UP547 Picks and Shovels: The Ecosystem Investment Thesis

Picks and Shovels: The Sports Investment Thesis That Doesn't Need Media Rights to Work

Altman Solon's seventh annual Global Sports Survey lands with a central argument: sport is maturing into a full-stack asset class. But the more interesting story isn't at the top, it's in the layer underneath. Richard Gillis talks to David Dellea, Christophe Sommer and Matt Del Percio about where capital is actually moving, what the $400 billion ecosystem really means when you strip out the double counting, and whether anyone has the nerve to call time on the bubble question.

Altman Solon's Global Sports Survey: The Next Frontier of Sports Investment is available now. 

Altman Solon’s 7th Global Sports Survey provides a comprehensive view of the evolving sports landscape, featuring insights from 250 sports executives globally, including rights owners, investment professionals, and media companies, as well as 6,000 sports fans across the U.S., U.K., Germany, Spain, Italy, and France.

Download the report for free by clicking this link: https://altsl.co/4n1i7VB

Unofficial Partner is the leading podcast for the business of sport. A mix of entertaining and thought provoking conversations with a who's who of the global industry.
To join our community of listeners, sign up to the weekly UP Newsletter and follow us on Twitter and TikTok at @UnofficialPartner

We publish two podcasts each week, on Tuesday and Friday. 

These are deep conversations with smart people from inside and outside sport. 

Our entire back catalogue of 500 sports business conversations are available free of charge here. 

Each pod is available by searching for ‘Unofficial Partner’ on Apple, Spotify and every podcast app. 

If you’re interested in collaborating with Unofficial Partner to create one-off podcasts or series and live events, you can reach us via the website.

Transcript

Speaker 0:00

hi there, Richard Gillis here. Welcome to Unofficial Partner, Sport Industry Awards last night. So croaky, I think is the phrase we're using. Solon have the seventh edition of their global sports survey, which landed this week. And there's a central argument within it, sport is maturing into a full stack asset class. But the more interesting story isn't at the top, it's in the layer underneath. So I talked to David Delia, Christophe Sommer, and Matt Del Percio from Altman Solon about their rapport and where the capital is moving, what the ecosystem of sport is worth, and are we in a sports finance bubble? we use the phrase picks and shovels, which I quite enjoy, and you'll find out what we mean by that. By listening. Cue the music.

Richard Gillis, Unofficial Partner 0:56

Thank you all for joining us. The reason we're sort of convening is a report, the Global Sports Survey, seventh edition it's called The Next Frontier of Sports Investment. People are talking about sport as an asset class. You've gone and surveyed 250 senior sports executives, 6,000 fans across six different markets. And the question is, sport is evolving into a full stack asset class. Premium IP is saturated, capital is moving to lower tier properties in sports tech, and the sector is ripe for consolidation. David,, just give me a bit of context for this report. Why is it important that this comes out now?

David Dellea, Altman Solon 1:34

so the sports, we're into our seventh editions now, right? And what we want is very much reflect on the transformation that is going on in the marketplace. And we do that through the studies, and we always try to have both point of view. On one hand, we want to make sure that we we get a bit of consensual view, if I may say of sports executives. This is a spectrum across rights owners investors agencies and the like. So it actually, it's a good spectrum. It's a good kind of split across the spectrum of of stakeholder within the sports industry. Now, at the same time, also we wanna test some of the hypothesis with feds this year. And again, the broader purpose is really that of fostering a conversation. Right? And we do that through three angles to the survey. Once is looking at the broader market development and how consumption specifically in media is changing. And we look at how right owners actually are positioning themself and how they should think about valuation of ip. And this last chapter that you to is really on investment in sports. So really looking at how what type of playbook from an investor perspective can be seen out there, right? And how are experiencing the market also through.

Richard Gillis, Unofficial Partner 2:39

Okay. So, let's just do some top line findings what surprised you, the stuff that people will take out? People always like a number. They always like a sort of one line answer to things, but we'll point people towards the report so they can digest it themselves. But having gone through the process what jumped out for you?

David Dellea, Altman Solon 2:57

Look j just starting off, one thing that jumped out you know, we asked obviously, so now focusing specifically on the investor side, right? We've asked them to tell us a bit what were the areas that people felt were going to track most investments. So, and again, this is not investment advisory at all, right? But the result that came back again, that the focus still remains. Fundamentally teams and clubs or IP will continue to be a key driver to attract investments going forward. But second of all, and I think that's an element that we found quite interesting, is really that the technology and service layer, right, that sits underneath the broader sports ecosystem is also seen as being a key attractor of investment in the next three to five years. And that is really so, so to speak, the picks and shovel sector. That's really the sector that that we are, you know, that we're taking quite some time on and we are very enthusiastic about. In terms of developments going forward, we see really a, you know, we see this really as maturing as asset class as it has never been before, so to speak. It's really coming to fruition, I would say, as a, as an asset.

