The Battle of the Balls: Why Sport is Poised to Leave Audiences Breathless

Professional Sports Balls sitting on a heap of Money

Sport is entertainment on steroids. With over US$2.5 trillion in annual revenues to fight over, the competition has only just begun. Big money, Hollywood’s legacy Studios and the next-generation of media entrepreneurs have all joined the fight.

The general rule followed by nearly all experienced, professional investors is to buy low and then sell high.

Tax authorities call the result of this investment strategy “capital gains”. If tax authorities have a term for it, then, chances are, there’s a lot of money being made. For this rule to be valid there has to be something to buy that will rise in value and then someone to sell it to when that happens. Most often that means investing into emerging companies that disrupt the established players and gain market territory in the process. It is, in fact, the very basis for the private equity fund industry and the US$13.1 trillion dollars burning a hole in its pockets.

The war chest of investment capital, or “dry powder” as it’s called in the industry, is sitting there waiting for something to buy. As it waits, it has been accumulating at 20% a year according to McKenzie’s annual survey of global private capital markets. That dry power is in search of businesses with room to grow. Much of it is now targeting an industry constrained only by global human population with a tendency to do very well in turbulent times: Media & Entertainment.

If anyone suggests that sport is not a material component of the Media & Entertainment industry, then that person is simply not paying attention. As the Media C-Suite previously reported, one of Hollywood’s most experienced CEOs has spent the past two decades tapping into sport as the basis for growth in the industry. Backed by one of the world’s largest Private Equity groups, Silver Lake, Ari Emanuel’s Endeavor Group has clocked in the largest deals ever recorded in sports with the acquisition of UFC for US$4.025 billion in 2016 followed by the acquisition of WWE at a value of US$9.1 billion in 2023.


You might find this article interesting too.

Endeavor's fight to survive as the leader of the Sports plus Entertainment revolution. Feature Image

The Fight to Dominate Global Sports and Remake Hollywood Just Started. Is Endeavor Group Already on the Ropes?

The company’s balance sheet assets are now worth more than the market value of its shares and the wealthiest international investors and legacy media majors are circling.


So, if buy-low/sell-high is the private equity mantra, why are some of the largest investors, including older billionaires and legacy private equity funds, seeking to buy into well-established sports, particularly Premiere League clubs and NFL teams, at all-time-high valuations? The answer offers a glimpse into the Media & Entertainment industry’s secret formula for generating obscene levels of profit from content consumers.

For a select group of other private equity investors, however, that same answer is informing a very different approach. For this quieter group of professional investors, betting on emerging sports and all of the new, original entertainment content that can be generated from it is pure strategy. Their ultimate focus is to acquire the legal right to earn money from the largest, fastest-growing audiences on Earth.

“It’s the most valuable intellectual property on the planet.”

Andrew Laurino, senior Managing Director of Blue Owl Capital

The key to understanding why sport is now the hottest commodity on the market is the audience. Today’s (and tomorrow’s) consumer audience wants to embrace far more than their father’s favourite sport on TV. With record valuations in soccer and football, smaller sports franchises like rugby and surfing are gaining traction among younger, diverse and more tech-adept consumers. While the largest PE firms focus on the largest sport franchises, smaller firms are partnering with creatives to deliver on that buy-low/sell-high rule.

Much of the opportunity stems from that audience. Older generations retain a rigid, conservative grasp on club membership and loyalty to place. Younger, more digitally-adept audiences, however, are less engaged by any particular sport itself than they are by the characters playing it. Soccer, football, tennis and golf have all dominated televised sport for generations. But it is the fandom following the likes of Argentine football hero Lionel Messi from Barcelona to Paris and now Miami that drives television viewership statistics and stadium attendance.

While billionaire egos may have once dominated the owners’ boxes, investment into sports teams has begun to attract professional investors who see more than sweat, trophies and side-deals at the end of the game. With over US$174 billion in assets under management, New York-based Blue Owl Capital, for example, has spent the past decade offering strategic capital support to emerging fund managers seeking entry into sport-centric media and sports teams, particularly the NBA.

“People are emotionally attached to teams and players. The value of that in media is proving out.” Blue Owl’s senior Managing Director, Andrew Laurino told Institutional Investor. “It’s the most valuable intellectual property on the planet.”

