Sport & commercial law: year in review

Tech Giants Embracing Fitness

The first observation to make is that sport plainly does not operate in a vacuum to the wider economy. Readers do not need this author to point out the obvious dominance of the modern economy by the tech giants. However, it has been interesting to witness the flurry of activity by those tech giants in the fitness and activity market in 2020. Having previously shown their intention to participate in the sports rights market, fitness and wellbeing has emerged as a new battleground. Activity tracking features strongly, with Amazon’s launch of its own smart band, Halo, following closely on from Google’s acquisition of Fitbit. Not to be left out, Apple launched Fitness+ in late 2020, making a broad workout platform available to the public combined with its Apple Watch. Around the same time, Facebook launched Oculus Move, a fitness product for their virtual reality offering Oculus.

The heat being brought to the fitness market is evidenced by the identity of the best funded sports tech companies in 2020, including Zwift raising $450m, ClassPass raising $285m, and Tonal, Strava and Whoop each raising over $100m. In all, seven of the top 10 fundraises in sports tech in 2020 were carried out by fitness companies.

Impact Of Technology On Mainstream Sport

How does this resonate within traditional sport? One sign is the appetite of teams to develop their own technology products and investment portfolios or, conversely, the involvement of investment groups recognised for tech investment in the ownership of sports assets. City Football Group (CFG) illustrate the point. Silicon Valley based technology investment firm Silver Lake acquired a ten per cent share in CFG in 2019, a move which is mirrored by CFG’s own behaviours – most prominently its anchor investment in Sapphire Sport, a fund focused on technology and digital sports. In a further interesting development at the time of writing, Manchester City have joined forces with Socios.com to launch the $CITY Fan Token.

This type of activity is not limited to CFG. Chelsea Digital Ventures is a digital-first, consumer product business spun out from Chelsea FC, with products included personalised sports nutrition service, Blue Fuel, and football training app, Perfect Play. US sports franchises have long led the way in this field, running their own venture divisions, such as the LA Dodgers’ Elysian Park Ventures and Green Bay Packers’ backed Titletown Tech.

An observation, at this juncture, from a legal perspective is that the regulatory consequences of investment in, and revenue generation by, sports teams need to be considered. Newcastle United fans will need no reminder of the application of English Premier League rules to the fitness of owners and directors. Multi-club ownership rules designed with the goal of maintaining integrity will also be potentially relevant to investors seeking to acquire stakes in multiple teams in the same sport. The ability to capture revenues generated from non-core team activities under financial controls and regulations will also bear consideration. It will be necessary to consider domestic league rules (e.g. Premier League) and continental or international federation rules (e.g. UEFA), which may not necessarily align. In particular, regulated ownership and control thresholds may vary and will look beyond simple percentage ownership and board position to the actual control and management of the investee team.

The impact also resonates in the identity of the sponsors of sport. Digital businesses have recognised the brand and fan engagement platform afforded by partnerships with sport, a trend that will surely only continue, particularly in markets where traditional sponsors may be diminishing either due to market conditions or regulation. The impact of gambling advertising regulation in Europe, in particular, has and will be profound. Betting brand shirt sponsorships have or will shortly be banned or restricted in Spain, Italy, France and Germany, and the UK position is under review following the report of the Gambling Related Harm All-Party Parliamentary Group. Lawyers working in the space must keep a close eye on developments and take care in drafting long-term gambling brand partnerships to ensure that the consequences of regulatory change are considered.

Interestingly, while Europe regresses, the US market liberalises. The NFL, NBA, MLB and NHL have all entered into betting partnerships, both with land-based casino partners (such as MGM Resorts), daily fantasy sports businesses offering sports books (such as DraftKings and FanDuel) and online sports books. Teams are also opening up to partnerships in this space – witness, for example, the announcement by Betway of its partnerships with some of the most storied North American basketball and hockey franchises.

Legal Considerations Arising From New Entrants To Sponsorship Market

Returning to the theme of digital business sponsors, these might broadly be categorised as taking two forms: either a genuine technology partnership through which sponsor products and services will be deployed by the rights holder; or a pure brand exposure play aimed at targeting eyeballs and the fanbase of the rights holder. Cazoo, Cinch and IQONIQ are all recent entrants to the English Premier League sponsorship market, falling in the latter category.

In either case, technology partnerships have accelerated change in the approach to traditional sponsorship contracts. This author has long held the view that long-term partnerships require more flexible contracting akin to an agile software development agreement – an ‘agile sponsorship agreement’, if you like. It is inevitable that the pace of change of methods of rights delivery and activation will demand an iterative process of sponsor / rights holder engagement during the term of a deal. There may also need to be closer consideration given to the category exclusivity offered to partner brands. Whereas we might be clear on what a competitor to Coca Cola or Nissan may look like, is there the same clarity as to what is competitive with a digital platform involved in a wide field of activity which may not even have launched?