Richard Gillis, Unofficial Partner 4:00

Right. Let's just take that phrase, picks and shovels. Matt, what do we mean by the picks and shovels section of the economy?

Matt Del Percio 4:09

Yeah. So I think when we think about picks and shovels, we think about the enabling technologies. We think about the services and we think about, you know, some of the partners or agencies that are helping to deliver and enable sports. So, you know, I talked earlier about how, you know, we as a firm have done a lot of work in that broader sports ecosystem. If you think about kind of that full stack, not just thinking about the IP layer, but thinking about everything from infrastructure to software to services, to some of those operations that are needed. In order to you know, produce, deliver, transport engage and mo distribute and monetize sport. It's those types of businesses those picks and shovels as you get beyond that IP layer again, that are helping to deliver and monetize all that sports content.

Richard Gillis, Unofficial Partner 4:56

Okay, so that's what full stack means. Full stack as a, so, I, I was gonna, it is a question I was gonna ask. So you've sort of preempted it there. So full stack asset class, just to just tease that for me. Just explain, is there a definition of what that means?

David Dellea, Altman Solon 5:10

You're looking at the different layering, right? Within the sports ecosystem, right? So you've got premium IP that actually sits on top, right that is what has been a lot of the focus over the last couple of years. So.

Richard Gillis, Unofficial Partner 5:24

so buying a b, a franchise buying. Premier League football team buying a sort of N-B-A-N-F-L, Formula one team, that sort of I top end IP is what you are finding there.

David Dellea, Altman Solon 5:35

Exactly. Exactly. Now what we see emerging now as an investment class is also to see a second layer of niche competition and teams that also becoming investible. Right? And that one would consider you know, that start to have their own merits as an investment class. And these are leaders typically that relate to professionalisation, and then I would say the unique circumstances that you would have within that asset for it to actually propose have an interesting investment case can be can be infrastructure establishing multi-cloud synergies, right? That could also pay for that. That and that actually drive about, or bring about the uplift, right? That you could take, and there's plenty of examples indeed of second tier teams. You have niche competition also that start to actually play out. Interestingly and here all of the different, you know, Baller league, Kings League, and the likes with all of this pivoting of the model away from just selling me the rights to actually a sponsorship model. That's another example of the second tier of events that actually are emerging​along with all the new competitions are also coming forward. And then underneath all of this, to the point of Matt, before you have all of these ecosystem that goes from you know, helping companies run their operations, that's kind of how we see it

Christoph Sommer 6:48

logic of an increasing vol volume of types of opportunities to invest in that's also reflected on the investor side and the types of investors that come in and look at that space, right? When you look back 10, 15 years or so it was a specific type of investor that was looking into these trophy assets. But now the, over the last couple of years, right, you have. Private equity, you have sovereign wealth funds, you have a much broader set of players moving into that space and looking into that space and dedicated funds popping up almost every week to address that opportunity in this kind of multi-tiered system.

Richard Gillis, Unofficial Partner 7:28

Can we sort of get to the question of why now? What is it that is happening? What's the thesis that lies on the investor side that is making sport? Attractive. Because again you'll know that on Unofficial Partner and the bundle podcast that we have, there is a great deal of discussion about where the money is going to come from. What happens to the media rights income people talk about plateauing or declining in various bits of the marketplace. It feels like a just a sort of a disconnection between the enthusiasm of the money, the investment class with a marketplace which looks less robust than it did. 10 years ago where people were saying, right, okay, the competition in the television market is gonna continue. You are Then, you know, there were stories about there are gonna be, the new tech brands gonna come in and spend, and they are just gonna replace the money. There's gonna be competition amongst that marketplace that is, that's gonna drive everything. That story has shifted. But, so let's just talk about what they're seeing. What's the thesis that you are hearing more often than not?

Matt Del Percio 8:36

I think in general as you kind of move beyond the. That, those sort of trophy, I trophy assets, we get into those picks and shovel businesses where I think there's, from an investor standpoint, they see sports in general, you know, as a type of content and a type of experience that among other things is, you know, can be recession proof is something that still can attract large audiences and large groups of attendees. And within youth sports, just'cause David mentioned it specifically that is an area that, you know, in the last call it 18 to 24 months, has seen a lot of interest and investment here in the in, on the US side. Because it's an activity that parents and we have lots of data that shows this contributes significantly to, you know, emotional, physical mental wellbeing amongst children and parents are willing to spend. And so, you know, it's an interesting example, this idea of sports becoming a full asset class that, that we've seen and we're seeing being validated. In youth sports specifically. So when we talked about that picks and shovel analogy earlier, you know, there are a number of large platforms platforms like Team Snap, like Game Changer, like League apps like Huddle that have generated tens of millions of users and events on their platforms and have also then attracted significant private equity investment from the likes of KKR, from the likes of WA Capital and others. And so, you know, I think those platforms you're seeing consolidating their market position because they're sort of, operating at that, operating at not at that club level, but operating sort of independent of in individual operator quality. They're less vulnerable to some of the issues that individual club had clubs had faced. And so there you're seeing that picks and shovel analogy really play out within youth sports and investors seeing opportunities for consolidation. And seeing opportunities to invest in platforms with, you know, tens of millions of embedded users, parents willing to spend money. That's sort of one segment where we've seen some real strong evidence of sort of why now.

