Back in late April, Microsoft and the Green Bay Packers each committed $5 million to a $25 million venture fund (TitletownTech) that will “invest in high-growth startups aligned with industries in northeastern Wisconsin.” The announcement was noteworthy if only because venture capital doesn’t typically find its way to flyover country, but pro sports teams investing in private equity funds and accelerators has become commonplace. There are now at least 25 team-backed investment operations, in addition to the 40+ sports-specific funds (several of which are backed by team owners) that exist.
Howie Long-Short: The trend of pro sports teams investing in private equity has been driven by the amount of dry powder on their balance sheets. Historically clubs were family owned businesses so there was no excess capital to play with, but as broadcast revenues exploded in the 90’s and teams transformed into billion dollar enterprises owners began to look for places to park those profits. David Simmons, founder of DESBall Ventures, explained that “throughout the 90’s and 00’s teams invested in real estate (think: stadium boom). Now that they’ve literally run out of ways to squeeze money from their franchises and venues, club owners are looking elsewhere to scale their businesses and venture is viewed as a sexy place to play.”
Venture investing is high risk in nature and with 90% of all P.E. returns going to the top 20 firms, profitability is not likely; perhaps that’s why teams claim it’s an alternative means of R&D. Club-backed funds would do well by themselves to increase the number of investment professionals sourcing deal flow. Simmons explained that oftentimes “the people bringing in the deals are senior level business executives – front-office people who are good at branding, marketing or ticket sales, but lacking venture backgrounds; they don’t know what they’re looking for.”
Simmons says start-ups look for team-backed venture capital because “the better your board of advisors is, the easier it is to get into the room [with prospective clients], the easier it is to close the deal, the easier it is to bring in additional money and the easier it is to scale the business. From a perception standpoint, it makes sense to align with an organization that has a well-established brand.” Depending on where the company is in its lifecycle, there may also be value in finding a team willing to serve as a case study for the product or service (think: to scale, you need that first client). It needs to be mentioned though, that a team’s value to a business is significantly diminished if the product or service falls outside of its core expertise.
Gambling and esports aside, Simmons believes that fitness and ticketing are sectors ripe for team-backed funds to disrupt. “Those are two industries where advancement could impact large swathes of the country and neither receives much attention in the media.” Interestingly, his other suggestion was for them to invest “in some of these start-up leagues” (think: PLL, p1440). He reasoned that the seemingly insatiable “demand for content” makes niche live sports programming more valuable than most believe.
Investing in an established league abroad, that participates in the same sport as the team-backed fund, would also seem to make sense for a big four club. As Simmons noted, “most MLB, NBA and NHL teams (Football really isn’t played elsewhere) do a poor job of both sourcing venture ideas and scouting internationally. Taking a stake in a sister franchise would seemingly kill two birds with one stone.”
As for TitletownTech, the fund will create opportunities for companies that venture capitalists on the coasts have traditionally overlooked, but Simmons warns that “restricting investments to such a small region limits the deal flow, the people and the capital it will want to attract. Limitations that will ultimately restrict the fund’s potential upside.”
Fan Marino: The Packers aren’t the only sports-related investors committed to the Titletown Tech venture fund. Owners of both the New York Mets (Jeff Wilpon) and Boston Bruins (Jerry Jacobs, Jr.) are investing alongside the NFL franchise and will occupy seats on the capital advisory board.
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