Private investment and the role of technology in the sports industry: Creating a virtuous circle
Introduction
In recent years, we have witnessed a significant change in the capital base of the sports industry. Private equity and other forms of institutional capital have recognised that sport is a unique business sector.
The unwavering commitment of its supporters, the varied revenue streams it presents and the recognition that its leagues, clubs and athletes often have an unparalleled international reach, means that sport is being viewed as an investment with growth potential.
The ability to develop and apply technology to the sports industry is central to the investment thesis of many of these institutional deals.
A common view is that sport has historically suffered from under-investment and these new pools of capital can be allocated efficiently to invest in technology solutions which can drive revenues and ultimately generate investor returns.
This is leading to an increasingly close relationship between the worlds of institutional investment, the sports industry and technology.
Private investment and technology in sport – a symbiotic relationship
Technology is serving a dual role in terms of driving investment in sport. On the one hand, technological developments have become a pivotal pull factor in attracting capital into the sector. By way of example, technological developments in streaming platforms, such as the rise of OTT platforms, continues to attract institutional investors focused on the growth in media rights valuations. The FT reported, for example, that the recently rejected private equity investment into the Bundesliga’s media rights business included a proposition to establish a new direct-to-consumer streaming platform.
At the same time, investors are deploying technology as part of the investment lifecycle as a means of increasing the value of their investment. Investors recognize the transformative potential of technology in sport to optimize revenue streams, improve operational efficiency and drive long-term growth. From leveraging data analytics and artificial intelligence as a means of enhancing player performance and optimising team strategies, to implementing cutting-edge fan engagement platforms that cultivate a loyal fan base, investors are looking to technology as a key driver of value creation in the sector. We have taken a look at a few of the areas in which developing technologies are enhancing the investor-appeal of the sector.
Technology as a lever for creating value
Fan engagement
Increasing (commercial) interaction and engagement with fans is one of the more obvious routes to revenue growth for any prospective investor in sport. Technologies that allow a sports organisation to tap into the commercial potential of this uniquely committed consumer base by increasing the scale and frequency of fan engagement only serve to enhance the investor-appeal of the overall sector.
Smart stadiums
The unique appeal of live sport continues to hold, even during the modern streaming era. Smart stadiums present a twofold opportunity to capitalise on this, by allowing event organisers to minimise operational costs whilst at the same time maximising fan engagement and in-stadia revenue.
On-field performance
Institutional capital’s reservations around investing directly in sports teams (and particularly European sports teams susceptible to the risk of relegation) have traditionally centred around the importance of on-field performance to the commercial appeal of the asset, and the difficulties of controlling such an inherently unpredictable revenue-determinant.
Technology offers investors a route to achieving sustained high-level sporting performance and “regaining some control”, so to speak, of this core commercial variable. Institutional investors in particular are experienced in leveraging technology to gain a competitive advantage. As well as holding an appeal as investments in their own right, technologies that allow institutional investors to apply such experience to on-field performance enhance the appeal of sports teams more generally as investments.
Opportunities for growth-stage businesses
The growing focus on technology-driven business growth, fuelled by institutional investors, has created a distinct opportunity for new entrants to the sector to meet this rising demand and provide services to prospective customers. Investor appetite for innovation has fostered a unique market environment, where growth-stage businesses can serve high-profile clients provided that they are able to offer the right product and demonstrate the value that can be created.
We have already seen a number of such partnerships, one of the most notable being Sportable’s multi-year partnership with CVC-backed Six Nations Rugby to introduce its chip-enabled rugby ball into the competition.
Concluding thoughts
Technology is playing an ever more important role in the growth of the sports industry and institutional investors are deploying capital with the aim of unlocking this potential.
As a result, we expect there to be continued strong demand for the application of technology in sport with the winners being those technologies that can demonstrate the value that is created for the sports organisation and, in turn, can drive investment returns for the new breed of capital providers to the industry.
Mike Herbert
Partner
Oliver Platts-Levett
Trainee
