Given the unprecedented economic impacts of the Covid-19 pandemic on all facets of business and everyday life, a tremendous amount has been written on what the sports industry recovery may look like. And many prognosticators have opined that post-vaccine, crowds will return en masse, picking up where they left off. And, voila, everything will return to “normal.” Well, not exactly……
Having one leg in the traditional sports finance business (i.e. mergers and acquisitions, and stadium advisory) and the other in the start-up digital media space, working for US-based platform Overtime, I have a slightly different view than many of my contemporaries.
While I believe that overall franchise and league economics will return with a vengeance, my strong sense is that the individual business components of a team’s P&L will deviate from pre-Covid-19 days. And three distinct trends, which are simply an acceleration of what is already taking place in the business world, will emerge to help drive this recovery, and, in fact, provide teams with the opportunity to improve economics and asset value.
Monetizing Digital IP
Teams are generally quite adept at selling tickets, media (linear TV), sponsorships, food and beverage, etc. and they have gotten quite creative recently as they deal with market dislocations (subscription plans to deal with unsold ticket inventory, replacing an overabundance of suites with small seating groups, to name two). But they have not yet cracked the code on monetizing digital content, or at least maximizing digital content. Observing how Overtime has cracked the code, developing community, content and distribution, has made me realize what an untapped resource digital IP has become.
That belief has been amplified through a whole host of “proof of concept” mechanisms – from Fortnite social lobbies to player livestreaming, from Netflix watch parties to Barstool Sports on Twitch, from bite-size Quibi content to online Travis Scott virtual concerts. Gen-Z wouldn’t have it (and won’t have it) any other way than two-way communication. But will monetizing digital intellectual property happen overnight? Of course not. But it does not have to, as this tremendous asset can be leveraged through creative financial engineering (see below).
Brand Leveraging
Amazon is forever building one and everyone else wants one for themselves. What is it? A Moat, of course. And teams and leagues have the biggest, baddest Moat of them all….control of their respective markets. While franchise values have increased dramatically over the past decade, one can cogently argue that values should be higher still based on this Moat. I’m glad to see the leagues addressing this issue by considering of a variety of changes in debt rules and limited partnership ownership structures, balancing the need for liquidity with prudent leverage requirements.
I typically advise my clients on brand extension strategies, leveraging the community created by the franchise to partner, license or acquire additional assets – additional sports franchises, real estate surrounding the team’s venue or practice facility, or related media and tech businesses. By stitching together these businesses and then connecting them under a central theme allows sports franchises to start to achieve their full potential and leverage their Moat.
Financial Engineering
While monetizing digital IP and brand leveraging will lead the way in improving operations, the third leg of this three-legged stool is financial engineering. This is not a new concept outside of the sports world, and creative teams are figuring out new ways to monetize their brand and assets.
Fortunately, tremendous equity value has built up over the past decade, if not longer, enabling various financial engineering solutions to emerge. These solutions enable team owners to utilize future economics and value capture to smartly remedy current cashflow and operating constraints.
I am currently advising several teams on these types of financial solutions, and, having witnessed more than 120 different stadium financing solutions for the most recent generation of new venues, I will be the first to attest to the “there is no one size fits all” solution. But the good news is that there are myriad solutions.
Bottom Line: Creative and innovative teams are poised to take these concepts to the next level, and, as a result, will use Covid-19 as an opportunity, not a crutch.
Mitchell Ziets is the chief executive of Tipping Point Sports LLC, a boutique sports advisory firm.
