Over the last several months, JohnWallStreet has chronicled several attempts—including the Big 3’s successful effort—to decentralize sports team ownership. Ryan Sweeney (general partner, Accel) says those projects are steps on the road to “the fractionalization of everything. It started with Uber, where your car effectively is split into pieces. It’s happened with Airbnb, where your home can be split up into pieces and used. And you’re starting to see it with hard assets. These are undeniable trends that are [still] in the early innings” and likely to continue migrating into sports in the years ahead. Accel is the lead investor in Rally, a company that fractionalizes everything from sports cards to wine (think: next-gen eBay).
JWS’ Take: The fractionalization trend has gained momentum in recent years as people seek ways to invest in items they couldn’t afford to buy individually and a guarantee of getting what they’re after. As Sweeney reasoned, someone “could save up and buy the [Shohei] Ohtani rookie card, as we had to do as kids. Keep buying packs and hope to tear open the right one. Or buy a piece of [the card] today.”
While it might sound odd that someone would buy a stake in a card they’ll never physically possess, the concept makes sense to members of asset-light younger generations. “People are getting more and more comfortable not fully owning their assets, with this idea that other people may share in it or that it is a bit of a common good,” Sweeney said.
The trend is part of changing attitudes that extend from ideas about ownership to consumption. “If you think about this generation growing up on mobile phones, they don’t watch sports, they watch highlights. They [might] tune in for the last couple of minutes of a game,” Sweeney said.
He argues that to capture and retain the next generation’s attention, which is only getting scarcer, rights owners need to find ways for the fan to participate in the game beyond gambling. “Fractionalization of whatever it is in and around a sports team, in and around watching [the game] and around collectibles is going to be [a strategy] that is used.”
Giving fans a chance to participate in ownership makes sense for upstart sports properties looking to build a rabid and vocal following, it is not practical within the big four leagues for reasons ranging from limitations on LPs and the billion-dollar valuations.
Still, the fractionalization of sports media rights is underway at a league level. Just look at MLB, which has added Amazon, Peacock and Apple to the distribution mix in recent months.
Lou DePaoli (managing director executive search and team consulting, General Sports Worldwide) expects to see the approach gain momentum on a team level, too. “Look what the Yankees have done [with Amazon],” he says, noting the tech giant will stream 21 games this season. The former EVP for the New York Mets, Pittsburgh Pirates and Atlanta Hawks sees teams slicing and dicing up their rights in the years ahead because doing so will allow them to make more television money. “As the media landscape evolves, and cord cutting continues to negatively impact RSN’s, teams and leagues are going to need to adjust their business models as it relates to media rights to ensure they are maintaining, or growing, that revenue stream.”
The fractionalization of hard assets has largely been limited to trading cards and game-used memorabilia to date. That will continue. Sweeney, who is a Utah Jazz minority owner, envisions the franchise hosting “Donovan Mitchell signed jersey day,” where a portion of fans are gifted a stake in the uniform worn by the player during the game as a giveaway.
But collectibles are “just the start of what’s going to become a massive trend” in sports, Sweeney said. The beauty of fractionalization is that it makes assets once only available to a select few attainable for the masses.
Sweeney believes some exclusive offerings in sports—including premium season ticket packages and luxury suite access—will increasingly be broken into smaller stakes and offered to a collective of people. “Why not sell your stuff that way?” The logic is the team can charge more if the cost of the product is being shared.
The practice has been going for the last five to seven years, albeit largely behind the scenes. DePaoli said he encountered fans during his Mets and Pirates tenures who wanted to sit in the first five rows behind the dugout for 20 games. “This is a person willing to spend a lot of money for your product,” he adds. But those seats were sold as part of full-season packages. “So, our staff would mix and match people together, who didn’t know each other.” Ultimately, the club was able to fulfill the fan demand and get more money for the inventory.
Profit margins aside, Sweeney expects more fractionalization because rights owners need to provide fans with a reason to be invested. “In a world where everything is commoditized, where I can watch any game I want and spend my money in 50 different ways in a given city on any given night, how do you make people feel special?” he asks. Providing access to things or experiences that were previously out of reach can be part of the rights owners’ solution.
DePaoli confirmed that the industry is thinking along those lines. “Teams are becoming much more aggressive about how they present and package themselves because they know there is so much more competition in the sports and entertainment space.”