Investing in SportsTech - A deep dive

As my tagline suggests ("I like to operate at the edge of what I understand") I often like to risk and move out of my core expertise area, as a way to learn new stuff.

Today is no exception. Let's focus on investing in SportsTech. I have experienced a series of M&As directly in the last 20 years and also observed and studied a wealth of similar activities worldwide in our sector. That does not make me an expert of any sort to be honest, but my curiosity is bigger than my self-esteem, so... let's have a look at what happened in 2022 and what 2023 could be like. Let's understand who the players are in the different sectors and fields. Let's look at the numbers, the deals, the opportunities, the risks.

We will be looking at how funds have been raised, which M&A have happened, which companies have been further funded, what happened on the public markets and who are the key players.

Sources and reports

I have extensively made us of the recently published Drake Star report "Global Sports Tech Report 2022".

Mohit Pareek, CFA who lead authoring the report said: “2022 has been the biggest ever year in Sports Tech with $90B in disclosed deal value through more than 1,000 announced deals. The Rapidly growing Sports Tech market witnessed record consolidation during 2022 and a very strong inflow of investment into private companies. 2023 is expected to be another year of strong consolidation and growing investments in the Sports Tech ecosystem as strategics and financial investors/buyers continue to be highly acquisitive and there is a large pool of existing as well as fresh capital (over $5B raised in 2022) available for deployment in Sports Tech.”

Quite timely just saw today Andrew Petcash 's newsletter drop on investing in women’s sports "The 1st Women's Sports Fund (and how it will alter the industry)"

I am also referring to the latest (provocative) article from Roger Mitchell ( Albachiara Group ) "Who is going to be Sport’s LVMH?", where he tries to define a model for investing in sportstech and to identify who can be the future leader in the sector.

Football Benchmark post on "Scoring Big: Private Equity Firms Set Sights on Football Media Rights Investments" with mentions of CVC ( Nick Clarry ) and Three Hills ( Mauro Moretti ).

While the most part of this article focus on established companies, it's also worth noting what SportsPro published an interesting article in january of 2023 with a selected group of startups.

An introduction to investing

As the subject matter is far from being simple and not all of us maybe already fin-sport-tech gurus I have included a final part in this article that can serve as a primer to better understand what is involved.

2022 debrief

1. Record-breaking year: 2022 was an exceptional year for sportstech, with $90 billion in deal value across more than 1,000 announced deals, breaking all previous records.
2. M&A activity: The year witnessed $78.3 billion in disclosed M&A activity, a 6x increase compared to 2021, with 235 announced M&A deals. The Fantasy, Esports & Betting segment experienced the largest deal activity, while the Fan Engagement/Experience segment reported a 70% increase in deal volume.
3. Top strategic buyers: Entain, Sony, Light and Wonder were among the top strategic buyers in the industry, while TGI/Bruin, Kore/Serent, and Hudl/Bain Capital consolidated their positions backed by large PE firms.
4. PIF-owned Savvy Group: This group acquired some of the largest esports assets and continued to be highly acquisitive.
5. Private financings: $9.2 billion was raised through private financings across 740+ deals, including 19 large $100M+ raises. The most active VCs were ACIES Investments, Animoca, HBSE Ventures, a16z, Elysian Park, and Courtside Ventures.
6. New funds raised: Financial investors and buyers raised over $5 billion in new funds, with firms like Ares Management and RedBird Capital among the prominent names.
7. SPAC listings: High-profile SPAC listings in 2022 included FL Entertainment and FaZe Clan, and Infinite Reality announced its $1.9 billion SPAC merger with Newbury Street.

The sportstech industry is experiencing rapid growth and attracting significant investments from both strategic and financial investors. This trend suggests potential opportunities for investment and continued expansion in the sector, with particular attention to areas like esports, fan engagement, and betting.

Funding rounds

Raising funds

Investing in women's sports

" Jasmine Robinson and Kara Nortman announced the closing of the Monarch Collective’s $100 million fund — which is focused on investing in women’s sports teams and leagues.

