Investment in sports continued during the shutdown. This month we will take a look at the rationale and outlook going forward.
Every industry was deeply effected by the pandemic, but sports and entertainment were among the hardest hit. Seasons and events were canceled, postponed or rescheduled.
As in any downturn, there will be an adjustment that occurs until the recovery takes hold. Many are under financial duress, causing sellers to enter the marketplace at discounted prices.
The underlying business fundamentals of well capitalized leagues remains sound, supported by long term broadcast deals and sponsorship contracts. There are some teams and related businesses that are suffering from cash flow issues where revenue is dependent on the consumer spend.
Opportunities arise for those with capital and ones needing liquidity.
There has been a change in mind-set in attending large events. Attendance at sports has been in decline. There are empty seats at races and tracks have reduced overcapacity by removing seats.
Promoters have worked with health officials to develop plans. Along with restrictions on crowd size, attendance will grow but not to the levels it once was.
Creating value for fans with flexible ticket and concession packages will help the bottom line.
The pent-up demand for live sports was front and center at the start of the shutdown. Sports are fortunate that they have an engaged community with strong loyalty and brand awareness.
The intellectual property of sports is content. Transferring this to consumer interaction on a digital is key. Motorsports did this with iRacing and other simulation platforms. In-race data, realistic track and car graphics and professional drivers kept enthusiasm high and dollars flowing.
Sports is a scarce commodity. There are a limited amount of leagues and teams available.
The pool of potential owners and buyers is driven by wealthy individuals looking to be part of the industry. They are usually successful in other businesses and have capital to invest. This has continued to be the underlying premise of increased valuation levels.
The sports infrastructure is well developed. State of the art stadiums, established team operations, solid sponsors and loyal fan base, along with fantasy leagues and betting point the way to a bright future.
Complete ownership is beyond the reach of most new investors. League requirements along with legal issues complicate the equation. Minority positions are typical and manageable from an investment standpoint.
Motorsports investment is following these trends. The charter system in NASCAR and concorde agreement in Formula One have brought in new groups.
23XI Racing backed by Michael Jordan and Denny Hamlin is one example. Jordan’s ownership of the Charlotte Hornets and Hamlin’s career at Joe Gibbs Racing is a formidable combination. Along with the shared commitment of founding partners and Bubba Wallace in the driver’s seat, they will be in the limelight.
McLaren Racing received an investment led by MSP Sports Capital. The deal for a total amount of $245 million over two years for up to 33% ownership stake values the team at $740 million. Led by Jeff Moorad, he was part of the ownership group of Hall of Fame Racing around 2006.
The long term future of investing in sports is secure. The economic fundamentals and deep pool of investors supports this positive trend. Fans will be able to enjoy the green flag for years to come.