Fans First: The New Operating Model in Sports

“Disruption” has become a go-to term in business. It helps describe what’s behind sweeping, innovation-driven changes to sector fundamentals. Without proper context, however, the phrase can wind up being quite generic. What’s happening to the sports industry today, is a very specific type of disruption called “disintermediation,” and it is behind unprecedented opportunities for forward-thinking entrepreneurs, operators, and investors.

Essentially, disintermediation is the elimination of layers between a product and a consumer, typically born through new technologies that reduce costs and/or increase speed of service. This drives massive restructuring to industry dynamics, upends traditional business models, and uncovers opportunity for new enterprises to emerge. Consumers win through greater flexibility and more seamless access to the products, services, and content these enterprises offer.

Disintermediation is a critical force behind the future of the global sports industrial complex.

For decades, the sports economy has been a closed system with leagues at the center. Leagues produced the content, distributing it through media company pipelines (broadcast/cable) to consumers in their homes. It’s a one-way street with ancillary third parties (marketing agencies, sponsors, etc.) inserting themselves into this model to create their own revenue streams.

Disintermediation is behind a new operating system that puts sports consumers at the center with more choices, accessibility and experiences. Leagues continue to create the content and now distribute it via an array of modes as informed by layers of data intelligence. Plus, the system is so much more open that it cultivates innovation. Think of it like the major tech players who built sophisticated tech-driven operating systems now filled with life-changing apps. This is the same principle.

苹果 ’s exclusive agreement with Major League Soccer , for example, eliminates the local blackouts and restrictions to which sports viewers are begrudgingly accustomed. The two have also designed a game schedule tailored to the bulk of MLS fans’ preferred viewing times—a stark contrast to linear television slotting in matches around their other programming commitments. Additionally, this “anchor partnership” with MLS feeds into the broader Apple ecosystem of technology and content offerings – owners of Apple 4K TVs, for instance, can watch up four streams simultaneously, including MLS and Major League Baseball (MLB) 's Friday night games.

Of course, it’s not only behemoths like Amazon and Apple that are leveraging technology to address the needs and challenges of modern consumers who are 1) becoming accustomed to and invested in personalized service and 2) more experience-driven than ever before. Plenty of middle market and growth stage companies are in the process of building strong businesses by producing product and service offerings that leagues and teams can adopt. We believe that some of them will become major players sooner than most people realize. More details about team/league revenue diversification can be found in my previous piece about the lifetime value (LTV) of sports fans.

In sum, the sports industrial complex is transitioning from a B2B2C model to B2C. We believe that this evolution towards fan centricity is one of the stronger, albeit less talked about, macro trends driving the boom of professional sports as an asset class.

Disintermediation in Sports Commerce

We’re now seeing progressive leagues, teams, and service providers design multi-faceted experiences tailored to fans’ interests. Along with it, new companies are emerging, stepping forward to create platforms that can mine the emotional connection and loyalty that ‘consumers’ have with their team, league, or sport.

Fanatics is an example of this. The company commands an international partner network with over 900 sports properties and continues adding new ways of attracting, retaining, and entertaining sports fans.

Fanatics’ network now spans physical retail, e-commerce, collectibles, betting, and iGaming. Sports properties can tap into Fanatics’ platform and database of over 100M consumers – using its reach and market intelligence to inform their own products and services. On the other side, fans can enjoy a centralized and great user experience. This is not dissimilar from 亚马逊 ’s transition from pure retailer to providing a retail platform for smaller sellers. In Fanatics’ own words:

“[Michael Rubin’s] vision was to create a differentiated, real-time sports merchandise experience for global fans and partners, who had been handcuffed by an industry that had not yet adapted to the new consumer-driven, on-demand world.”

Fanatics’ “experience for global fans” added another element in July 2023 by introducing Fanatics Live – a livestream arm that gives sellers (individuals, brands, leagues, etc.) a multimedia platform to engage consumers and promote offerings. It takes the interactivity seen on platforms like Twitch (another Amazon company) and applies it sports-themed commerce.

Disintermediation in Other Industries

Disintermediation isn’t a new concept, in fact it’s already responsible for transforming an array of consumer driven industries -- think personal finance (robo-advisors like Betterment and Wealthfront), banking (Plaid’s data transfer solutions), job search and networking (here on LinkedIn), or music (Spotify).

• Mercer Advisors and Wealthfront used technology to automate the investing process. This allowed them to offer lower minimums and fees than traditional financial advisors, resulting in more people gaining access to high-quality guidance and advice.??
• Plaid turned banking data from something banks use to sell products into something that consumers can use to connect and power the third-party services they want (budget tracking apps, peer-to-peer payments, lending, etc.).
• LinkedIn transformed recruiting, career development, and professional networking by applying concepts that thrived in personal social media to create a more convenient and direct experience with fewer intermediaries.
• Spotify reinvented how musicians distribute their IP. Creators can now release content at their own pace (as an album, single, podcast, etc.), while consumers can browse an extensive library or engage with recommendations generated by technology as a ‘smarter’ way of music discovery.

Expect Change; Embrace Opportunity

The evolution of sports’ traditional one-to-many business model is already underway. With such change, we believe that a new wave of companies will have the opportunity to gain market share. As growth-stage and middle market companies in need of capital and operational enhancements, these challengers will also represent attractive investment opportunities for capital allocators. It’s an exciting time for us.

As John F. Kennedy said, “Change is the law of life. And those who look only to the past or present are certain to miss the future.

Disclaimer: There can be no assurance that historical trends will continue. Information included herein relating to market characterization is based on Bruin Capital’s subjective determinations that it believes are reasonable, but others may disagree with such characterization. Other market participants may make different determinations based on the same underlying data. There can be no assurance that Bruin Capital will be able to source partnership opportunities, successfully implement its business strategy or that any holding will generate a return of or on capital. Our views and opinions expressed herein are current as of the date of this article and are subject to change.