19.07.19 Quarterly Insight

The global sports market is currently estimated to be worth more than US$500 billion, growing at around five per cent per annum in revenue terms and is delivering returns of more than ten per cent per annum.

It is also seeing significant change in technological innovation in terms of platforms, data capture, and fan engagement. It has seen the rise of millennials and female sports, shorter form sports, esports, and the emergence of sustainable growth in China, Africa, Asia and the Middle East. Sport content is now an on-demand product in its own right and has outgrown its linear broadcast history.

With this extraordinary growth, there are both risks and rewards for many owners and investors in leagues, franchises and sports rights.

For example, in the Premier League, English soccer’s top flight, club valuations have grown at a faster rate than media revenue increases. Specifically, a 14 per cent annual media revenue growth over the last 12 years is set against corresponding real equity returns of up to 35 per cent per annum for some clubs.

Looking ahead, and of interest to potential investors in sport, we see significant investment returns in soccer in France and England. In rugby, returns will be from UK and Major League Rugby franchises. International cricket throws up real opportunity. Esports remain uniquely positioned. In broadcasting rights, we see significant potential for good ROI in a great many areas in tier one sports but also in tier two such as: handball, rugby league, boxing, cycling, and basketball, as well as most female sports.

However, the structure and governance of individual sports, can become a hindrance to a healthy ecosystem. Almost every sport in every nation has seen growth in participation and revenues over the last five years. This has had a corresponding effect of making national sports federations stronger and richer but, ironically, in some cases less commercial.

Some of the most popular top tier sports have become fragmented at the ownership and strategy levels, with dislocated tournaments, difficult narratives, different broadcasting channels and non-coterminous broadcasting rights. This is occurring just when the consumer is demanding better, shorter content, improved fan engagement and value for money. Governing bodies, federations, league and franchise owners need to be smarter, more flexible, and more commercial in their approach to the consumer over the next five years or more.

Frequently, at the franchise level in sport, there are too many unprofitable and unsustainable business models. Participation and audience levels are not sustainable without a healthy ecosystem and one that receives investment.

This is common in tennis, basketball, netball, second-tier soccer across the UK and Europe but you can add in cycling and cricket to that list too. Even female sports require investment, and a better commercial strategy to accelerate their development.

Additionally, government sports subsidies across the UK and Europe are only going to decrease over time. Sport needs to accelerate the changes required in commercial strategies to generate additional revenues.

The role of private equity in Sport will, therefore, be very important over the next five years.Providing only capital to a sport is not enough though. With ‘capital’ comes responsibility.

There are well-equipped private equity companies that understand commercial sports strategies, respect owners, federations and governing bodies but also have the ability to provide the capital, as well as the know-how, to grow whole ecosystems in sport. These new ‘aligned investors’ allow existing owners in sports can simultaneously benefit from the extraordinary return on investments that sport and its associated business – such as technology, hospitality or ticketing – can deliver.

Equally, these private equity houses are free of conflict, provide vision, and can be a genuine catalyst for change. With new capital comes the opportunity for investment into both infrastructure and development, in operating expense and capital expenditures; elements that are notable by their absence in many sports.

These new sources of capital can represent the reset button for a sport. They open up new possibilities for truly independent decisions on the key drivers of future success; be that in over-the-top (OTT) platform media services such as DAZN, choosing broadcast partners, or working with sports and marketing agencies.

Within sport, private equity has a commercial only focus, which very importantly allows the governance of sport to remain within the sport. More broadly, the whole ecosystem of a sport then benefits from national to amateur level and for all abilities and genders. For governments, public/private commercial initiatives in sports will be welcomed and will be commonplace in the future.

In short, sport is becoming more institutionalised and investment grade, particularly in Europe. There is significant opportunity for double-digit annual returns and the right partners are available to invest.

As featured in SportsPro on July 19th 2019

want to find out more?

let’s speak