Capital markets deals in sports technology topped $90 billion last year, powered by a six-fold increase in mergers and acquisitions activity, according to a new report from investment bank Drake Star.
“With a thousand-plus deals last year, it was a bumper crop of M&A activity that produced over $78 billion in deal value,” Drake Star principal Mohit Pareek said in a video call. “Whether it’s betting or fantasy, whether it’s fan engagement, venue management, ticketing—everywhere there was a humongous amount of deal activity.” By comparison, sports tech M&A was $11.3 billion in 2021.
Pareek is one of the authors of the report, an annual look at the market for sports technology. Drake Star is a New York-based investment bank that specializes in technology, having completed some 450 transactions worldwide the past decade. The report, “Global Sports Tech Report 2022,” examines venture capital, private equity and publicly traded company deals that occurred worldwide last year, but excludes direct sports team transactions, such as contracts to stream games and capital transactions with franchises.
“While betting has been a key segment over the years, we saw a great amount of uptick in fan engagement, with 1.7 times volume in terms of number of deals and deal value more than 10 times higher than 2021,” Pareek said. “That’s the key area that has grown a lot.”
Media, including streaming, data and analytics and esports also continued to see strong action, according to the report. Drake Star tallied 1,014 capital markets deals overall, including 19 worth more than $100 million.
Easily the largest deal last year was Microsoft’s proposed acquisition of Activision, a $69 billion transaction that hasn’t closed yet. ESL Gaming, which organizes esports tournaments, was a distant second—Savvy Games Group, an arm of the Saudi wealth fund PIF, bought it for $1.1 billion. The largest fan engagement-related deal was RedBird Capital’s exit of One Team, the player intellectual property firm that was valued at $1.9 billion in the transaction.
Deal volume in seed and early-stage VC was steadily robust throughout the year, noted Pareek, in part because the low dollar-value of startup investing insulates the sector more from the larger market volatility. Larger, later-stage VC deals and private equity transactions showed a notable slowing in the latter part of 2022, with investors increasingly unwilling to commit $50 million or more follow-through funds at prior valuations. At the same time, many capital-seeking companies opted to skip raising funds rather than accept capital at reduced valuations to previous rounds, the executive noted.
Still, deals that were highly strategic for buyers closed at strong valuation multiples, such as the The New York Times’ purchase of The Athletic, a $550 million transaction that occurred at an 8.5 times multiple of revenue. Less strategic deals went through at lighter valuations, particularly in Asia. Entain, the Manx conglomerate of sports betting and general gambling sites, was the most acquisitive, spending $2.1 billion on five deals, according to the report.
While 2023 has started out cautiously, reflecting the fourth-quarter slowdown brought about by equity market headwinds and economic worries, there is a tremendous amount of dry powder stored up at sports- and tech-focused funds. “There’s a lot of money that’s been raised in the past year, and I would think a lot of that is going to be deployed this year,” Pareek said.
That includes $5 billion in newly launched sports-focused funds, including from Ares Management and a Jeff Zucker-led media fund for RedBird, two of eight upstart funds Drake Star highlighted. The largest pile of capital to be invested is $38 billion from the Saudi’s Savvy Games fund, which should result in several very large esports and fantasy M&A deals in the months ahead.
Drake Star predicts that Entain, Fanatics, Flutter, Sony and DAZN will be companies that continue to make acquisitions this year, along with private equity-backed ventures Kore, TGI and Hudl. While the stock market was quiet in comparison to private deals, the back half of the year should also improve, with IPOs likely from some businesses.
“We feel fan engagement is still big, and also generative AI, generating more content based on the content you have to feed fans more of what they love … and event and ticket management,” Pareek added. “There is big innovation looming in this space which is very encouraging,” he said.