Film Poster for Jerry MaGuire
“Show me the money!” An iconic line from the sports movie, Jerry MaGuire (1996) staring Tom Cruise & Cuba Gooding Jr. (image courtesy of IMDB).

Televised sport franchises, such as basketball’s NBA and England’s Premiere League have opened their doors to private equity funds. The most valuable of these, American Football’s National Football League (NFL), is expected to vote in the coming months on allowing private equity funds to buy out older stakeholders and support any innovations that might eke out any further growth potential. There is no shortage of private equity money seeking to jump on the bandwagon for a piece of baseball, basketball, football, soccer, tennis or golf.

Yet the greater scope and scale for capital gains available from smaller, emerging sport franchises and ancillary content production or delivery platforms is driving capital into opportunities that are also attracting a growing number of fans that seek alignment with character and story as much as team colours and home turf. Depending on the season, younger fans may follow a soccer ball one day of the week and a rugby ball the next. Not because they are devoted to any particular team, but because they identify with a particular player.

Hollywood’s studio bosses have taken note. As superhero film franchises fade, a growing percentage of that audience is turning to the continuity of sport and a growing sense of inclusiveness across generational, gender and cultural demographics. From Michael Jordan to Aitana Bonmatí, David Beckham to Travis Kelce and Venus Williams to Tiger Woods, athletes offer fans real-life heroes.


This interview is squarely on point!

Philipp Grothe, Just One Question

Just One Question: Philipp Grothe

Building global Football into a multi-billion dollar sport isn’t enough for some. The Big Question beckoned.


On and off the fields, during a final showdown or in the off season, those fans follow the lives of particular athletes. And they simply can’t get enough.

What sport, as a product, offers to Hollywood, private equity and audiences alike is the entertainment value of healthy, competitive and attractive characters caught up in the real-world drama and comedy of life, as much as competition, regardless of the balls they play with.

Sport as a game may be as old as time, but sport as a genre, has arrived.

Size Matters

What Hollywood’s studio bosses know better than most, and what that select group of investors has figured out, is that the audience pays the bills. The bigger the audience, the more money there is to be made. For perspective, consider the number of people that make up the consumer audience for entertainment content generally.

As the Media C-Suite reported earlier, analysts estimate as many as 70% of the human population has regular access to the internet. Assuming a global population of 8.1 billion people, this gives us as many as 5.7 billion internet users. The vast majority of that internet traffic involves consumption of entertainment content. Some estimates put that at 6.1 billion. The Media C-Suite’s assessment is that the global audience for digital content is 6.5 billion consumers.

According to the International Communications Consultancy Organisation (ICCO), an average of 85% of global internet users regularly follow at least one sport. That’s a consumer market of 4.75 billion sports fans.

“a consumer market of 4.75 Billion sports fans.”

To put this another way, sports fans make up 85% of the global market for consumer spending on access to entertainment content. How much money is that market worth? According to PwC’s annual survey of the Media & Entertainment industry’s finances, consumer spending on access to content will reach nearly US$1.7 trillion this year alone, including the costs of internet services.

This spending has traditionally been in the form of physical tickets purchased for theatres, cinemas and stadium access for both sports and music concerts. But we, as consumer audience members, also pay for cable or satellite television, internet access and streaming services. In fact, today, most ticket sales for live events are bought on-line through internet services we pay for specifically to read, listen to or watch entertainment content. Add to this the spending on video games, books, music, news outlets and magazines and the total digital footprint of the Media & Entertainment industry comes into focus.


private equity into the big top updated media c-suite

Entertainment Grows as Private Equity Pours Money into Disruption

Private Equity investors are fast becoming the number one source of capital for a US$2.5 trillion industry struggling to cope with unstoppable growth.


This does not include the money spent by advertisers for access to those consumer audiences. PwC estimates that advertising spend will reach a record US$851 billion by the end of 2024. Much of this money is paid directly to large television broadcasters for ad-spots but it includes sponsorship to sports teams and individual athletes’ management companies. A growing percentage of this money is going to startup digital platforms offering next-generation access to sporting events, athletes and the lives they lead.

2024

US$1.7 Trillion in Consumer Spending
on Access to Entertainment Content

Plus

US$851 Billion in Advertiser Spending
on Access to those Consumers

Sports is rapidly rising as the number one attraction for consumer audiences around the world.

