Whenever sport is for sale, private equity is not likely to be very far away.
Matchroom Sport, the privately-owned promotions company led by father-son duo Barry and Eddie Hearn, is reportedly the latest to be a target of private equity investment.
Some of the biggest private equity names such as KKR, CVC Capital Partners and Searchlight Capital are said to be interested in a deal, according to Sky, which pointed to a possible 25% stake in the Essex-based firm being priced at around £175mln.
If such a deal were to occur it would value the 40-year-old business - which was initially founded as a vehicle to promote 1980s snooker champion Steve Davis and nowadays counts boxing superstars Anthony Joshua and Canelo Alvares as its flagship clients - at somewhere between £600mln and £700mln.
Matchroom is far from alone in regard to attracting the attention of private equity.
Chelsea Football Club were bought for more than £4bn by LA Dodgers and Draftkings co-owner Todd Boehly, supported by funds from PE-buyer Clearlake Capital.
Luxembourg-headquartered CVC Capital has been particularly active in sports businesses taking stakes in Spain’s top football division, LaLiga, Indian Premier League cricket team Gujarat Titans, and has 14% stake in the Six Nations international rugby union championship.
CVC was rumoured to be in the bidding for a slice of the company that owns the commercial rights for the New Zealand All Blacks rugby team, but, was pipped to a deal by Silver Lake, the private equity firm that was among the buyers of the UFC back in 2016.
We could go on, but, there’s no need to labour the point too.
Why is private equity buying up sports?
According to Conrad Wiacek, head of sports analysis at GlobalData, sport almost always offers a “guaranteed return on your money.”
“Ultimately, that’s what private equity firms are all about,” the analyst said.
Wiacek meanwhile says sport is now the “last Bastian of appointment TV.”
The rise of streaming sites such as Netflix, Amazon Prime and Disney+, as well as the BBC iPlayer, has meant viewers can ‘watch TV’ whenever they like.
Practically everything is on-demand, and, very little remains as scheduled programming.
Sport is of course different. It starts at a set time and we mostly all watch at the same time.
The very nature of sport and competition means there’s little appetite to watch a game after the result has been decided.
In a fragmented media market, a major sporting event narrows an audience's focus upon a single place and time like few other assets can. This is “exceedingly appealing” for private equity firms, particularly from an advertising point of view, Wiacek highlighted.
Advertising
The three revenue streams that private equity firms will be looking for at is broadcast rights, merchandise and advertising.
The live-ness of sport means that some companies “build their entire marketing strategy around sport” he noted.
Wiacek points to this year’s winter’s FIFA World Cup as an example of the game’s reach.
That the World Cup this year happens in winter so that it can be hosted in Qatar, is another story about influential investors in sport – but perhaps let's park that for another time.
Despite the controversy surrounding Qatar’s winter World Cup, Wiacek still expects the month-long event to draw in over a billion viewers.
It is an “audience that no other product can deliver,” he added.
“Companies will pay millions to be associated with FIFA, and they will get a global reach as a result of that, something you aren’t getting through an advertising campaign.”
The same can be said for club football, as CVC Capital knows, for example, as companies will pay top dollar to have adverts shown on the boards in LaLiga stadiums and the private equity firm will see a 10% slice of any deal.
Broadcast rights
Broadcast media rights are though the crown jewels of the sports industry.
Glance at some of the numbers involved, and it is easy to see why.
Broadcast revenue for the current English Premier League rights deal generates around £10.3bn.
It’s an eye-watering amount, even before it sinks in the so-called ‘big six’ clubs receive nearly half of the total revenue, because of a combination of league position, and, the number of times their games air over the course of the season.
Perhaps, it also speaks to the earnings potential mooted for the attempted breakaway ‘European Super League’ which, had it not calamitously fallen on its face within a week, would probably involve some amount of private equity cash (even if JP Morgan was initially funding the venture).
It isn’t just football reaping the rewards.
By Wiacek’s measure, ESPN secured the rights to broadcast Formula One in the United States on much improved terms for the sport, up from US$5mln to somewhere between US$70-US$90mln a year – after Netflix sprinkled its binge-watch-inducing magic dust on the motorsport that previously struggled to garner any momentum in America.
Figures like that further underline the point, that private equity firms may look at sport as a source of guaranteed return on investment, especially in harder and more competitive times.
Merchandise
Merchandise has always played a big part in sport, though it has come a long way from rattles and knitted scarves.
Increasingly fans and consumers snap up the latest kits, which seem to come around ever more frequently, and the rapidly expanding catalogue of consumer goods with a club crest slapped across them.
Then there are the more discerning collectables, memorabilia and trading cards.
The rise of Fanatics, an online American retailer points to how big and how popular this segment of the industry becoming, growing from a start-up to a reported US$27bn valuation in just over 10 years.
Merchandising and finding ways to make the sport more interesting outside the sporting events themselves may be key in the future, as the so-called ‘gen-z’ become distracted or disinterested, according to Wiacek.
“There is an idea that sports viewership and sports consumption is actually going down among younger people.”
“Ultimately, if you’re under 21, there are more things that you can do with your spare time compared to 20 years ago, so sport isn’t always the priority.”
“From that point of view, there is a train of thought that sport has to engage with youngsters much more directly and in more creative ways, otherwise there’s a risk that they’re not going to survive.”
For private equity firms, meanwhile, merchandising and brand collaborations can be an avenue to increasing income, as well as another channel to engage with fans.
Whichever way you cut it the name of the game is cash and elite-level sport is apparently one of the few business opportunities that, for them, rarely lose.