Today’s guest columnist is Alex Michael, managing director at LionTree.
As we enter 2023, it’s no surprise sports programming has taken center stage in the streaming wars. Sports remains the ultimate front-end model, churning out live, must-watch content that feeds consumer and advertising thirst for fresh, engaging entertainment on a regular basis. As media and big tech collide for live sports rights, it’s led to a flurry of recent activity, from Amazon’s Thursday Night Football play to Apple’s MLS deal to the Big Ten’s massive Fox rights package.
But what is perhaps less trumpeted is that as a result of streaming, social media, and other tech innovation, success in sports is no longer relegated to just the core major properties and participants. We now have a new generation of sports audiences who want more personality-driven entertainment, fresher sports concepts and formats that appeal to younger sensibilities, and more intuitive and interactive user experiences across all their consumption habits.
As we near the peak of a decade-long boom in the value of franchise and media rights for premiere sports teams and leagues, we see this change in focus as the next significant generator of market activity in 2023 and beyond, as the industry arrives at novel ways to capitalize assets and monetize the consumer experience across a wider and increasingly diverse sports spectrum.
First, we are beginning to see a fractionalization of ownership and monetization to create a more liquid and accessible market for sports rights. There are 152 pro teams in the “core” domestic sports market, represented by five professional leagues: NBA, NFL, NHL, MLB and MLS. Meanwhile there are ~3,300 global billionaires available to vie for this fixed pool of trophy assets. So yes, there is a supply and demand disparity. These largely multibillion-dollar team assets, through both necessity and design, have spawned fractional ownership and trading that invites a whole new range of institutional investors—including the new NBA announcement around sovereign wealth funds—that will further propel value increases.
Bottom line, there has never been a bigger demand base for sports ownership, and what that ownership looks like must evolve to meet demand. Live sports content is still the linchpin of broadcast and cable TV (e.g., this past Thanksgiving set a record for NFL viewership), yet it’s increasingly a pillar of the streaming future. So league and team revenues will also support valuation step-ups for the foreseeable future.
Finally, with the uncertainty in the RSN world, you will see some ambitious owners take full control of their local streaming future. Monumental Sports, home to the Wizards and Capitals, among other properties, acquired its RSN outright from Comcast, building greater value for the whole of its enterprises with that DTC control. However, RSNs will likely remain just one piece of the puzzle, at least in the medium term, as teams and leagues continue to take advantage of the ease and reach tech and broadcast ultimately provide.
A second trend is that “core” leagues and teams will have competition for eyeballs and dollars, not only from more nascent sports properties but from athletes themselves. Suddenly, there are people—some of them pro athletes—paying millions of dollars to own teams in emerging sports, including drone racing, surfing, women’s soccer, lacrosse, MMA leagues, esports, cornhole and, of course, pickleball.
What’s of particular interest: These sports have largely younger, more diverse audiences consuming this content—a new generation of fans. That’s why esports teams were bought by seemingly every core pro team owner: It’s an audience hedge.
However, a simple question looms for newer sports properties: Can they scale without the support and dollars of the traditional media system of broadcast and cable?
Today, new audiences are more fragmented across platform types, and we suspect it will be a bumpier and longer road to find a profitable groove. But thanks to technology there has never been a better time to tell stories, find tribes, connect with audiences and go deep with a rabid community. There will be big winners. The rise of F1 (with the support of a Netflix phenomenon) is a mega example of a new creator economy playbook that we expect will be imitated. The success and following of athletes off the field like LeBron, Serena, Peyton, Tiger, KD and others proves that there is a lot of money to be made outside of the game in today’s creator economy.
Finally, with the explosive financial and media interest in sports broadly, we anticipate consolidation in adjacent areas, specifically: connected fitness, sports data and betting, digital sports media and youth sports. Competition and self-improvement are often highly engaging side effects of being any level of player or fan.
Like many other industries, with the last few years of cheap money and growth at all costs, we saw each of these categories unveil new herds of unicorns. Now, they’re facing a market that doesn’t reward customer acquisition and subscriber growth over actual profits and probably won’t for some time. Therefore, you will inevitably see combinations and acquisitions in these areas as previous valuations prove untenable and new sources of capital, at least on very attractive terms, prove elusive. The crossover between sports betting and sports digital media is a natural fit and top of mind, as customer acquisition must increasingly be matched by real engagement.
The sports industry will continue to evolve alongside technological advancement, the rise of social and creator communities, and new models of distribution. While the industry may not always look the same as the core sports that have dominated historically, there remains incredible opportunity for athletes, spectators and investors alike to take advantage of this unique moment.
Michael is a managing director at LionTree, an investment and merchant bank, where he advises and invests in companies at the intersection of media and technology, including sports and digital media.