“There’s an opportunity to get in at what should be historically low valuations in teams and leagues, that are at the beginning of a media rights cycle—which is a very well-understood revenue stream,” Nortman says. “So, if you’re disciplined, if you have the right fund size, if you’re showing up and actually doing work, you can get venture-like returns with very low risk.

And this statement makes sense given that:

• Ally Financial recently signed a multimillion-dollar deal across ESPN networks and requires 90% of the ad buy to focus on women’s sports.
• Women’s pro sports sponsorships grew 20% year-over-year in 2022.
• Google signed a multi-year partnership with The Athletic that promises to double the amount of women’s sports coverage with a focus on soccer and the WNBA.

The Monarch Collective is the next major step in the evolution and advancement of women’s sports.

And they’re not the only ones…

A few weeks, the Atlanta Hawks launched a fund aimed at supporting women and minority-owned venture companies in sports, media, and entertainment.

As we continue to see more money headed toward sports, the women’s game is certainly at the top of my mind (and many others)."

Football in Europe

Michael Clohisy suggested this post Scoring Big: Private Equity Firms Set Sights on Football Media Rights Investments

"Football media rights have been attracting the attention of private equity firms for quite some time now, and the trend continues to be on the rise. Recently, Fasanara Capital and Tifosy Capital & Advisory teamed up to create a fund of up to USD 500 million to target revenue streams such as broadcasting rights and ticket sales in football leagues.

Such collaborations between private equity firms and football leagues provide an excellent opportunity for leagues to finance their growth in terms of brand development, infrastructure, and international reach ??, especially during times of liquidity shortage due to the pandemic.

CVC ' deals with LALIGA and Ligue 1 are prime examples of such investments, with LaLiga selling a stake of 8.25% for close to EUR 2 billion (for a period of 50 years), while Ligue 1 sold a stake of 13% in their new commercial company for EUR 1.5 billion.

Other major leagues, such as Lega Serie A and Bundesliga International GmbH, are reportedly considering selling minority stakes in a similar way. Based on recent media reports, Oaktree Capital Management, L.P. has offered €1.75 billion ($1.9 billion) for a 5% stake in the media business of Serie A, while other firms, such as Three Hills , 凯雷投资集团 Searchlight, and J.P. 摩根 , are also interested in acquiring a stake in the league's media arm that focuses primarily on broadcast rights for live matches."

Latest deals

SportTechs market maps

Always a fun game checking these dense images and try to see which logos you know, discover new ones, list down the one you think are missing, start debating if the taxonomy is right or you would have done differently.

In the end I always have a bit of admiration and respect for who takes the time to put these things together, because I appreciate the effort, even when I am not 100% aligned with the result.

In these ones, I love they use the term "RIGHT OWNERS" for the sport property vs. using "rights holders" (who in my view are those buying the rights), I started a terminology battle years ago about it and just achieved a 25% buy-in from our industry. I found the article from June 2015: "I want to disambiguate the term “Rights-holders” in sport business"

I like the B2B vs B2C categorization, I find "Sports Service providers" B2B one a bit too generic, the "Fan engagement" one a bit MEH but again, what does Fan Engagement means exactly? A million different things to a million (ah no wait even less) a thousand different people.

Companies and deals that caught my attention

I can't obviously comment on the Bain Capital Deltatre deal, so let's look at the rest.

One company that recently caught my attention is Amagi , I have discovered them at the recent International Sports Convention in London after an enlightening conversation with Iain Adams . The rationale behind the growth of FAST Channels and the playbook to execute a sustainable model.

Anything that Fanatics is doing is worth attention, they are really moving the needle. They basically announced their new acquisition while I was writing this piece, in Italy "US sports giant Fanatics acquires top Italian football club merchandiser"

Beyond Sports and 索尼 Sport is also an interesting deal ( Rufus Hack ) as traditional sportstech vendors get equipped for a new phase.

DAZN acquisition of ELEVEN SPORTS HQ which put together Shay Segev and Andrea Radrizzani aggregating a wider network at global scale.

I am pretty curious to see what will happen in Italy with Lega Serie A ( Luigi De Siervo ) and any external investors.

OneFootball activities have been pretty aggressive after their funding round, but we also read about their latest round of layoffs which was not great news for the sector.