Dedicated fans of local football clubs, basketball teams and tennis tournaments are valuable. Even so, the growing number of casual viewers interested in the drama, competition and social buzz around sports generally, and individual athletes in particular, are becoming priceless.

Big Money’s Eye on the Prize

The topic of investment into sports intuitively directs attention to teams, and this is the prevailing topic of discussion among media outlets reporting on private equity investors in this space. There is good reason.

Last month, Texas-based Arctos Capital announced the US$4.1 billion final close of its second major fund focused on investment into professional sports teams. Between its two dedicated sports funds, Arctos Capital now has approximately US$7 billion under management, billing itself as the, “largest aggregation of institutional capital dedicated to professional sports franchise investments.”

Arctos is not alone. Not at all.

As of February of this year, Private Equity has invested more than US$243.8 billion into as many as 63 major sport franchise teams according to data from Pitchbook. The NFL is expected to vote in favour of allowing private equity money into its teams within months to allow Private Equity in and existing shareholders a chance to exit at sky-high valuations.

RedBird Capital Partners is another player. They invested into Fenway Sports Group in 2021. That deal valued Fenway, the parent of the Boston Red Sox and Liverpool FC at US$7.35 billion in enterprise value and US$6.5 billion in equity value. The group then added the PGA Tour, SpringHill Co. and the Penguins increasing Fenway’s valuation to between $12 billion and $13 billion according to RedBird.


Read this related article.

Jeff Zucker leading the charge to run PE firms investing in M&E. Feature Image.

Media Execs Continue to Drive Private Equity Investors into Media & Entertainment

Jeffery Zucker, former CEO of both CNN and NBC/Universal, to helm new US$1 Billion Joint Venture Investment Firm named RedBird IMI.


The bandwagon for investing in sports teams is well on the move. Still, many professional investors are also looking at a deeper value opportunity at the point in which sport and entertainment blend into something more than either. While investment into teams is being shouted across the bleachers and cheered on from the field, truly smart money is very quietly investing on the sidelines.

The reason:  No professional sports team is worth a penny without the fans.

What makes a sport “professional” is the ability to generate revenues, and that cannot be achieved legally without the creation and management of intellectual property rights to its commercial content. That content can be live, game-day play at the stadium, documentaries that take us into the locker-rooms or scripted drama that converts hearts and minds into adoring fans. The value of sport, any sport, on and off the pitch, is worth more than any individual sport franchise or team. Managing the image rights to star athletes is a billion dollar business from sponsorship and advertising spend, but the lives those athletes lead attracts more attention than any advert.

Yet another large sport investor is Luxembourg-based CVC Capital Partners, which announced its intention to go public on the Amsterdam Stock Market with a valuation of as much as US$15 billion with over US$186 billion in assets under management.

Investors like CVC are taking a much more active role in the acquisition and management of intellectual property rights attached to sports, which have become increasingly valuable as streaming technologies and digital content platforms usurp the traditional revenue streams of broadcast and satellite television. For example, with a US$150 million investment into the Women’s Tennis Association (WTA) last year, CVC acquired a 20% equity stake in WTA Ventures, a new subsidiary tasked with managing sponsorship, digital distribution and broadcasting rights.

CVC did a similar, if larger, deal with Spain’s LaLiga in 2021, committing as much as US$2.2 billion into the league and inking a 50-year deal for a stake in LaLiga’s rights management company. But it is CVC’s moves into rugby that reveals an underlying strategy. In 2021, CVC invested over US$500 million for 14% of Rugby’s Six Nations’ Championship tournament. In its press release, CVC noted that its intent was “to attract a new more diverse and global fan base”. That strategy is focused on the players and on content designed to introduce audiences to rugby. For instance, this year’s tournament marked the first time that rugby players’ names are printed on the back of their uniforms, something the English Premier League (and nearly every American sport) has done for at least 30 years.

But it is the production of a documentary, Full Contact, now renewed for a second season on Netflix, that demonstrates the convergence strategy between sport and entertainment by CVC and others.

