Billions of dollars of investment capital has been flowing through the sports agency business. In recent weeks, EQT Private Equity agreed to become a strategic investor and the largest outside shareholder in United Talent Agency (UTA), and Creative Artists Agency (CAA) closed on its $750 million purchase of ICM Partners. Excel Sports Management and Wasserman Media Group have also taken strategic investments, from Shamrock Capital and RedBird Capital, respectively, within the last 20 months.
Look for the trend to continue as smart money increasingly views the player representation businesses “as an index across broader sports value sentiment, in particular media rights,” Alex Michael (co-head, LionTree Growth) said. The thinking is that as long as the value of premium live rights continues to climb, league revenues, player salaries and agency commissions will all rise, too—a relatively safe bet during an uncertain economic time.
JWS’ Take: Investment opportunities exist within the agency business because of all the firms seeking strategic capital to fuel their growth. Since Excel took Shamrock’s capital, it has expanded from three offices to seven, closed on three new acquisitions, launched three new divisions and started to expand globally.
The desire to grow is being driven by increased competition. “If you count all available roster spots, 60-70% of big four athletes are represented by just six agencies,” Jason Belzer (founder, GAME, Inc.) said, and each is doing all it can to retain “lesser and lesser market share in the space.” That includes swallowing up smaller competitors. The six agencies Belzer was referring to are CAA, Excel, Wasserman, Boras Corporation, Athletes First and Octagon.
“They’re not just buying agents, they’re buying up marketing agencies and agencies of record,” Belzer said. The largest firms leverage robust service capabilities as both a recruiting tool and a means to extend the earnings of their clients.
CAA is the largest sports agency by a sizable margin based on contract value under management and total possible commissions. “They now have over $10 billion in player contracts under management, which will net them close to $500 million in commissions over the life of those agreements,” Belzer said.
Investors increasingly view the agency business as a way to play sports’ future growth without buying into individual teams or leagues. Buying into an individual team or league carries additional risks, like the potential for poor leadership.
Media rights escalation, which has been driving sports growth for the last three decades, trickles down to player contracts. But it is also “tied to sponsorships and the enterprise values of franchises,” Emilio Collins (partner and chief business officer, Excel Sports Management) said. “And all of that creates opportunities for agency representation in various forms.”
The increasing number of revenue generating opportunities across the sports landscape has also caught investors’ attention. NIL, sports betting, crypto, CBD and Web3 are among the new categories to have emerged in recent years. “That diversification really provides both stability to investors as well as tremendous upside,” Collins said.
As has the growth achieved by the biggest agencies. “These agencies have become sizable assets, with strong cash flow characteristics, that have [as a result] attracted a variety of different types of capital—from private equity to sovereign wealth and institutional. That has increased the value of and [furthered] interest in these agencies,” Michael said.
The predictable nature of the guaranteed contracts seen in sports is appealing to risk-averse investors, too. Belzer, who represents a number of Division I college coaches, said he has “clients with seven-, eight-year deals,” with commissions that are “like an annuity. As long as the client doesn’t get arrested and go to jail, that money is going to come in for many years.” That enables him to plan and budget accordingly. It also ensures revenue will not dramatically fall off during a recession.
As player contracts continue to grow, so do off-the-field earning opportunities. But Belzer was quick to point out that overall, non-salaried agency revenues pale in comparison to the commissions earned on player contracts and that there are “literally thousands” of marketing agents competing for that business. He estimated that marketing and agency of record commissions across all sports is “maybe a $600 million/year business.”
Even if the total market is $1 billion, it represents a fraction of the amount collected on the contract side. Belzer said that in 2020, the top 40 agencies globally represented more than $55 billion in contracts under management, earning almost $3 billion in commissions in the process. A huge chunk of that went to the top agencies. Belzer would know; he spent seven years doing Forbes’ most valuable agency and agent rankings.
The agent also reminded that once-in-a-generation players who earn a fortune outside of the game, like LeBron James and Tigers Woods, are the very rare exception. “The average athlete makes a maximum of 2-3% of their career earnings on marketing,” he said. Player contracts remain the bread and butter of the sports agency business.
With pure technology growth assets out of favor, it might seem like investor demand for the growing agency businesses will only increase. But with the pay-TV universe shrinking, and media rights the primary catalyst for sports growth, investors entering the space today could be buying in at the peak, particularly given there has yet to be a major reset in sector valuations. “You’re still talking about low- to mid-double-digit EBITDA multiples for the best assets,” Michael said. Belzer does not believe that is the case. “We’re still far from the top,” he said. “We still haven’t seen even potentially what the media industry is going to look like in 10 or 20 years, when none of [these rights are] over the air,” and all of the major tech companies are competing for sports properties for their streaming services.