The $100M women's sports fund, ?????????????? ???????????????????? is an interesting move in an area where growth seems inevitable.

Should I also say Cleeng and BuzzMyVideos , or that would seem obvious as I am a strategic advisor for both now? (see article ...)

An alternative view on the market from Roger

"Who is going to be Sport’s LVMH?" discusses the potential for sports conglomerates in the current market, drawing comparisons to luxury conglomerate LVMH and investment strategies employed by Warren Buffet. It highlights the importance of considering capital needs, risk profiles, and market fit when investing in sports assets. Roger suggests that a sports conglomerate should be able to take advantage of undervalued assets, economies of scale, and improved central services.

The text also emphasizes the need for empathy and understanding of sports traditions when creating a sports conglomerate. The author provides an example of Y11 Sport & Media Holdings Ltd. , a company led by former elite athlete James Davies-Yandle , which operates with a focus on EQ and passion for sports. Y11 acquires sports assets with unrealized value and aims to grow them significantly using capital, services, and expertise. Their divisions include rugby, endurance events, and football, with a focus on mass participation and youth programs.

CVC , Bain Capital Liberty Media , to? Fenway Sports Management (FSM) , Kroenke Sports & Entertainment ,?Glazers,? Bruin Capital , RedBird Capital Partners .

How does 2023 look like from here?

Taking into account the additional information provided, here's an outlook for the sportstech industry in 2023:

1. Continued consolidation and investment: The sports tech market is expected to experience strong consolidation and a significant flow of investment in 2023.
2. M&A activity: Large strategic players like Entain , Fanatics , Flutter, DAZN , and Sony are expected to remain highly acquisitive. PE-backed platforms such as Kore, TGI, and Hudl will likely continue their buy-and-build strategy, seeking synergistic targets.
3. Large roll-ups: With PE funds like Ares Management and RedBird raising substantial new funds focused on sports and media acquisitions, large roll-ups are anticipated in 2023.
4. PIF-backed Savvy Group: With an additional $38 billion investment in gaming and esports, the group is expected to drive several large ticket M&A and financings in the esports sector.
5. Hot segments for M&A and financing: Fan engagement, AI, ticketing, and venue management are predicted to be popular areas for M&A and financing activity.
6. Strong inflow of investments: Over $5 billion of new capital was raised in 2022, including new sports tech-focused VC funds and existing VCs with fresh capital. This suggests a robust year for the sports tech ecosystem in 2023, though investors might be more cautious and valuations for larger rounds could stabilize.
7. Public companies and IPO/SPAC listings: After a quiet 2022, the market and valuations for public companies are expected to recover in the second half of 2023. IPO-ready sports tech companies may explore IPO/SPAC listings.

In summary, the sportstech industry is expected to maintain its growth trajectory in 2023, with continued consolidation, significant investments, and increased M&A activity. Key areas to watch include esports, fan engagement, AI, ticketing, and venue management. The market for public companies is expected to rebound, potentially leading to more IPOs and SPAC listings in the sector.

Drake Star

Drake Star is an award-winning global tech investment bank that has completed over 400 transactions since 2003. Drake Star team of over 100 senior professionals across offices in New York, London, Paris, Munich, San Francisco, Los Angeles, Berlin, and Dubai* focuses on mergers & acquisitions and corporate finance services worldwide in Consumer & Retail Technology, Digital Media, FinTech, Mobility & Sustainability, Software/SaaS, Digital Services, and Industrial Tech sectors.?

Albachiara (Roger Mitchell)

Investing in SportsTech. A primer.

The sports tech industry has grown rapidly in recent years, driven by advancements in technology, increasing demand for data-driven insights, and the ever-growing popularity of sports. This has created numerous investment opportunities across various segments of the market. In this article, we will explore different aspects of investing in sports tech, specifically focusing on fundraising, mergers and acquisitions (M&A), and funding.