Remember, Silver Lake? The 11th largest private equity group on the planet, Silver Lake’s full name is Silver Lake Technology Partners with a heavy emphasis on the digital technologies that have revolutionised the Media & Entertainment industry. Silver Lake is also invested in sport, with a recently increased 7.5% stake in New Zealand Rugby. However, it’s big play is the full acquisition of Ari Emanuel’s Endeavor Group, an integrated media conglomerate with its roots in talent management that has been purpose-built to meld the excitement of sport with the content generation capacity of Hollywood.

This merger between sport, private equity and Hollywood is in full swing and gaining momentum.

Last year, Jeffery Zucker, former CEO of both CNN and NBC/Universal, took over the US$1 billion private equity JV between RedBird Capital and Abu Dbabi’s International Media Investments group. His mandate is to acquire stakes at the intersection between technology, entertainment and sports that will help drive content to global audiences.

The Big Screen

Once referred to as the “Silver Screen”, today’s movies and television shows have proliferated across screens now propped up on our laps or held in the palm of our hands. Feature films have been joined by scripted series, reality TV and live sporting events. The number and types of entertainment content may be endless.

Despite the overwhelming weight of creative talent that writes, produces and performs for the world’s audiences, Hollywood’s studio bosses are not credited with an over-abundance of imagination. Most decisions on which films and television shows are actually distributed and delivered to audiences are taken by a very small number of studio executives that prefer to repeat what has already been applauded than take any risk on something new.

The result is an industry that has become over-reliant on super-hero franchises and re-makes of classic stories that were once original ideas. Audiences within the most lucrative media markets may soon be offered no films or TV shows that are not sequels, re-makes, spin-offs or reboots of earlier fare.

That risk aversion has hollowed out Hollywood into an effective ghost-town of original content. The revenue models and market value of the publicly-listed media conglomerates is being eroded as a result. Even Disney has faced shareholder revolt and intense scrutiny of its financial projections. Others face similar issues. The once certain hegemony of the Media Majors now hangs in those balance sheets.

What Hollywood’s studio bosses have been in desperate search of is a genre, any genre, to replace the superhero movie. From the Hulk and Thanos to Aquaman and even Wonder Woman, Hollywood has some very big shoes to fill.


Intangible Matter

The Insanely Lucrative Ownership of Intangible Matter

This year alone, media executives and corporate shareholders will feast on the leftovers of more than US$2.5 trillion in annual revenues from a product literally willed into existence.


How big? The Marvel Cinematic Universe, which has arguably kept the Walt Disney Company (and hundreds of thousands of production workers) afloat over the past twenty years, has earned more than US$29 billion in global box office receipts. That is just the movies; 33 of them, according to Business Insider. It is unlikely that many more of these films will be made. They are expensive and repetitive. Investors are becoming better educated and audiences simply want something better.

By following the influx of private equity money into sport, those Hollywood studio bosses are now betting that sport is the next great film franchise. And it fits their risk aversion to a tee.

Sports content has that built-in fan base that film distributors and TV acquisition execs love. The spectacle of action on the court, the pitch or the field is exciting, and the drama of sporting heroes’ personal lives are real. Conversely, great sport-centric content creates new fans and drives them into stadiums. Just look at the impact on Formula One after the Drive to Survive series on Netflix, or increased interest in rugby after Full Contact.

Sport-centric film has generated billions as mini-versions of superhero movies at a fraction of the cost. The “Fast and the Furious” franchise, for example, has to date grossed over US$6.5 billion for Universal Pictures according to Wikipedia.

But it is drama off the field, not action, that many creatives and audience members alike hope to highlight.

The Blind Side (2009), for example, grossed over US$309 million in global box office receipts for Warner Bros. Pictures against a US$29 million budget.

What Hollywood wants is the next fifty iterations of Jerry MaGuire (1996; US$273.6 million), The Longest Yard (2005; US$191.5 million) and The First Slam Dunk (2022; US$257.5 million).

Luckily, both private equity and creative entrepreneurs are just as interested in truly original content as audiences are. And, unlike Thor and Superman, genuine sports heroes have a voice in what is delivered to their fans.

While the pressure of audience expectation mounts, and money accumulates, the creative industry can begin to dust off that desire to write good scripts, produce good movies and deliver great performances.

For private equity investors in sport, this means more sports fans. For those that own a piece of both sport and Hollywood, it’s a win/win.

Audiences everywhere are breathlessly waiting.

Leave a Reply

Previous Story

Private Equity’s Inevitable Impact on Media and Entertainment