Other legal considerations emerging from the changing identity of sports sponsors is ensuring payment and reputational security for rights holders. Put simply, the balance sheet and reputation of Coca Cola is well established. Rights holders can readily make their own informed decisions on their desire to enter into sponsorship arrangements with them. As with any new business, digital entrants may bring greater uncertainty. Accordingly, there is a heightened interest in pre-contractual due diligence on sponsor brands, often involving third party search firms. There is also closer consideration of how payment security can be achieved, including the application of bank guarantee or credit arrangements more commonly witnessed in international trade agreements. This approach will continue and is strongly advocated from a rights holder perspective.

Adoption Of Technology By Sports

The flow of money is not one-way from technology companies into sport. It has been a feature of 2020 that sports, deprived of live in-person audiences and, for a period, live content itself, have invested in technology. Most obviously arising from the pandemic, innovations to allow fan engagement such as the NBA’s partnership with Microsoft to use its Together Mode feature to provide virtual audience participation at NBA games. But the innovations born out of Covid will have a long- term impact on audience engagement. British content and fan engagement platform, Filmily, who partnered with the US Open tennis amongst others recently is a recommended example of how such solutions can be deployed longer term. Sports have also continued to explore direct to fan models of delivering content. Traditionally considered to be best suited to archive or behind-the-scenes content or for markets without a strong mainstream broadcast rights sale opportunity, there is increasing traction in a direct to fan model of live sports content delivery.

The technology use described builds on the long-standing interest of sports in data analytics. It was interesting to observe the mainstream media’s reporting on Kevin de Bruyne’s use of data analysts to support his latest contract negotiations. It brought a spotlight on an industry that has become a central part of professional sport. Teams will continue to spend on increasingly sophisticated and important solutions to understanding their own performance, but it is the way in which the ownership and exploitation of performance data develops that is most exciting.

For the armchair fan, expect continued advances in the data shared on broadcast feeds. This year’s 6 Nations saw MatchStats powered by AWS, while cricket and tennis have been early adopters of direct to audience data. Legal challenges brew on the horizon, however. Reports in 2020 suggested that a group of more than 400 players in the English and Scottish football leagues were preparing to take legal action over who owns player performance data. The crux of the argument would appear to be that players’ consent is required to the collection and exploitation of data, much of which may be sensitive data under GDPR. The merits of this argument are beyond the scope of this article, save to note that the answer will turn on the nature of the use of data (employer clubs would strongly contend their legitimate use of data to assess performance) and who is determined to be the first owner / creator of the data (player, data analytics company, club, broadcaster?). A long-standing legal fight also continues between Genius Sports and Sportradar concerning the exclusivity of deals to collect live data from football matches.

Sports Data And SPACs

These disputes come against a backdrop of the burgeoning value of sports data. Genius Sports was recently appointed exclusive official data partner of the NFL in a multi-year, mixed cash and equity deal, illustrating the size of the market. Deals of this nature carry enhanced value where leagues place their own restrictions on authorised betting partners (who are ultimately the highest value purchasers of collected data) from using unofficial data. The value is further illustrated by Genius’ announcement of its intention to go public after its US$1.5bn merger with a special acquisition company (SPAC).

If further proof were needed of the collision between public capital and sports data, the story of Billy Beane’s interests outside of the Oakland A’s is worthy in itself of a sequel to Moneyball. It was announced last summer that private equity firm, RedBird Capital Partners, was teaming up with Beane (who made his name revolutionising the use of data analysis in baseball) to launch the first SPAC dedicated to sports. Known as RedBall Acquisition Corp, this blank-cheque company listed on the New York Stock Exchange at a valuation of $575m, has opened the dam for sports or sports tech focused SPACs and has proven to be amongst the most high-profile. This has included reports of a merger with Liverpool FC and Boston Red Sox ownership group, Fenway Sports. In the period since RedBall’s launch, there have been a further 41 sports dedicated SPACs established in less than a year with a combined value of $13.5bn.

Beane is not the only high profile name from the sporting world involved in a SPAC. Shaquille O’Neal, Patrick Mahomes, Serena Williams and Naomi Osaka have all participated, illustrative of the now-established model of the athlete investor. Whoop and Therabody are prime examples of sports tech businesses featuring a collective of athlete investors, including European athletes such as Rory McIlroy, Kevin de Bruyne and Marcus Rashford. Sometimes these investments will include an endorsement element where the athlete becomes the face of the brand, an area in which early stage UK companies have an edge in their ability to offer EIS tax reliefs on any cash investment alongside an endorsement rights fee. It makes for a compelling structure for entrepreneurial athletes, if structured correctly from a tax and legal perspective.

Concluding Thoughts

This has been a canter through some of the more noteworthy developments at the intersection of sports and technology over the last 12 months. In truth, it barely scratches the surface of an ever-evolving market but, if one sure theme can be identified, it is that the cross-fertilisation of the colliding worlds of sports and technology is making for broader, more varied business models. It is less easy to pigeon-hole or categorise participants in the sector as solely teams, rights holders, athletes, agencies, brands, broadcasters or investors.

The examples above should illustrate that progressive teams, rights holders and athletes are themselves investors, content creators and nascent technology businesses. Similarly, technology businesses are investors, acquirers, and broadcasters of mainstream sports, alongside their core business. Expect this convergence and diversification of business models to continue.

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