Private equity in sport … industry experts give their opinion

Unlike other business transactions, transactions involving sports assets can be emotional. The feverish scenes surrounding Manchester United’s recent home games are a case in point.

Last month, New Zealand rugby voted the sale of a 12.5% ​​stake to US investment firm Silver Lake, meaning that for the first time in its history the iconic All Blacks will not would not be fully owned by New Zealanders. The deal sparked a major debate in the country over fears that the gaming culture could be diluted by investment, even if the governing body and sport require a substantial financial injection.

In the wake of the Covid-19 pandemic, which has put intense pressure on the finances of almost all sports, SportsPro asked a number of industry experts for their perspective: Can we expect more private equity firms to invest in sports or sports-related businesses in the Asia-Pacific region ( APAC)? Are there areas of the sports industry in Asia-Pacific where private investment would be welcome?

Additionally, with many APAC sports assets having capital values ​​significantly lower than their European or North American counterparts, are they an attractive proposition or is the market not yet mature enough?

Holly Millward, Managing Director, Asia, CSM Sport & Entertainment

Covid-19 has been a wake-up call to sports organizations around the world, with the majority under immediate financial pressure and exposed to significant risks from long-term partnership investments.

In addition, with the acceleration of digital sports consumption, sports companies as well as sports-related media and technology companies are increasingly gaining the attention of investors. The opportunity represented only by numbers and trends adds to this positively in APAC.

The pace of economic growth, the world’s most populous countries, untapped but large fan bases, and technological innovation all indicate potential value in sport at a pivotal time.

In my opinion, there will always be an uncomfortable growing pain that will occur when the emotion and tradition of the sport meets the necessary innovation (and precipitated by Covid-19, in some cases it becomes an intervention for survival).

Ideally, the private equity firm should understand the goals of the organization beyond just quick money. As we have seen recently, it is a mistake to ignore the fans, but the sport also has to face commercial reality.

In the APAC, sports showing a rising trend such as marathon and mass participation, non-professional football leagues and women’s sport represent a significant and currently undervalued opportunity.

The market could be considered immature if judged on the basis of sports organizations per se. But the sports business means more than struggling governing bodies. This means esports in Asia, new technologies and innovations from companies in the region. It means global sports with a huge and untapped Asian audience and associated organizations looking to expand their reach and engagement.

Redefining the strengths of Asian sport will redefine the value and we believe that will ultimately be important.

ITTF has spoken publicly about the possibility of leveraging private investment to accelerate the development of World Table Tennis

Matt Beyer, General Manager, East Asian Super League

As more people in Asia place more emphasis on health and wellness, as well as experiential shopping, the sports sector paradigm shifts from a federation-driven model to a business model. . It makes sense for private equity to look for opportunities to market well-known sports assets, which may be cash strapped at the moment.

There will always be sensitivities on the part of some stakeholders, especially with the privatization of semi-public assets, when there is a change in the status quo. The important thing for investors to do is to anticipate potential areas of pushback and engage in active stakeholder outreach to demonstrate how private equity investing will actually add more value to assets, as well as their growth and long-term stability.

Until the last five to ten years, depending on the sport, the Asian sports market was relatively immature compared to the European and North American sports markets. However, with the continued boom of Asian economies, the region’s population growth coupled with the proliferation of huge growth in digital and mobile technologies, the value of Asian sports assets has increased in kind and is extremely promising.

With more local Asian stars being trained in their countries, Europe and North America, the talent level of various sports will continue to increase in parallel, making the quality of viewing assets higher and higher.

The future is bright for Asian sports, and now is the time for savvy investors to jump in before asset prices soar like they do in Europe and North America.

David Gregory, Senior Strategist, Octagon

Sport is a growing industry, especially in the APAC. It is the latest live and date entertainment product and private equity will see the potential as well as the opportunity to make a good deal due to the financial pressure Covid has placed on many rights holders.

While private investment and ownership has typically focused on teams, private equity is likely to look to leagues to mitigate the risk that individual or team performance will affect their investment and to provide a level of control over broadcasting rights.

It is in well-established institutional sports such as football and rugby union that we see the most decline due to the threat that private equity poses to the traditions and culture that have been built over the years. hundreds of years.

I think a private equity investment would be more welcome when it a) does not threaten our beloved team / league / sport, or b) when there is no connection between the fan and the sport. Areas like media, digital platforms or entirely new sports where there is no existing institution to threaten.

The relatively low value of Asian sports properties is certainly an asset for private equity. Not only are they less mature in their development, but there is a truly exciting time of major world events to come in the region which will only increase the local appetite for sport and further establish the region on the sports map. global.

Australian Central Coast Mariners have been linked with US investments

Mark Thomas, Managing Director, S2M Consulting

I think this will be inevitable both in terms of attracting financially struggling sports organizations due to Covid, and pushing private equity, seeing the opportunity the sports industry can offer in terms of return.

However, sports rights holders should be wary. Private equity investment may seem like a welcome financial boon, but it is potentially short-sighted, as much of it will go to paying off debt and losses, coupled with diminishing long-term business benefits via a percentage of lower dividends. In many cases, debt or other forms of financing that do not cede equity or control might prove to be a better long-term strategic option.

Certainly, there are many areas where private equity can support our industry, including the transitional opportunity it offers struggling sports companies in Asia to survive and thrive during the pandemic.

Private investment can offer mature sports organizations looking to expand into areas of technology or business growth a good source of funding. It can also offer support to start-ups looking to establish themselves and accelerate their growth.

However, this should be evaluated with the caveat of being a good strategic and cultural fit. The last thing that is needed is for an investment firm to become too involved in the control and decision making of a firm that it knows little about and this would be best understood as a strategic investment that allows experts to manage. the business so that both parties maximize return.

Of course, Asia does not have the quantity of what can be called “leading” sporting assets as we see in the West. These assets have typically built their brand equity and fans over a much longer period of time and offer a lower risk profile coupled with the possibility of relatively quick returns if effective strategic, organizational and business reform can be initiated through forward management. -keeper.

However, Asia has many strengths to play, including faster growth and lightning-fast adoption of innovation and new technologies which can be extremely attractive in any investment scenario, including sports. . It is also the opportunity to bet on what will be the emblematic sports rights of the future and to embark at an earlier stage of development.

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