The State of The Business of Sports

It's the best time of the year. A time when forecasters like me sit down in front of a blank laptop screen and share the wisdom they have gained over the past twelve months.

From the vigorous entry of private equity into various league properties to NFTs, Sports SPACs, an explosion in gaming, NIL and the Metaverse, 2021 has been a year of radical innovation and change.

2022 could do the same as new technologies open up opportunities for engagement and monetization. Here's what industry investors had to say about the recent past and near future.

Which trend do you think highlighted your company's investment thesis the most in 2021?

Josh Chapman - Managing Partner, Konvoy Ventures

One of the most notable changes for both our fund and the broader gaming market has been the convergence of blockchain and video games. For example, "Axie Infinity" (Konvoy originally invested through its Serie A) created a cultural phenomenon by allowing gamers to own and monetize their assets and earn financial rewards through gaming.

Given that our team hadn't invested much in content before, this was a remarkable transition driven by a new paradigm for designing game economies. We are now active investors in this space through our investments in Genopets, Sipher and others that are yet to be announced.

Adrian Williams - Vice President, SC.Holdings

On the one hand, we have benefited from investing in strategies that we believe will have strong tailwinds over the long term: DTC recurring revenue business with sticky cohorts (Athletic Greens); the rise of alternative assets such as collectibles and NFTs and the platforms that enable them (Certified Collectors Group); the strong convergence of content, commerce and technology (SpringHill Company).

While we see these as important characteristics of world-class companies, what is most important to us is working with great, sustainable brands that empower people and seek to make a positive impact.

Alex Michael - Co-Leader, LionTree Growth

While we always think long-term and multi-year, we were particularly satisfied with some areas. One area that stood out was sports technology. We have really started pushing the boundaries of sports technology and fan engagement in particular, an issue that we expect to continue through 2022.

William DiBlasi - Director, Inner Circle Sports

Expansion and fan engagement. The performance of sports media in the later stages of the Covid-19 pandemic has shown the value of sports and live entertainment content around the world. Because of this, investors and operators alike have been looking for new ways to expand their content offering to drive fan engagement and monetization.

What trend in the sports industry that was widespread in 2021 will you continue through 2022 and beyond?

Melanie Strong - Managing Partner, Next Ventures & Jordan Pascasio - Investor, Next Ventures

How can we fail to acknowledge the NIL and the downstream effects of political change that has freed college athletes from outdated notions of amateurism and exploitation. Not only does NIL offer the opportunity to earn some money in college, it also serves as an entry point into the burgeoning world of creative industries and offers these athletes a new green field after graduation.

This is a natural transition to web3. Rapidly advancing technology will bring ownership and valuation back into the hands of these athletes, building direct relationships with fans and eliminating centralized platforms that act as middlemen. We have already seen more progressive NCAA athletes launching social tokens and NFT projects.

Adrian Williams - Vice President, SC.Holdings

Legalizing sports gambling will only drive engagement and value up and to the right. As FOS has extensively reported, media rights are in high demand - a critical part of the streaming wars where tech companies continue to bid and buy.

Finally, private equity firms have recognized sport as an attractive asset class that wants to participate in teams and media rights. We have a lot of Knicks fans in the office so I hope some of that translates into more Knicks wins for team morale. That said, I'm from Atlanta, and I'm a die-hard Hawks fan, so I'm not going to put too much energy into it.

Lloyd Danzig - Managing Partner, Sharp Alpha Advisors

M&A and partnership activities in 2021 confirmed that the sports industry's largest stakeholders, including leagues, teams, venues and broadcasters, will be integrating betting and games into their core business models to an extent that many have believed impossible. We are investing massively in the infrastructure that is crucial for this transformation.

Which trend are you most optimistic about in 2022?

Adrian Williams - Vice President, SC.Holdings

I don't like to say NFTs ... but NFTs. Functional NFTs in particular.

We believe that we are still at the very beginning with NFTs (we might still be in the warm-up phase) and that most of the value gained from NFTs will come from those who have a functional use beyond pure digital value.