Fundraising

Fundraising is a critical aspect of sports tech, as it provides startups with the necessary capital to develop and scale their products or services. There are several ways sports tech companies can raise funds:

a. Bootstrapping: Entrepreneurs can use their own savings or personal funds to get their venture off the ground.

b. Crowdfunding: Sports tech companies can turn to crowdfunding platforms like Kickstarter, Indiegogo, or GoFundMe to raise funds from the public in exchange for early access to products, rewards, or equity.

c. Angel investors: Wealthy individuals or experienced entrepreneurs might invest in early-stage sports tech startups in exchange for equity or convertible debt.

d. Venture capital: Venture capital firms specialize in providing funding to early-stage or high-growth companies in exchange for equity.

e. Government grants: Startups can seek government grants, which may be available for projects related to sports, technology, or innovation.

Mergers and Acquisitions (M&A)

M&A activity within the sports tech sector has grown in recent years, as larger companies seek to expand their product offerings and increase market share. Key drivers of M&A in sports tech include:

a. Technology and talent acquisition: Larger companies may acquire smaller sports tech startups to gain access to their proprietary technology or talented employees.

b. Market expansion: Acquiring companies in different geographies can provide access to new markets and customers.

c. Diversification: Companies may seek to diversify their product offerings by acquiring sports tech startups with complementary products or services.

d. Competitive advantage: Acquiring innovative sports tech startups can help established companies maintain or gain a competitive edge.

Funding

Various funding sources are available for sports tech companies, depending on their size and growth stage. These include:

a. Seed funding: Seed funding typically comes from angel investors or early-stage venture capital firms and supports the development of a startup's product or service.

b. Series A, B, and C funding: As a company progresses, it may seek additional funding rounds from venture capital firms to support growth, product development, or market expansion.

c. Private equity: Private equity firms invest in more mature companies that have a proven business model and strong revenue growth. These investments can help scale businesses or provide an exit opportunity for early investors.

d. Public markets: Sports tech companies with significant growth and a stable business model may opt for an initial public offering (IPO) to raise funds from the public market.

A more exhaustive list of potential players in the market is:

1. Private Equity (PE): Private equity firms are investment firms that raise capital from institutional and individual investors to acquire or invest in private companies. They typically use a combination of equity and debt financing to complete these transactions, and then work to improve the operational efficiency and profitability of the companies before eventually exiting their investments through a sale or an IPO.
2. Venture Capital (VC): Venture capital firms specialize in investing in early-stage, high-growth potential startups in exchange for equity. They provide funding, mentorship, and support to help these companies grow and scale. Venture capital investments can be risky, but successful ones can yield significant returns.
3. Hedge Funds: Hedge funds are investment funds that employ various strategies to generate returns for their investors. These strategies may include short-selling, arbitrage, and leveraged investments. Hedge funds often use complex trading techniques and financial instruments to maximize returns and minimize risk.
4. Mutual Funds: Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional portfolio managers and provide a way for individual investors to access a diverse range of investments without needing to manage them directly.
5. Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds but trade like stocks on a stock exchange. They are investment funds that hold a basket of securities, such as stocks or bonds, and typically aim to track the performance of a specific index. ETFs offer investors a cost-effective and convenient way to diversify their portfolios.
6. Asset Management Firms: Asset management firms manage the investments of individuals, institutions, and governments by investing in various asset classes, such as stocks, bonds, real estate, and commodities. These firms provide professional investment management services and typically charge a management fee for their services.
7. Investment Banks: Investment banks provide a range of financial services, including underwriting, mergers and acquisitions (M&A) advisory, and asset management. They help companies access capital markets, raise funds, and manage their financial risks.
8. Commercial Banks: Commercial banks offer a variety of financial products and services, such as deposit accounts, loans, and lines of credit. They also engage in investment activities, such as trading and underwriting securities, but their primary focus is on providing banking services to consumers and businesses.

These categories are not exhaustive, but they represent some of the key players in the finance and investment field.

Conclusion

Investing in sports tech is an exciting and potentially lucrative opportunity, with various avenues for fundraising, M&A, and funding available to startups and investors alike. To successfully navigate this growing industry, investors should be aware of the different stages and types of investments, while startups should carefully consider the right funding sources to support their growth and development.

Disclaimer: I have at times used ChatGPT4 to summarize and condense information in tis article.

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