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January 11, 2023

Sports Investment Themes to Watch in 2023

SportsTechX called 2022 the ‘Year of the Fan’. Of the nearly $10 billion invested in sports related technology companies last year, 62% of those dollars went toward “fan-focused solutions” (think: content platforms, fan experiences, and fantasy and sports betting companies).

More capital is expected to flow into the category in ’23, even as the U.S. consumer softens and with interest in Web3 having waned. Investors remain eager to capitalize on the fundamental shift in consumer behavior that has occurred over the last two years.

“This might be an oversimplification, but during COVID consumers accumulated a bunch of stuff to make up for the fact that we weren’t experiencing things in the same way,” Greg Bettinelli (partner, The Chernin Group) said. “Now [that life has returned to normal], we are relishing the value of experiences.”

That is true whether the experience is delivered via television, a podcast, in stadium or in a fantasy sports application.

The realization that “many of those experiences have been underpriced or undervalued for a long period of time, or at least there are a lot of people willing to spend more money than they had been in the past,” has only served to fuel investor enthusiasm, Bettinelli said. 

Conversations with four venture and growth capital investors suggested the growing influence of the content creator/influencer economy, globalization and artificial intelligence are among the other sports-related themes smart money is following closely this year.

Companies across the sports and entertainment sector, big four rights owners excluded, have watched their valuations fall from ‘21 highs. “Even great companies have been adversely impacted” by the macro-economic headwinds, Bettinelli said.

At least some investors believe the slide will continue into ’23. “We still may spend the next 12 months giving back to where we were from 2017 to 2019,” Bettinelli said.

If that prediction holds true, Alex Michael (co-head, LionTree Growth) said it would almost certainly lead to further consolidation amongst the “digital sports offshoots” of the last several years (think: sports betting, connected fitness, digital media).

It would also likely drive out some of the investors drawn to sports and entertainment during the run-up. Downward pressure on valuations “forces people to move to other sectors or find other places” to invest, Bettinelli said.

Investors willing to continue betting on the U.S. consumer should find some intriguing opportunities in sports, at a good value, and less competition for them.

As noted, some will be in fan-focused entities. “Companies that deal with enhancing fan data, enabling new channels for fan communication/marketing, providing access to fan ownership and building loyalty/benefit programs all tap into [the ongoing fan acquisition and development] trend” and should draw investor interest, Steve Ahern (partner, KB Partners) said.

The ongoing shift from linear television to digital media platforms will also spawn opportunities in sports content creation, sharing and distribution. Michael expects to find value in the pick and shovel businesses serving digital media companies (think: streaming ad tech, personalization of content).

Today’s young fans consume much of their sports content on YouTube, Instagram and TikTok making content creators and influencers with large social followings valuable to rights owners. “The way influence is being created is just so different now,” Bettinelli said. “That should cause a lot of disruption [and potential for value creation] down the line.”

That value could come in the form of a new vertical-specific social platform. Several companies focused on niche areas of the sports market have emerged in recent months and KB Partners associate Matt Howard believes “there is real opportunity [for them] to create strong product market fit and loyal customer bases.” Athena Fit (health & fitness), All-Athlete (LinkedIn for Sports) and Glow (Women’s Health) are among the platforms he cited.

It could also come in the form of a company that supports content creators and the influencer economy, like one that helps to uncover content creators and influencers earlier or one that provides services to them. TCG has partnered with Night Media, the talent management co. that represents MrBeast.

There may be opportunities for strategic investors to help sports-centric influencers and content creators commercialize their fan bases too. Remember, TCG helped Barstool monetize the bottom of its funnel after initially backing the company in 2018.

While investor interest in sports betting has cooled, companies successfully reaching and/or attracting non-traditional sport bettors should not have an issue attracting backers. “The sports betting offerings that target a niche customer base like women (think: Goss) and casual bettors are intriguing to us,” Howard said. “With over 30% of sports bettors being women, it would make sense that money will be prioritized to target these markets more directly. In general, we are big fans of platforms mixing traditional sports betting with pop culture relevant items to broaden the engagement.”

Globalization is another theme to keep an eye on. “From a monetization or commercialization perspective, [global sports properties are still] not commercialized the same way as they are here,” Bettinelli said. Strategic investors can still come in, add value to these businesses and generate outsized returns.

Expect the flurry of investment activity in and around newer domestic sports properties to continue in the year (think: Drone Racing League, World Surf League, Major League Pickleball). “Properties that wouldn’t have had an opportunity in a previous media and tech landscape to find their footing, now have an opportunity to tap, reach, build and monetize audiences in different ways knowing the core broadcast model probably doesn’t work for them,” Michael said.  

AI is arguably the thematic of the year in Silicon Valley. So, it’s safe to assume investors will be looking for opportunities at the tech’s intersection with sports. “Generative AI that can create IP will have sports applications,” Michael said.

As will AI that can enhance fan data or aid in the talent identification process. That does not necessarily mean identifying future players. It could be a content creator or influencer, who can help rights owners engage the fan base or attract new fans.