Record amounts of capital are being invested into exchange-traded funds comprised of “woke” environmental, social and governance (ESG) companies. $22 billion has poured into ESG-themed ETFs through the first 10 months of 2020, triple the total amount invested in the space all of last year. While Wall Street has embraced the social responsibility and environmental sustainability trends, the sports industry has been slow to participate; outside of a couple high-profile sponsorship pacts (see: Climate Pledge Arena, Ball Arena, the Utah Jazz’s 5 for the Fight patch) and the recent voting campaigns, few big four sports teams to date have made headlines for their work with (or towards) an ESG cause. But Craig Jonas, founder and CEO of CoPeace (an impact investing holding company), anticipates pro organizations will take a greater interest in the macro issues affecting their communities moving forward: “COVID-19 plus the struggle for racial justice plus the climate crisis is moving [ESG-focused initiatives] along faster than ever before, and sports is going to be a part of that party.”
Our Take: Perhaps the biggest reason teams have historically been hesitant to partake in ESG initiatives is the astronomical growth of the industry over the last two decades. As Leigh Klein (director of sport strategy, CoPeace) said, “Everyone thought sports were bulletproof. Everything was new multiples and rising valuations.” Stakeholders had little motivation to venture beyond the status quo. But the pandemic has forced even the richest organizations to cut costs and find new revenue streams. “[Coronavirus] hit and all of a sudden [businesses] that counted on live experiences and live events found out in a big way that they weren’t bulletproof anymore,” Klein said.
One way for pro sports teams to grow revenues is to open up new sponsorship categories. While the ESG category is a potentially attractive addition (companies within the category are unlikely to cannibalize existing partners), Michael Neuman is not convinced there is “the money out there to do a ton of [stadium naming rights] deals [like Amazon or Ball did]”—even if more companies are activating ESG initiatives than the brand or product initiatives seen in the past. But the Scout Sports & Entertainment managing partner said he does expect the trend of sports organizations taking on important issues within the community to continue.
It’s often stated a business can “do well by doing good.” The data seemingly supports that cliché. Companies with strong values have consistently outperformed less virtuous ones. As a result, potential revenues aside, sports organizations looking to focus on the long-term would be wise to consider doing their best to, as Klein said, “make the world a better place.”
Another reason sports teams should be looking to participate in social and environmental initiatives is because the next generation of fans (i.e. Gen Z) is ESG-conscious. As Jonas said, “Young people are not OK with the status quo. So as [a club’s] fan base continues to evolve and change, they’re going to demand a more [conscientious] product across the board [from the organization]”—particularly when their rivals are making the effort.
The timing seems right for teams to be pursuing ESG initiatives too. Ken Reed (senior communications advisor, CoPeace) explained that historically, “franchises who wanted to put money towards causes would create a foundation or donate to a non-profit. But over the last couple of years they are realizing they’re not getting the results they want.” Now, because it has become easier to find opportunities that are socially and environmentally measureable, teams are able to better understand the financials of a potential investment and can be sure their money is having the desired impact.
Neuman called Amazon’s introduction of Climate Pledge Arena “a knee-buckling announcement. There hasn’t been anything that creative [in the sports sponsorship space] in a long-time. Amazon doesn’t need their name on the side of a building. But what Jeff Bezos does care about is doing his part to personally play a role in climate change.” While the deal drew headlines for its size (reported to be valued between $300 million and $400 million), it was equally noteworthy from the perspective of being the first time an ESG cause inked a naming rights pact.
Sustainability was among three pillars (along with fan experience and technological innovation) on which Levi’s Stadium was constructed. But chances are few outside of the Bay Area know the Santa Clara-based venue became the first NFL building to open with LEED Gold certification when it opened its doors in 2014. That’s because while ESG has been part of the club’s overall story, it hasn’t been the lead as has been the case with Climate Pledge Arena and Ball Arena. The lack of positioning as a ‘lead’ narrative seemingly helps to explain why many of the ESG efforts that teams have made to date (think: solar power partnerships) have flown under the radar.