ZED RUN is a great example of an NFT that serves a functional purpose that enables it to effectively become a differentiated entertainment platform where your property generates revenue in various ways, competes in competitions on the platform, and is a source of entertainment for the owner is and spectator. Like real sport.

It is easy to see how these concepts can be carried over well beyond ZED RUN. Web3. Decentralization. Digital property. Sport as an asset class. The convergence of content, commerce and technology. Everything happens in 2022.

Josh Chapman - Managing Partner, Konvoy Ventures

From a gaming perspective, we expect user-generated content to continue its impressive growth in 2022. The gaming value chain has historically been very linear: studios create content that is delivered to a player base in exchange for some form of monetization.

However, low-code and no-code UGC engines are quick to disrupt this approach by allowing any gamer to become a creator. This not only unlocks platforms with incredibly diverse pools of content, but also enables individuals to monetize their creations. Blockchain technology continues to improve the way creators can be rewarded, which will be a strong tailwind in the year ahead.

Wayne Kimmel - Managing Partner, SeventySix Capital

With more than 30 states now accepting legal sports betting, traditional sports media have been faced with the need for 24/7 sports betting coverage, such as SeventySix Capital's portfolio company, VSiN, The Sports Betting Network. The networks will seek to provide the best sports betting data and information to their viewers and will need new technologies to power both the media and sports betting platforms.

Which trend are you most pessimistic about for 2022?

Lloyd Danzig - Managing Partner, Sharp Alpha Advisors

While we are very optimistic about the role of blockchain and NFTs in the world of sports and entertainment, we are pessimistic about under-performing projects that are due to the inherent properties of the underlying technology.

Melanie Strong - Managing Partner, Next Ventures & Jordan Pascasio - Investor, Next Ventures

More data for isolated experiences isn't better - unless it's combined with personal context and credible recommendations. Wearables now measure everything from heart rate variability and body temperature to blood sugar and dehydration. This data is only valuable if it can be interpreted in such a way that it leads to a positive change in behavior. Data fatigue is the enemy of wearable technology, which can't turn data into something real and actionable.

Alex Michael - Co-Head, LionTree Growth

I am pessimistic about sports betting from an investment perspective. With the capital already pouring into the industry and the scope of consolidation, it will be difficult for a newcomer to really gain a foothold, especially with high customer acquisition costs.

That doesn't mean some companies can't come up with some disruptive elements to the room, but I don't see how they'd hope to effectively compete against some of the financially strong players in this room these days. As a growth stock investor, I'd like to point out that there can of course be some potential if you look early enough in the investment life cycle.

What is a particular company, trend, or market dynamic that you think is not being given sufficient attention?

William DiBlasi - Director, Inner Circle Sports

The growth of women's sports. Studies show that the vast majority of general sports fans identify themselves as interested in women's sports, which is reflected in recent attendance at women's leagues and events.

Leagues like the WNBA and NWSL are seeing record numbers of viewers, sponsorship deals worth several million dollars are becoming the norm in European soccer leagues and newer leagues like the PHF are obliging tier 1 broadcast partners for the first time.

Alex Michael - Co-Head, LionTree Growth

The youth sports industry. From both a growth and an M&A perspective, youth sport is ripe for investment and consolidation. There is only huge sums of money going into youth sports real estate as parents want to keep investing in their children.

In addition, with the introduction of NIL, there is a great opportunity for athletes to make money earlier and earlier. This will result in more and more capital pouring into an industry that is undoubtedly being inundated with cash.

If your looking for the youth sports market size, one of the main search results is still a 2017 article from Time magazine. It's just a space that, for some reason, receives disproportionately little attention relative to opportunity. It's so fragmented too. There is so much room for growth and consolidation in all industries.

signing off

Special thanks to everyone who made this piece possible, and happy holidays from all of us at Front Office Sports. We hope you enjoyed reading the Sunday edition as much as we did while putting it together.

We'll be back with another Sunday edition in a couple of weeks and whatever happens in 2022, you can count on us to break it down into agonizing details for you.

Editor's note: SC.Holdings is an investor in Front Office Sports.

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