Professional sport — particularly the top echelons of american football, basketball, boxing, football and motor racing — have been an increasingly interesting asset class for investors, with private equity as well as sovereign wealth funds taking stakes in major leagues and clubs in the past few years.
But as the coronavirus pandemic hit, competitions across the world were suspended, truncated, cancelled or postponed, and key sources of revenue dried up.
Marcus John, whose company invests in sport from its Singapore base, spoke to GlobalCapital about how the pandemic shocked the sports industry, which sports will be most affected and whether investor appetite will change as a consequence. He also spoke about the inadequacy of the ‘quick-fix’ solutions being toyed with in different sports, like blow-up dolls and artificial cheering in arenas to fill empty seats.
John held senior roles at ESPN Star, IMG, Octagon and WPP before setting up Sports Capital Advisors in January 2017. Sports Capital Advisors, also has an investment advisory arm. It specialises in connecting Asian investors with European and North American sports organisations.
GlobalCapital: In conversations with anyone involved in professional sport before the coronavirus, was a pandemic and its effect on business models ever spoken about or modelled for?
Marcus John, Sports Capital Advisors: No. If you take contracts, in many it’s not even covered. That tells you it was really remote. I’ve been in the sports world for 28 years now and I don’t think I’ve ever had a conversation where a global pandemic came up.
We’ve had Sars and other things but these were local or regional and only lasted a few months. They never had an impact on a global scale like this. Everything we are seeing now is literally unprecedented and this will change the industry — everything from insurance premiums to force majeure clauses; every contract will have ‘pandemic’ written into it.
There is now such a fear factor — this is the modern day war scenario, and will be a key part of anyone’s contractual negotiations. Whether it’s broadcasters with rights holders or rights holders with sponsors, everyone is now understanding that there is an additional risk we were not quite aware of.
Think of something like the Olympics or the Boston marathon, which has not been cancelled in 124 years but has now fell victim to the pandemic. The coronavirus will overall reset the mind and the risk assessment for the sports world.
Are there any models for resuming live sport, before we find a vaccine, that have taken your fancy?
The short answer, again, is no.
There are various ideas and technologies being floated, whether that’s artificial noise in stadiums, blow-up dolls or shirts over chairs. The innovations haven’t really been tested in reality for long enough to see what the fan thinks of the experience.
The Bundesliga [Germany's top football division] has been the first major league that restarted mid-May. If you look at that, the product is absolutely not comparable to what it used to be. Fans are of course currently happy that at least some sport is being played, but frankly, to think of sports without spectators as a long term solution; I don’t think its viable. There needs to human emotion to demand the value it had with consumers.
At the moment it’s very much a short term fix. What any of the leagues will look like post-September is not clear at all. We are now in 'salvage what you can for the moment' mode, and make sure you finish the season as that triggers payments from broadcasters and keeps clubs afloat.
Can sports survive without live shows? Are you expecting a return to sport soon, or is that just impossible before a vaccine.
Everything will be done to appeal to regulators. If you look at the Bundesliga, it published a 40 page document being extremely cautious of everything that they did. Over time we will naturally come into alignment over what is feasible.
But how long is the runway of cash? Sports will survive as long as humanity survives, but in what form is another question. Sports live from and with spectators, there is no easy way around this. How do you utilise the value of an industry that lives off the emotion of its fans?
Advertisers are now looking at new ways to see what engagement levels they can reach. One area that has actually benefited during this time is e-sports. It was growing exponentially prior to the coronavirus but has since experienced an even greater rocket boost. Platforms like Twitch and others are not just hosting e-games and sports but football clubs are now using them to stream matches from previous years.
We will see what broadcasters think sports rights will be worth moving forward. The Bundesliga is putting out tenders for their new rights cycle in a few weeks from now. This is the first test to see whether broadcast fees for a major rightsholder will hold up. TV rights in football have gone up stratospherically over the past 20 years — it will be very interesting to watch how careful bidders are on the buy-side and whether that growth will continue, flatten or come down.
DAZN [a streaming service] for example, just a few months ago very aggressively buying up sports rights in the billions for its over-the-top platform [one that bypasses broadcasters to offer content to consumers directly over the internet], are now having to divest of assets and actively seeking new capital urgently.
Will sports be as interesting for investors post-pandemic? Will pandemic risks be factored in far more now than they were at the end of 2019?
When you’re talking about private equity capital, we have actually seen an uptick of interest over the past few months. There is a lot of cash available and valuations during crisis times go down. Private equity tends to be at the forefront of coming in when it’s cheap. Examples are CVC with rugby at the moment [the PE firm has a stake in England's top club competition, Premiership Rugby and is said to have been looking at deals in the international game], but others who have been around for a while, like Silverlake, Sequoia, RSE Ventures or Dyal Partners with the NBA, are all examples pointing to an increasing pie for PE investments across the sports ecosystem.
Every investor has to take a view on what the world will look like in the next three to seven years. I have had several enquiries over the last 10 days actively looking into investments. But that is based on the belief or hope that the current time offers value buying opportunities.
When you speak about sports you need to clearly differentiate between the top five global sports and the rest of the sports world. The size of the overall industry is around $470bn annually, and a good junk of that comes from the major European football leagues, plus the four major American leagues, motor racing, golf and tennis.
In reality we have an enormous amount of other sports and leagues out there, and these are the ones that will struggle the most. It is there where we will see most of the downfall.
Women's sports are one such example. Part of the strong rise it has seen over the last five years may evaporate, and it will take several more years for it to come back with less advertising and broadcast money to go around.
There will be a bigger gap in sports world between the haves and the have-nots.
Sports, like basketball, boxing and football, were growing in popularity in the Middle East and Asia, both by public consumption but also investment from the regions. Will that expansion now falter?
If you look at sovereign wealth funds, their time horizon is very long. They can buy pretty much anytime an opportunity arises. For them, with capital and a longer time horizon, now is actually a really good time to buy.
But the interest of these types of investors is focused on a very narrow section of the sports world. A much bigger part of sports intellectual property owners do not attract these type of investors. The smaller sports and leagues will have a much harder time getting through this crisis.
Are we worried about waves of insolvency among smaller clubs? Is it that serious?
It is indeed. Much depends also on what form of domestic government support might be available to them. Clubs are usually run with a shorter term view. Every season is new, you trade players, you don’t know how good or bad your on-field performance will be. They are much more likely to run out of cash a lot quicker, particularly when you go below the top divisions where gate and sponsorship revenue play a much larger revenue role.
For survival they need to get the spectators and local company sponsorship back in. Sponsorship for these clubs comes more from local businesses, and if these are shutting down or furloughing workers, sports advertising the last thing companies can spend money on or want to be seen doing.
A debate has started in the UK over whether Premier League teams are using government loans to help the business through Covid-19 for player transfers. I wondered if you had any thoughts on this, and also whether you think more broadly state support across the world has been sufficient?
To your first point, I don’t know the exact scheme requirements to qualify in the UK as every country has their own unique rules, but it would be extremely difficult to argue to the taxpayer that clubs should have access to government funds and use these for player transfers. That would seem pretty suicidal for both the club and the politicians allowing it.
To your second point, have sports in general been helped by government programmes across the world? From what I have seen so far the answer is no. There are a few exceptions but in general not really.
In times of hardship, sports in particular is important for the psyche of society. Because it is part of the fabric of many cultures and countries around the globe it can play an important part of keeping a positive attitude in peoples’ minds. I think more than ever it now has a role to play in lifting the spirits of people and create a renewed sense of community.