March 9, 2023
The rise of private equity investments in sports has been explosive. Sports organizations did not traditionally represent cash cows as many operated at a loss. However, the private equity sector invested $51 billion in sports deals worldwide in 2021, with a significant portion of $22 billion invested solely in Europe (Bloomberg).
Why invest in a wildly unpredictable industry? Of course there’s the economic resilience, and opportunistic consolidation but the biggest reason is the potential for brands to grow exponentially in an increasing digital world. With an improved tech infrastructure and a well-executed marketing strategy, investors can give sports organisations the media platform and exposure they need to dramatically increase their fanbase, engagement and monetisation potential, such as we have seen with CVC’s 7x return on their MotoGP investment.
In order to achieve their desired return, investors recognise the importance of establishing a brand identity: the bigger the brand, the bigger value they can generate for their investors. But this means finding undervalued assets. Take, for instance, Liberty Media Corporation who made the decision to invest in Formula 1. Liberty Media revitalised Formula 1 by launching their own streaming platform, F1 TV, and introducing changes such as the budget cap and Sprint Races to make the races more exciting. They also invested in expanding into the North American market, where they launched new races and created the docuseries Drive to Survive. The Netflix hit series launched in 2019 has provided fans with a new form of consumption, and attracted vast swathes of new fans (34% of current Formula 1 viewers became fans after series - Bloomberg). Now, Netflix is gearing up to launch a series on the Six Nations - European rugby’s flagship competition. And CVC Capital Partners, having bought a 14.3% stake worth £365 million in 2021, is behind the idea. They too contributed to the revamp of the F1, as they owned a 35% stake between 2006 and 2017.
Another great example is provided by the 2022 takeover of Chelsea FC by US financier Todd Boehly and investment firm Clearlake Capital. Behdad Eghbali, CEO of Clearlake, explained how he intended to reproduce what’s worked on the other side of the Atlantic: “[We] looked at [Chelsea] and we think European sports is probably 20 years behind US sports in terms of sophistication on the commercial side, and sophistication on the data side. [...] These are global assets, global audiences which we think we can certainly help grow” (The Athletic). Jury is still out on that particular $4 billion investment.
Bottom line is investors are looking to boost engagement and leverage untapped potential. Whether through increased storytelling, alternative broadcasters, or improved audience targeting, it’s all about the brand.
To achieve their objectives, investors are pushing organisations, leagues and clubs to increasingly adopt advanced tech stacks to ease their workflows, increase their productivity, and with it their popularity and engage with fans. This includes mastering data and analytics to enhance fan engagement, as well as investing in AI and machine learning to predict consumer behaviour and inform smarter content decisions. With blockchain technology also making its mark in ticketing, betting, and fantasy sports, investors know that tech is the game-changer. In fact in the deal between La Liga and private equity fund CVC Capital, Spanish clubs committed up to 70% of the allocated funds to investments related to physical and technological infrastructure (La Liga).
Using the Chelsea example again, Kieran Maguire, a football business expert, discussed how Chelsea's new owners planned to invest heavily in advanced technology infrastructure to boost fan engagement: "We are aware that Chelsea has fans in Asia, Africa, the US, and other places. It is not possible for these people to come to Stamford Bridge, but can we bring Stamford Bridge to them through the use of virtual reality, augmented reality, and similar technologies?". Maguire explained that this is precisely the reason why Boehly and Clearlake Capital's executives made a bid that didn't make financial sense to most observers. They believe that technology can generate new revenue streams and significantly grow the brand of the west-London club to become a global brand.⁴
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