Over the last 18 months, cryptocurrency became sports’ “biggest” sponsorship sector based on annual spend. GlobalData numbers indicate blockchain-based companies committed more than $3 billion to team and league partnership pacts during that period.
But the latest crypto winter has brought spending within the category to a halt and jeopardized at least a portion of the deals signed over the last year and a half. FTX’s bankruptcy filing alone is believed to put over $375 million in sponsorship commitments at risk.
New sports betting sponsorship pacts are becoming less frequent, too. SponsorUnited reports that after deal volume across the big five leagues rose 95% in 2020 and 93% in 2021, it is up just 8% in 2022.
A resurgence in traditional categories, like airlines, auto and financial services, is expected to help offset some of the lost crypto and sports betting spend. But Adam Grossman (VP business insights & analytics, Excel Sports Management) said rights owners looking to keep partner revenues rising would be wise to set their sights on the generative artificial intelligence sector. The nascent industry has received “a lot of VC and PE attention” and could become the “next big sponsorship vertical,” Grossman said, particularly as AI increasingly plays a role in teams’ and leagues’ businesses.
Bob Lynch (founder and CEO, SponsorUnited) said he expects rights owners to leverage their investments in AI technology—and natural synergies with the sector—to sign to new sponsorship pacts. Team and league partnerships can be valuable in creating brand awareness and are influential as a B2B platform to reach other potential clients. They can also serve as the basis for a compelling content strategy that reflects how the tech is being used internally.
JWS’ Take: Generative AI refers to the merging of existing data sets with user creativity, machine learning and artificial intelligence algorithms to create a piece of original content. Grossman called it the next iteration of the augmentative AI that sports betting affiliates and cost-cutting media companies have used to produce automated game previews and recaps.
OpenAI is the most prominent company in the emerging industry. Its DALL-E 2 product is capable of converting text prompts into an image. “A user could type ‘cat flying on a bird in Las Vegas,’ and the engine will create the picture for you,” Grossman said. The company declined to comment for our story.
Teams and leagues should follow the money to find sports’ next big sponsorship category. “Generative AI is getting so much [investment] attention, particularly from the venture and private equity community,” Grossman said. According to Crunchbase data, OpenAI has raised $1 billion to date. Rival Jasper recently closed on a $125 million round at a $1.5 billion valuation.
The Excel executive suggests looking towards venture and PE activity, because institutional capital has a history of trickling down to other categories—such as sports sponsorship spending. “We saw the effect that crypto and sports betting companies, who had raised hundreds of millions of dollars, had on sports,” he said.
Sponsorship is the most obvious way for a rights owner to derive direct revenue from a PE- or VC-backed generative AI company. “Generative AI is still in the early adoption phase, and people have to know what it is before [a company] can go on the journey of customer adoption and monetization,” Grossman said. “So leveraging sports as a pathway to create some top-of-funnel awareness of the product” makes sense.
The category is currently wide open. “Of the roughly 19,000 unique companies prospected on SponsorUnited this past week, OpenAI’s profile wasn’t even viewed,” Lynch said.
Teams and leagues are likely to encounter licensing opportunities with generative AI companies, too. “If these engines are going to be direct-to-consumer products, people are going to want to create content about sports,” Grossman said, and they are going to want to use official marks in that content.
Generative AI is expected to have an effect on rights owners’ businesses, beyond the direct revenue streams referenced. The LPGA’s partnership with WSC Sports indicates it has already started on the content creation side. “We’re seeing automated video being tested that should ultimately allow teams with limited [resources], like small colleges and minor league clubs, to generate more content at a lower cost,” Lynch said.
The content will be used to grow the fan base and drive engagement among existing fans. But rights owners will also be able to sell sponsorships and digital advertising against it. Teams and leagues “can use these AI tools to create more ad space and drive more revenue,” Lou DePaoli (managing director executive search and team consulting, General Sports Worldwide) said.
DePaoli, a former New York Mets, Pittsburgh Pirates and Atlanta Hawks EVP, believes generative AI can be particularly valuable in helping rights owners reach the next generation of sports fans, as it allows for content to be created and distributed almost instantaneously. “Delivering that immediate gratification is how you engage a younger audience,” DePaoli said.
The tech should also allow rights owners to deliver greater value to brand partners. “If a club can instantaneously push out a video highlight that features the brand’s signage on the field of play, it could include some distributed brand content and an offer at the end to drive further engagement and/or revenue. That’s where you can start to get a real [ROI],” DePaoli said. “It’s real-time recognition of something that has happened, that has tremendous reach, and will get people to act.”
There will be use cases in sports beyond fan-centric content, particularly as these engines grow smarter. Lynch envision a day where Generative Pre-Trained Transformer 3 (GPT-3) text editors are capable of emulating speech, giving advice and handling unique situations, which can supplement or replace many of the manual, repeatable functions of an internal ticketing sales team. GPT-3 is another one of OpenAI’s generative AI products.
The SponsorUnited executive can also see the tech aiding a rights owner’s merchandising efforts. Using “plainspoken language to generate truly unique custom fan apparel and accessories is a natural extension of what Mattel did with Hot Wheels X DALL-E 2,” he said.
Teams and leagues burned by crypto partners may be reluctant to do deals with companies in another emerging tech category. But Grossman is convinced that rights owners will continue to traffic in emerging technologies for two reasons. First, emerging tech has always had a substantial impact on sports revenue and fan engagement. “Just think about the early days of television or the frictionless payment technology being implemented today,” he said. Secondly, “from a partnership perspective, emerging companies are the ones that often can benefit most from sports partnerships given the need for top-of-funnel brand marketing considerations.”
DePaoli encourages rights owners to pursue generative AI deals, as they will drive incremental revenues. However, he would recommend approaching the category on a “crawl, walk, run” basis, given the history of startups overspending on sponsorship and eventually going out of business. “The allure of large sponsorship revenues from startups in the tech sector is appealing, but unless they are backed or part of a blue chip brand that has been around for 20 years, rights owners should conduct as much due diligence as possible prior to engaging.”
(This story has been updated to accurately reflect the capabilities of the DALL-E 2 product.)