Sports Investing Strategies
- Barstool Sports’ Dave Portnoy had bought just one stock in his life before the quarantine hit. When the country shut down in March, canceling sports and sports betting, the founder of the brash.
- That said, you can invest in sports in myriad ways. Bankrate looks at various sports investments, from owning a minor league team to investing in sports-related stocks to owning a health club.
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Speak to any self-respecting venture capitalist and they’ll likely talk up the importance not of investing in a particular product or service, but the people behind it.
Conventional wisdom within the investment community says that establishing trust in an entrepreneur or founding team is a critical part of the due diligence process, perhaps even more critical than determining the future potential of a company’s solution or business plan. At a time of restricted personal interaction and economic upheaval, however, the process of building much-needed rapport between individuals has only grown more challenging.
Nevertheless, startup investors and founders have found ways to connect and do business during the coronavirus pandemic. In recent months, major funding rounds announced by startups of all kinds have clearly shown that business is booming in the burgeoning sports tech sector, and there have been few signs that the onset of Covid-19 has had any discernible impact on investor appetite whatsoever.
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One investment company that has remained notably active throughout the pandemic is Silicon Valley-based Sapphire Sport, a US$115 million venture capital fund which was launched by Sapphire Ventures in early 2019 to invest in early-stage technology companies at the intersection of sport, media and entertainment.
Backed by an investor group comprising no fewer than 24 limited partners whose businesses span the full gamut of the sports media industry, Sapphire Sport's financiers include everyone from heavyweight rights holders such as Major League Baseball (MLB) and City Football Group (CFG), to major brands and organisations like AEG, SAP, Sinclair Broadcast Group and Adidas.
Upon launch, the fund boasted an investment portfolio of five sports-related startups, including at-home fitness system Tonal - which recently raised US$110 million amid surging interest in connected fitness - and the ultra-successful digital network Overtime. In the months since the Covid-19 outbreak, it has injected further capital into at least two more companies: Buzzer and GreenPark Sports, both of whom feature on SportsPro’s latest list of sports tech ideas to invest in now.
Shortly after those deals were announced, SportsPro sat down for a virtual chat with Michael Spirito (left), a founding partner at Sapphire Sport and former 21st Century Fox executive, to find out more about the fund’s approach to sports tech investments and how it has been able to navigate the pandemic.
Generally speaking, what has been the impact of the pandemic on the sports tech space? Has it opened up new opportunities to invest, perhaps brought new companies and solutions to the fore that were previously flying under the radar?
Just to rewind the movie a little bit to when and how we launched the fund about two years ago. We’re the early-stage fund at Sapphire, we’re a first-of-its-kind fund. We’re investing in the future of consumption and the technologies that are helping drive consumption paradigms and consumption business models now and into the future.
The trends that we were already witnessing in consumption, and quite frankly that we were investing against, going back a couple of years have only been magnified, intensified and accelerated [by the pandemic]. We’re looking at what products are out there or being contemplated or launched, what entrepreneurs are out there building products that will help drive better and more efficient forms of consumption.
The other bucket we look at is the stakeholder world: teams, leagues, athletes, media rights holders, brands, sponsors, merchandisers, retailers, etc. Every part of that world is involved in the consumption ecosystem, and all they’re trying to do is better their linkage to the end user, the fan, the consumer, whoever it might be.
These industries have been fairly slow to evolve and createhttps:>
How has the pandemic affected the way in which you, as an investor, go about the business of meeting entrepreneurs, understanding the concept, and ultimately doing the necessary due diligence?
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It’s a great question and, quite frankly, the best and most poignant question you can ask somebody in my position, as an investor, in this incredibly unique period of time. We’ve never seen a period of time like this. Any other period of market disruption - whether it was 2001, 2008/09 - you could still see people in person. There’s nothing you could do to prepare yourself for a period of time in which personal interaction basically gets shut down for an indefinite period.
I’ll speak on behalf of Sapphire and as part of the venture investing community in Silicon Valley and beyond, and how we think about the process of getting to know an entrepreneur, getting comfortable with a founding team and an idea, and what the steps are toward making an investment.
It requires a different way of thinking about it and the ability to get comfortable over a video call.
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We’ve actually done three new investments over the past several months, the first of which was Buzzer. Bo is somebody that I knew previously. We actually started to put the deal together at the NBA All-Star Game in Chicago in mid-February, one of the last events that we were all at. We started to put together what that would be right before Covid.
Since then it’s been interesting and challenging to get to know entrepreneurs over Zoom. In some cases, I’ve been able to go on socially-distant walks and coffees with entrepreneurs when the opportunity has presented itself. We, again, have gotten to the point where we’re in the process of closing an investment in companies and with founders that we actually have not met in person, so it requires a different way of thinking about it and the ability to get comfortable over a video call.
You do the same type of diligence, you do all the similar types of checks and balances and customer calls before you make an investment, but you really have to cross that threshold on the personal relationship basis in this environment.
Just like every venture investor who has negotiated, done diligence and closed a deal with an entrepreneur they actually haven’t met in person, we’re not going to know what that is going to yield until years down the road. But in the cases where we have made that investment without meeting in person, we’ve just made the adjustment and gotten as comfortable as we possibly can.
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Even if they are all seeking new ways of driving consumption, how do you ensure any investments you make align with the differing interests and expectations of your various limited partners?
Each vertical within the industry, from a stakeholder perspective, is represented in the fund - that’s why it’s a first-of-its-kind fund. Each of them, in their own way, is trying to build a better connection to their end consumer, and it’s through technology, it’s through digital product. We, as a Silicon Valley-based investment firm, are doing that - that is what our stated goal is.
When we look at where the opportunities are for investment, we’re looking at where the big marketplaces are within that - digital health and fitness, gaming and esports, digital and next-generation media - and then the enterprise and infrastructure that runs all of that. That’s where we think the biggest potential drivers of value from a venture investment perspective are, and that benefits everyone within our LP group.
Sports Investing Strategies
At the end of the day, our LPs are financial investors; they are investing in a venture fund, such as Sapphire, toward long-term financial benefit. But we have the unique vantage point to look at these worlds in which we’re investing, where the use cases are, through these LPs and their lens. If they’re all trying to solve the same goal, even if they’re operating in a different part of that realm, [there is] a unifying theme.
Finally, what is the most overhyped sports tech trend or product heading into 2021?
I would say it’s more interesting and more resonant as digital products that better link the brand or the entity to the consumer are being thought about, but if AR/VR doesn’t happen now, it’s not going to happen. There’s never been a better tailwind for that part of the industry. It was over-invested about two or three years ago and subsequently became under-invested over the past 12 to 18 months.
To me, I’m still yet to see the consumer adoption or the use cases around great AR/VR products, so it’s an area where our tentativeness towards investment probably hasn’t changed. We’re still tentative about what that industry might bring to bear.
This interview forms part of SportsPro's Sports Tech Investment Week. Read more here.