Barca’s €100m tech fund and the rise of sports organisations as technology investors
The lure of tech investment opportunities is causing sports organisations to step out of their comfort zone and become investors in their own right. These headline-grabbing deals have clear advantages for investor and target but they also raise some unique challenges. We take a closer look at what’s going on and the key issues to be aware of.
What’s happening?
The benefits of taking a proactive approach to tech opportunities have been clear to sports organisations ever since the unprecedented success of Major League Baseball’s technology venture, MLB Advanced Media (MLBAM). Founded in 2000 as a way to help teams create websites, MLBAM quickly progressed to video streaming and later provided services to other sports (e.g. WWE, NHL) and even mainstream media businesses (HBO, Hulu). The streaming division was eventually spun-off and was valued at a not-too-shabby $3.75 billion when Disney bought a majority shareholding in 2017.
We still see MLBAM-style ventures being pursued but a new trend has also emerged around sports organisations becoming investors in early-stage tech businesses.
A front-runner in Europe has been FC Barcelona. The LaLiga champions have been running a sports-tech incubator since 2017 and are now reported to be setting up a €100m investment fund operating as an independent subsidiary but providing access to the knowledge and experience of Barca staff and a high-profile testing ground in the form of the club itself.
In Germany, the DFL (organiser of the Bundesliga competitions) has created DFL for Equity, a “logical next step” for the innovative league which makes strategic equity investments into start-ups and SMEs in sports tech. Its latest deal is a joint venture with a current DFL service provider for digital rights protection – a key challenge for many sports organisations.
Benefits for sports organisations
The pressure to diversify and open up new revenue streams is felt as keenly in sport as any other sector. With record-breaking TV rights fees possibly on the wane (due, ironically, to the disruptive effect of tech on viewing habits) and sponsorship dollars as hard to find as ever, organisations see tech investments as a shrewd financial move which can help them save costs in the short term and generate significant returns in the long term.
Technology has weaved its way into every aspect of the sports industry from coaching and officiating to competition administration and fan engagement. The chance to evolve from licensee to (part) owner of technology that is central to your business is very appealing.
Another advantage is that the investments we’re talking about don’t always involve significant capital contributions. Many sports organisations are offering access to existing assets such as their brand, competitions, know-how/expertise and network as well as (or in some cases, instead of) cash.
In a fast moving world, getting close to leading-edge technology businesses via incubators or direct investments can be a vital way of tracking developments and understanding new opportunities. In 2015, with the possibility of legalised sports betting in the US gaining momentum, the NFL entered an official partnership with Sportradar, a leading provider of live data to the media and betting industries, which included an undisclosed equity investment. Four years on and with the projected $8bn US legal sports betting market in full swing, Sportradar is itself a multi-billion dollar business holding betting data partnerships with most of the major US sports leagues, and the NFL has (presumably) reaped the benefits of being ahead of the game.
Benefits for targets
Sports tech is a very active sector, with new start-ups and applications being launched on an almost daily basis. Few businesses are blessed with a marketing budget to match their ambition so what better way to catapult yourself into the limelight than a strategic investment from a sports team or league with millions of followers around the world. And that’s only the beginning, sports organisations will also be able to offer warm introductions to their extensive networks within their own sports and possibly others as well.
Taking investment from a sports organisation will in many cases allow a start-up to put its product or service to use quickly and at scale in competitions and events which the investor organisation owns or competes in. This proving ground enables the business to “fail fast” and perfect its offering on an accelerated basis.
Key issues to consider
So, clearly there are benefits but what are some of the key issues encountered in these deals?
Manage expectations – most tech start-ups fail and those that don’t can take years to turn a profit or offer an attractive exit for shareholders. Most sports organisations exist in a short term, win/lose, results-driven world so playing the role of investor requires a significant shift in mind set towards taking the long-term view. Expectations need to be managed from the outset.
DD essentials – perhaps stating the obvious, but all the standard rules of due diligence for investments in tech companies still apply – Where is the value? Who owns the IP? Who are the key individuals and are they committed to the business long term?
Capture Intangibles – if the investment involves a significant element of intangible value (e.g. marketing, showcasing, knowledge-transfer, business introductions) then, within reason, the parties should try to articulate and capture what is being provided in the relevant agreements underpinning the investment to avoid confusion and disputes down the line.
Sport-specific Risks – sports organisations exist in their own unique political and commercial environment. Careful consideration must be given to possible conflicts of interest (both real and perceived) and other external risks that may impact an investment opportunity.
For more information please contact Jody MacDonald on +44 (0)20 7438 2295 or at jody.macdonald@crsblaw.com.
