Topics: Event

4 Trends Shaping the Future of  Sports

Discussing growing investor interest, new distribution models, legalized gambling, and esports at SBJ’s Dealmakers in Sports Conference

February 13, 2020

In December, I was invited to join “The New Wave of Dealmakers in Sports” panel at the Sports Business Journal’s Dealmakers in Sports Conference in NYC.

Our panel was moderated by Rick Alessandri of Turnkey Search. I was joined by: 

We discussed investment strategy, macro-trends in sports consumption, and the way changing content distribution models are shaping the industry today.

As investors in this space, here are the trends that we’re watching here at Serent Capital in the coming years:

"New kinds of content and fan experiences are being created—the challenge comes with monetizing and measuring them.”

Trend #1: Sports is becoming a more investable vertical 

Historically, technology investors saw sports as a limited market, and thus often viewed it as less attractive. That’s changing. The sports industry continues to grow rapidly: media contracts and revenue continue to grow at a heady pace, we are seeing the rise of innovative models like esports and legalized betting (see below), and team valuations have skyrocketed. All this activity has resulted in an increasing number of opportunities to make attractive investments, which is driving an increased level of interest in the industry.

Trend #2: Changing consumption and distribution models

Aggregators are being forced to respond to changing consumer demands, and legacy sports brands are being squeezed by new, non-traditional content distribution channels that are more appealing to Gen Z. (Think of the impact of cord-cutting on ESPN.) Overall, easier content distribution means the reach of a sports team is much larger than it used to be, which ties into Trend #1.

New kinds of content and fan experiences are being created—the challenge comes with monetizing and measuring them. Over the next 5-10 years, a new wave of media rights renewals will be very interesting to watch. This trend creates a wave of first-order opportunities (e.g. media platforms and media rights) as well as second-order opportunities (e.g. How does a team or a sponsor measure the value of a sponsorship when viewership is increasingly fragmented?).

Trend #3: Legalized sports gambling 

The legalization of sports gambling in the U.S. is transformative, but it remains early. We expect increasing state-by-state legalization, and as that happens, we suspect there will be opportunities to invest in the specialized infrastructure required to support it. Some of these are more obvious (e.g. platforms to process the bets, and data to resolve the bets), but some lies underneath (e.g. processing payments for gambling is much higher-risk and tends to be conducted by players who specialized in managing that risk). 

Trend #4: Esports

Like gambling, esports is seeing a meteoric rise (and moreover, this trend is global)but it remains early. We expect esports to require the development of a sophisticated ecosystem like the ecosystem that exists around pro sports currently. Our early hypothesis is that esports is different enough from today’s pro sports that many of the companies in the ecosystem will be built ground-up to focus on esports, as opposed to today’s sports business incumbents crossing over into esports.

Some venture capitalists would look at many of the opportunities for tech in the sports space and conclude that the market isn’t big enough to be exciting. But here at Serent, a medium-sized market can be right in our wheelhouse. 

In these sorts of markets, you can build great businesses that are often more profitable (and with lower competitive intensity) than in the largest markets, which are often more competitive. I’m excited to see the growth, innovation, and potential of these sports tech and tech-enabled companies into the 2020s.

“Our early hypothesis is that esports is different enough from today’s pro sports that many of the companies in the ecosystem will be built ground-up to focus on esports...”

“We have seen success deploying this framework within our portfolio.”

At the end of the panel, we all agreed: when looking for investment partners, it’s the right people—strong founders and teams—that make all the difference.

Is your growth-stage sports innovation company looking for the right partner? Would you like to discuss the sports market in more detail?  Connect with me here.

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