months of 2022. The three heavyweights are down considerably in 2022.

While the relatively “young” U.S. betting market continues to figure out how to reach profitability, it is important to consider the potential issues that could come down the line. The U.K. is struggling with the second-order impacts of legalized sports betting and the costs borne by society.

It’s food for thought: Negative byproducts could really change the economics for U.S. operators and their relationships with sports properties.

Deal Tracker

Here are 10 of the most notable deals from the month of June.

Just Women’s Sports, operator of a sports media platform providing coverage of women’s sports, raised $6 million in venture funding from Tennis legend Billie Jean King and Brooklyn Nets owner Joseph Tsai, valuing the media platform at $36 million.
The NFL’s Denver Broncos were officially sold to a group led by Walmart heir Rob Walton for $4.65 billion.
Religion of Sports, developer of a sports media platform designed to provide game highlights, scores, podcasts, and articles, raised $50 million of Series B venture funding in a deal led by Shamrock Capital Advisors.
New Zealand Rugby, the organization that operates the national rugby team of New Zealand, sold a $131 million minority stake to private equity firm Silver Lake.
WIN Reality, developer of a VR-based training tool designed to offer athlete evaluation and development, raised $49 million through a combination of Series A and Series A-1 venture funding in a deal led by Lago Innovation Fund.
BetCity, operator of an online casino and sports betting platform located in Amsterdam, reached a definitive agreement to be acquired by Entain for $895 million.
Pixellot, developer of broadcast video capture and production devices providing an affordable alternative for live coverage of events, raised $161 million of Series D venture funding in a deal led by Providence Strategic Growth.
Titletown Tech, a venture capital firm based in Green Bay, Wisconsin, and backed by the Green Bay Packers, is raising $80 million for its second fund, per an SEC filing.
Deltatre, a provider of content and data management services for the sports and entertainment industry, received an undisclosed amount of financing from Legends Hospitality. The company entered a definitive agreement to be acquired by Bain Capital and Nextalia through an estimated $842 million leveraged buyout.
FC Barcelona has reportedly agreed to sell 10% of its media rights to Private Equity Firm Sixth Street in a deal worth up to $278 million.

View out the full Deal Tracker.

Earnings Summary

Selected earnings calls and results from the past month:

Nike: Nike records $46.7B in full-year revenue, with $12.2B coming in the fourth quarter.

Allied Esports: Allied Esports saw its revenue jump 381% year-over-year to $2.4 million in Q1 2022.

Lululemon: Lululemon is eyeing a record year after a $1.6B first quarter.

Hibbett Sports: The company saw sales drop 16.3% last quarter with sales falling to $424M.

Academy Sports: The company reported $1.47 billion in first-quarter net sales on the back of e-commerce.

Vail Resorts: Vail Resorts generated $1.17 billion in revenue in fiscal Q3 2022 after lifting restrictions.

Closing

The U.K. has been increasingly stringent when it comes to blockbuster M&A. In June alone, Front Office Sports reported two separate deals receiving further investigation from the Competition and Markets Authority — the U.K.’s antitrust watchdog.

The Authority’s most recent target: Microsoft’s nearly $69 billion acquisition of Activision Blizzard.

In January, Microsoft agreed to purchase Activision in an all-cash deal valued at $68.7 billion, making the Washington-based tech giant the world’s third-largest gaming company by revenue. The deal didn’t pass muster for U.S.or British regulators. The Authority, specifically, is now looking to investigate whether the acquisition will harm competition.

Earlier this month, British telecommunications giant BT Group and Warner Bros. announced their intention to create a 50-50 joint venture for new sports offering in the United Kingdom and Ireland. The nearly $800 million deal is now under investigation by the Authority.

Why is this important? The U.K. government proposed new laws in 2021 that would drastically lower the burden of proof needed to block a potential acquisition, particularly for larger and more strategic companies.

The measure would apply to tech companies with “strategic market status” (SMS), a new designation for those with an entrenched, powerful position in a digital market. In time, companies like Amazon, Apple, and Uber could be included if they are deemed to have SMS.

The tightening of M&A restrictions could have serious unintended consequences. The inability of smaller private companies to create liquidity through acquisition could seriously stifle innovation — particularly when it comes to sports tech.

Written by Liam Killingstad