Investing in sports – a MAJOR problem?

The last few years have seen an explosion in external investment into sports.  Football, rugby and cricket have seen deals at club and league level reaching into the hundreds of millions and billions of dollars.  But there are three major sports – each global, each with substantial fanbases, positive economics and commercially attractive demographics – where the investment story hasn’t really happened, has only happened at a small scale, or is yet to be proven.

Those sports are cycling, tennis and golf. What is it about these three sports that have made it difficult for external capital to make an impression?

Complex calendars and multiple events might be one explanation.  Mass participation blurring the definition of what constitutes a “fan” might be another.  But we think that there is another reason – the “major” reason.

Significantly, each of these sports has “Grand Slam” (or equivalent) events – which capture a huge share of value, an even bigger share of interest, and are the ones by which players (and history) measure their careers.  As John Feinstein puts it in his seminal The Majors: “Four times a year, these guys go out to play for Forever.”

These events define their sport.  In the UK, the vast majority of tennis “fans” have no interest in the week-to-week machinations of the ATP Tour or the WTA, but are entranced by the Wimbledon fortnight; in the US, golf means The Masters and, pretty much everywhere, cycling means the Tour de France (and vice versa).

Those events have their own individual broadcast and sponsorship deals, which can be multiples of others in the sport.  Players fight to get into them, and fans fight for tickets to watch them.  Depending on your point of view, the rest of the sport either benefits from the halo effect these events generate, or suffers in its shadow.

But from an investor’s perspective, it’s really hard to enact meaningful change without having these events on board.  But if you own one of these events, why would you give up the privileged position you already have?

Until these sports find a way to present a united front and agree a common way forward, they risk being overtaken by sports that have secured external investment and are using it to step change their performance by investing in digital services, data and fan engagement activities.

So, what can be done?  An investor could try to create a new event which outranks the others – where the prize money, the player and the fan experience make everything else pale by comparison.  But even that would take time to establish itself as a career-defining moment.  We think that investors need to work with the existing major events – offering minimum guarantees, equity shares and governance participation – to bring them into the ecosystem.  The threat of a new event could focus minds, but carrots work better than sticks. And there will always be an incentive to be the first to agree – even though you might want everyone to hold out for the status quo, can you guarantee that your rivals will?  Even sport can have its version of the Prisoner’s Dilemma.

Obviously, this would increase by an order of magnitude the capital required by any investor.  But with a whole sport aligned, these three sports represent the next big opportunity in sports investment.

O&O has helped global investors assess and execute investment in sports properties around the world, and helped sports bodies and rights holders attract investment and manage the investor process.  Our work highlights the importance of understanding the whole ecosystem of a sport and how it can be managed to make each element sustainable.

Reach out to Sean McGuire at sean.mcguire@oando.co.uk if you would like to know more.