Top Six Takeaways
- COVID-19: a brutal period, but a catalyst for innovation
COVID-19 has been the greatest challenge to the operational and financial health of sport since the Second World War. No-one could ever have imagined that this time last year the only professional sport taking place in Europe would be Belarussian Premier League football.
Sport was first halted over 12 months ago and continues to be severely disrupted. Most sports have had to take advantage of many millions of financial support from local governments to help manage the impact of the pandemic and stave off insolvency for its participants. Every sport has as a consequence been forced to innovate to survive whether it be the manner of participation, engagement with fans or simply remaining solvent.
Rightsholders and other sport bodies are increasingly turning to alternative and non-traditional sources of raising finance and revenue including: from private capital (see Takeaway 2), from athletes and players (see Takeaway 3), embracing esports and virtual sport (see Takeaway 5) as well as from further commercial innovation and digitalisation (including NFTs, see Hot Trend 1).
Many of these innovations are likely to stay as the impact of COVID-19 hopefully begins to subside.
- Private Equity and Sport
“Sport” has become a recognised asset class for private equity. Investors are targeting the commercial rights of governing bodies, leagues and businesses (hot areas are media, data, technology, well-being and esports) believing them to be undervalued and full of potential. The custodians of sport are also becoming open to third party investors, but, importantly, investors are not determining the rules or regulatory aspects of the relevant sport, at this stage.
Whilst the bigger PE houses such as CVC are leading the charge (Six Nations Rugby, Pro 14 and FIVB (volleyball)), many smaller PE houses and investors are also investing, with healthy EBITDA and revenue multiples being achieved by the investee entities.
Investors see opportunities in the convergence of media, technology, data and the passion of fans, with the pandemic reinforcing the importance of sport, leisure and health in people’s lives. However, such investments will need to accommodate the rules, traditions and community of sport, along with fan emotion, which are factors not usually present in leveraged buyouts.
At the heart of a governing body’s decision-making in accepting private capital is the role it plays in developing its sport (including revenue streams and participation) necessitating longer-term partnerships (not quick flips) where investors can bring commercial expertise, connections, ideas and further sources of funding. The life cycle of a usual private equity investment is usually a maximum of 5 to 7 years, so it will be fascinating to see if private equity is able to secure an exit if the sport itself is not ready or the sport is not approving of any purchaser preferred by the investor in the same time period.
- Player Influence
More athletes and players are bolstering their earnings outside their playing careers by endorsing sport brands and/or investing in sport organisations. In 2020, David Beckham invested in Guild Esports and became an influencer and face of the company before it completed an IPO. Recently, Therabody (the technology wellness firm) attracted investors including Marcus Rashford, Kevin De Bruyne and Maro Itoje to aid international expansion.
The door is open for athletes and players to also invest in unique and purposeful sport properties such as women’s sport where lower valuations may make them more attractive. Last summer, a new women’s football team Angel City FC was founded in Los Angeles by Upfront Ventures and Natalie Portman, boasting investors including Serena Williams.
- Women’s Sport
Whilst COVID-19 effectively pressed pause on women’s sport in the UK with far-reaching cancellations and curtailments, there are encouraging signs that women’s sport continues to demonstrate mass-market appeal and commercial potential including:
- the FA’s recent announcement that the BBC and Sky are to become the new broadcasters of the Barclays FA Women’s Super League from the 2021-22 season (reportedly worth between £7 – 8 million per season);
- World Rugby announced “WXV” a brand new global women’s competition due to launch in 2023. WXV is supported by an investment of £6.4 million from World Rugby and a dedicated commercial programme;
- equal prize money in both men’s and women’s new elite cricket competition, “The Hundred”; and
- the rapid growth of dynamic and professional representative bodies such as Women in Football (https://www.womeninfootball.co.uk/).
With continued investment from governing bodies, clubs, broadcasters and sponsors, we expect women’s sport to gain further momentum.
- Esports and virtual sport
COVID-19 accelerated the professionalism and commercialisation of esports and virtual sport. People are spending more time at home and an increasing number have turned to esports as entertainment. There has been a marked increase in online events, viewership and active users.
Traditional sports are embracing esports and virtual sport and seizing the opportunity to engage with its fanbase, sponsors and potentially a new and untapped audience in the absence of being able to attend live sport. For example:
- F1 hosted the Virtual Grand Prix series in the absence of F1 racing, featuring professional esport players, drivers and celebrities;
- the ePremier League (the esports version of the Premier League) continues to be broadcast live on Sky Sports, BT Sport and BBC iPlayer. The finals have reached more than 22 million fans over the last two seasons; and
- horseracing’s Virtual Grand National in 2020 attracted viewing figures of c. 4.8 million.
- Corporate Governance
The spotlight remains on corporate governance reform prompting many sport bodies into action. In 2020, UK Sport and Sport England announced its review into its joint Governance Code with the outcome to be published in Spring 2021. We expect further measures around equality, diversity and inclusion. More robust corporate governance should make sport more attractive to external investment.
Three Hot Trends for 2021 and beyond
- NFTs and sports digital collectibles – Non-fungible tokens (NFTs) are unique digital files whose authenticity is verified by blockchain. Recently, Dapper Labs launched NBA TopShot in partnership with the NBA, a series of collectible images and videos that feature NBA star highlights. NFTs and sport digital collectibles can help a club or league diversify its revenue streams and commercialise the next generation of fandom.
- SPACS – a Special Purpose Acquisition Company or “blank check company” is a newly incorporated company that has no business/assets when it lists but, shortly after listing on a public exchange, it acquires one or more valuable existing businesses. We have seen a rising number of sport-related SPAC acquisitions taking place in the US. For example, Genius Sports (sports data and technology) is expected to imminently go public through a merger with DMYD (a New York-listed SPAC) with a value of US$1.5 billion. SPACS are not currently approved for the UK capital markets, but are gaining traction in other European jurisdictions such as the Netherlands and may do so in the UK in due course.
- Anti-corruption – the increasing number of deals relating to data and technology companies demonstrate that fan and player data is invaluable not only for the more obvious commercial drivers but also as sports bodies further develop their anti-corruption efforts. Sport’s bodies such as the Tennis Integrity Unit (TIU) are expanding their remit having demerged from the International Tennis Federation and rebranded as the International Tennis Integrity Agency (ITIA) on 1 January 2021. The ITIA will take charge of betting integrity enforcement in tennis in 2021 and add doping under its jurisdiction in 2022.
For further information, please contact:
Simon Thorp (Partner) email: simon.thorp@onsidelaw.co.uk
Harriet Leach (Senior Associate) email: harriet.leach@onsidelaw.co.uk
Ben Hanglin (Senior Associate) email: ben.hanglin@onsidelaw.co.uk
