Blain’s Morning Porridge – Nov 24^th 2023. Guest Post: Sports – Why it’s the Hot Investment Arena

“In yacht racing there is no second.”

Sports has become a major investment sector in recent years. An increasing number of funds are focused on sporting opportunities. The appeal, and the possibilities to monetise fans and events is rising. Why invest?

Over the past few years I’ve been amazed at the amount of money being invested into Sports. From nations paying billions to acquire global championships, to small businesses bailing out local clubs. Now an increasing number of funds are seriously looking for investment opportunities. I understand the possibilities – the opportunity to own and merchandise brands, the digital possibilities presented by fans, the power, prestige and bragging rights that go with success in Sports.

My interest was piqued recently by the success of Canadian entrepreneur Lance Stroll being able to sell a slice of his Aston Martin Formula 1 team to PE firm at a $1 bln valuation – despite many of us believing we are past “peak F1”. Last night my local football club, Saints (Southampton) attracted its biggest ever crowd to watch a women’s game which they narrowly lost to Arsenal. (I was “conflicted”.. my son is a fanatical Gunner and still has an Arsenal duvet top!)

However, what do I know about sports? I barely understand the rules of Rugby Union anymore. I can get my boat round a race-course. Golf? Let’s not go there. But why are teams and sports worth so much? I might not know, but fortunately, I know people who do..

I asked my chum Jeremy Kent, a man who has spent his career at the top of sports advertising and marketing to explain what’s driving the market.. Jeremy is a Sports Commercialisation Specialist, and has deals from motorsports to watersports in his quiver. This Morning’s Porridge is his guest post on Sports and the value of Women’s sport in particular:

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Sports are more than just games.

Sports are a source of passion, loyalty, and excitement for millions of fans around the world. We may change jobs, houses, spouses but never our football club. (BB – true: “Once a Jambo, always a Jambo!”) That ardour and fidelity is not just loyalty – its potentially a stream of solid recurring returns season after season. Smart investors realise sports offer a unique opportunity for investors to tap into the emotional and financial value of fan engagement.

Fan engagement is the key to a sport’s success. It is the emotional connection that fans have with their favourite teams, leagues, and athletes. It is what drives them to watch games, buy tickets and merchandise, and participate in social media and online communities. Fan engagement translates into revenue for sports organisations, as well as for sponsors, broadcasters, bookmakers and other stakeholders in the sports ecosystem.

According to a recent report by Deloitte, fan engagement analytics can help sports teams and leagues improve their live game experience, increase attendance, and enhance sponsorship opportunities. Connecting the dots across interactive digital platforms does far more than that. It positions the sport as a social platform sitting at the centre of a web of revenue streams.

Gaining insights into who the fans are, what they want, and how to reach them more effectively is just the beginning.  The sport can easily identify and remove inhibitors to fan engagement, and create new services that provide individuals with opportunities to reach new emotional highs. For the first time, comprehensive, data-driven behavioural science enables sponsors to truly measure their return on investment (ROI) by precisely focusing their activations almost to an individual level.

Another example of how fan engagement can create value is the growing popularity of fantasy sports and online sports betting. These activities allow fans to interact with their favourite sports in new ways, as well as to compete and win prizes. They become self supporting and sustaining:

• According to a report by Mordor Intelligence, the global fantasy sports market is expected to grow at a compound annual growth rate (CAGR) of 13.24% from 2021 to 2026, reaching a value of $48.6 billion by 2026.
• The report also highlights the potential of the Asia-Pacific region, especially India, where fantasy sports have seen a surge in demand due largely to the popularity of cricket.
• While Statista claims that the global online sports betting market is projected to reach $70.7 billion in revenue by 2023, with a CAGR of 9.9% from 2021 to 2027. The report also notes that Asia-Pacific is the largest market for online sports betting, accounting for 47% of the global revenue in 2020.

Investing in sports is not only about capturing the existing fan base but also about expanding it to new markets and audiences. Sports have a universal appeal that transcends geographic and cultural boundaries. By leveraging digital platforms and innovative products and services, sports teams and leagues can reach out to new fans who may not have access to traditional media or venues.

