The fragmented nature of the youth sports sector makes it a natural target for private equity investors flush with capital (’21 was a great time to be raising money), and there are tailwinds—both at an industry specific and macro level—that could spur consolidation in the months ahead. “It’s a [massive] market that is underpenetrated from a national brand perspective…. The [NFL, NBA, NHL and MLB] and those sports, for their long-term health, need to appeal to this segment,” Alex Michael (co-head, LionTree Growth) said. “Let alone the spend pouring in at the parental level. Then you add the NIL stuff, and you have a pretty big powder keg.” KKR’s recent investment in PlayOn, a high school sports media and technology company, seemingly indicates that smart money recognizes the opportunity that exists in the space. Susquehanna Private Capital (Soccer Shots) and Roark Capital (i9 Sports) have also made investments in youth sports over the last six months.
JWS’ Take: Youth sports is big business. “In aggregate, youth sports generate more revenue than the four major professional sports leagues combined,” Brian Litvack (CEO, League Apps) said. Wintergreen research pegs it as $19.2 billion market in the U.S. But because the industry has historically been a collective of nonprofits and mom-and-pop businesses operating at a local or regional level, the sector consists of countless disparate assets across the country. “You can think of category leaders in almost anything,” Michael said. “What would you say for youth sports?” Pop Warner and Little League are among the few that come to mind.
The reason those SMBs never grew to become large, national brands and/or authority organizations is because “organization at a local level is inherently hard to scale. Each region brings its own eccentricities and its own incumbents,” Michael explained. And up until about a decade ago, none had the benefit of a “big technology overlay” capable of helping to stitch them all together.
The rise of the iPhone and several other tech innovations over the last 10 to 15 years have enabled some youth sports businesses to obtain broader and more efficient reach, leading to several “chunky assets.” But with no dominant player, Michael believes the opportunity exists to “create some really interesting, big businesses [and outsized returns—especially if it has the grain of the core sport audiences.”
As he sees it, fewer Gen-Zs are identifying as sports fans than those in prior generations. Youth sports have always served as the top of the funnel for pro-sports fandom, but as participation ebbs, the leagues can no longer assume a robust matriculation from child athlete to adult spectator. They’ll need to be proactive. “You can keep double clicking on the 50+ crowd, but at some point, you need to replace or add some [new fans]. The leagues are going to have to pay much more attention [to] and be much more involved in youth sports initiatives [moving forward],” Michael said.
While there is league participation today, Michael expects each of the big four leagues to increase their focus on—and investment in—youth sports “at some point soon.” He foresees the NFL, NBA, NHL and MLB applying “some media to the space, in terms of promoting the sport and [fan] engagement through those levels. They are going to put some dollars to work, whether it’s [in] facilities or technologies, and in making sure those [efforts] are not only successful on their own but ladder to the professional product. They [are also] going to create data for future audience engagement,” he said. “[And] they’re ultimately going to help facilitate the spend at their level down to the lower levels and vice versa from a brand perspective.”
Major League Baseball says it recognizes the importance youth sports play and that it remains committed to investing in programs that provide kids with access to the game. “Studies have shown that the leading factor of a person’s fandom in a sport is if you played the game as a kid…. We also know that in order to attract the best athletes, we need to ensure that our sport is played broadly across all communities, backgrounds and socio-economic spectrums,” said Tony Reagins (chief baseball development officer, MLB).
The Sports & Fitness Industry Association reported in 2018 that just 38% of kids aged 6 to 12 participated in team sports on a regular basis (down from 45% in 2008). But with per-cap spends having “gone up dramatically [over the last ~15 years] and showing no signs of abatement” (costs are one reason why participation is down), Michael argues youth sports is a more viable space to invest in today than ever before.
Per-cap spends began rising at a time when high school athletes were simply after academic scholarships. Now, with young athletes having an opportunity to capture “actual financial rewards” (think: NIL) as early as middle school (at least in some jurisdictions), Michael believes parental spending will continue to increase.
Name, image and likeness should also “bring more notoriety and [a greater] addressable market to the space,” Michael said. “That [in turn] will foster more technology investment, more media attention and just grow the overall [youth sports] pie.”
There are opportunities to string together assets and create value across the youth sports ecosystem (think: recruiting to data and sponsorship). But “given the barriers to showcasing talent have gone down so dramatically in terms of capture,” Michael says the greatest upside lies in “the enablement of video across this entire landscape.” The investment banker envisions youth sports content appealing to viewers on a hyper-local level (think: grandma watching her grandchild) and to an endemic, hyper-enthused audience (think: the wrestling fanatic who wants to watch the best HS wrestling).
Outside investment will almost certainly participate in youth sports’ M&A driven consolidation. But existing platforms with scale could also look to roll up competitors in an attempt to get bigger.