Formula 1’s “Drive To Survive” Netflix series – which the Morning Porridge has covered many times – has been credited with F1’s rapid recent growth in the United States. Now the concept is being copied by other sports. This innovative approach makes the sport relevant beyond game day and can generate major returns.

Recently there has been a marked shift in the broadcast rights market. BT has pulled out, Amazon has moved in, OTT (Over the Top) platforms like YouTube have started to gain real traction and FAST (Free Ad Supported TV) is presenting new opportunities for sports and sponsors to reach global audiences and pay for it through advertising. We are only just at the start of this process.

But what if you want to invest in sports that are not as popular or mainstream as F1 or football? What if you want to tap into the emotional and financial value of fan engagement in minority and women’s sports?

First of all, let’s define what we mean by minority and women’s sports. These are sports that have a smaller fan base, less media coverage, and lower commercial value. Examples of minority sports include badminton, squash, table tennis, and curling. Women’s rugby, soccer and field hockey are thriving and beginning to carve out divergent fan bases from the men’s games. Furthermore, fans of women’s sports behave differently and demand new, distinct experiences. The in-stadium experience for Arsenal v Tottenham in the WSL is a stark contrast to that of the Premier League.

Women’s football continues its upward trajectory, with over 30 million players worldwide and 200 countries affiliated to FIFA. It has also leveraged digital platforms, with social media, online streaming, mobile apps, and e-sports. However, research shows that fans of the women’s game are significantly more engaged on digital platforms, especially social media. As a result, women’s football has seen its global fan base increase by 50% in the last five years, and its revenue potential increase by 30% in the last three years.

Another example of a minority sport that has done well in these areas is squash. Squash has a strong grassroots development, with over 20 million players worldwide. It has also expanded internationally, with over 50 countries hosting professional tournaments. It too has embraced digital innovation, with live streaming, interactive scoring, virtual reality, and analytics. As a result, squash has seen its global audience grow by 40% in the last five years and its commercial value increase by 20% in the last three.

Sports valuations have dramatically increased over the last twenty years and much has been written about the potential of women’s and minority sports. However, the potential for growth and achieving sustainable growth are not the same thing and there are more fundamental things to consider. What is happening at the grassroots level? Is the player base growing? Are the kids coming through? These are crucial to the growth of any sport.

If we are talking about international growth then what is the investment timeline? It can take years to achieve critical mass in a new market. This is borne out by the decades it has taken soccer to become a major sport in the United States.  Cricket is now going through the same process and baseball, basketball and the NFL are attempting to do the same in reverse. In the meantime, connecting with small audiences on a global scale can deliver spectacular results.

Sports have a positive impact on society, promoting health, education, social inclusion, and environmental sustainability. The United Nations’ Sustainable Development Goals (SDGs) highlight that sports promote peace and justice, reduce inequalities, improve health and well-being, enhance education and gender equality, and protect the environment. Sports can also raise awareness and mobilise resources for various causes and initiatives.

Investing in sports can be a smart move for investors who want to capitalise on the emotional and financial value of fan engagement. Sports offer a unique opportunity to connect with loyal and passionate people, who are willing to spend on their favourite teams, leagues, and athletes. Sports also offer a chance to expand into new markets and audiences, who are eager to experience new and exciting forms of entertainment. Investing in sports is not just a game, it could be a winning strategy.

Jeremy Kent

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As a final addendum to Jeremey’s comment, I was chatting about “Peak Formula 1” with clients this week. Following Red Bull’s boring procession of victories, and last week’s Las Vegas jamboree, someone said it’s “Jumped the Shark”. That’s the classic fate of all entertainment – when shows pass from creativity into decline. It comes from 70’s show Happy Days; the moment the Fonz “jumped the shark” on water-skis was when it died.

Thanks to Jeremy Kent for this guest post on Sports this morning. If anyone wants to talk Sports investment opportunities – give me a shout!

Out of time, and back to the day job…

Bill Blain

Market Strategist – author of the Morning Porridge

(Final comment – this morning’s illustration: one of my sailing paintings… very cheap, and will be worth a fortune when I’m gone!)