David Dellea, Altman Solon 10:35

Yeah. And then maybe Richard you alluded before to decreasing media or plateauing or sometimes decreasing meteorites revenues and specifically kind of, the middle being squeezed, right? So the question is then, okay, what does this mean for an investor? Well, the reality is that the sports industry, if you look from a broader perspective, still is largely lacking professional management. And I think that, and this is specifically affecting, I would say this second tier. So if you are, let's take dial, you mentioned earlier, kind of the example of a club, right? Or a second tier club. So e ev even at that level, right? You can do so much by professional. So by bringing in an owner, right, or ownership group that actually has the right approach to how to manage the business at a basic level. And you also have then the ability to potentially invest to deploy capital for transformational projects. I think that the fact of you having a plateauing media rights kind of environment doesn't definitely obliterate your ability to perform better and perform better than others, ultimately, right? Which ultimately will give you an edge. So that's why we have so that's why also if you have, if you're in a league potentially. That sees a decrease in media rights revenues, which is gonna be the case for many leagues, potentially in the second tier class, so to speak. Well, that doesn't take away the ability for you as a club to perform at your best drive. Sponsorship revenues have a better proposition within the venue to attract families. All of that is still within your remit. Right? Even if you ultimately get a portion of meteorites revenue that may be decreasing relative to others. Right. And I think this is still driving quite a bit. The case is and here. Think, think back at the case of of Como, for example, which is a case study that has been started at length but think also the most recent SZA case, right? Which also is predicated on the ability to to, it's not predicated on me on endlessly increasing meteorite revenues. So that's why there is an increasing and always unique cases, right? So obviously you cannot generalise, right? But you will, as an investor, ultimately that's the job, right? To find that actually that gem that provides for a unique uplift opportunity that that another asset doesn't provide, right? So that's why when you look at the, at this as an investment class, yes, it's a class of investment, but you still need to look for the investment opportunity that is gonna deliver those returns and materialise ultimately, right?

Richard Gillis, Unofficial Partner 12:47

So when you are looking at, say, let's say European football and you mentioned there two Europe, you know, Italian clubs, The argument is that you are sort of making them more financially robust because you are turning your, the brand is appealing. They're doing different things other than just being a football club and trying to win that they're make, there's an audience there for other types of sort of service that is being offered. Is that what we're getting at?

David Dellea, Altman Solon 13:13

that is, there is a number of levers that those being one now infrastructure is often also another one.

Richard Gillis, Unofficial Partner 13:18

Okay.

David Dellea, Altman Solon 13:19

Take the case of for example of my hometown Luo in the southern part of Switzerland. Also, kind of one of the key the key levers for the investment by Joe Reto was ultimately also the fact that there was gonna be a new stadium, which is now being finalised, right? I think you just inaugurated it recently. So that, so there are always a select number of levers that actually you can set in motion to be able to drive value,

Richard Gillis, Unofficial Partner 13:38

Yeah. Yeah. It's quite interesting reading some of the sort of commentary around the Chelsea results over the last. Couple of days or the last week or so. And there is a, the question of just the speed or the quickness of building a fan engagement platform or building a brand and shifting a sort of a club's set revenue balance, and then it lands on player trading as the sort of, that's the quick one. That's the quick win. And again, one of the questions is, well, what happens when everyone's doing that, playing that game? But there's a whole sort of, there's issue of speed. How pa you know, we talk about patient capital as money comes in and invests in a, in an asset and they'll say, oh no, we are patient capital. And I always que I wonder what that actually means, because again, I get it, if you are reman abramovich or you are a Saudi, or you are, even, that's questionable. But you've got, you know, the idea of patient capital investing into a sports asset. We can change the revenue mix. It's gonna take five years, it's gonna take 10 years. And how many investors are in the market for that length of time? What do we think about that

Christoph Sommer 14:52

So you know, I think the if you look in at sports it, it's very difficult to do like this quick fix logic and have like a there's always a risk involved, especially in European sports with a promotion and relegation system, right? Again, you could buy into a lower tier club and in invest a lot to bring that club up and move through the ranks. You, you could argue that a part of the Cuomo story is also that, right? I identifying a club where you see potential, where you see potential to build. A brand around football and expand beyond that. But it is, I fully agree with you that it's it's difficult to to build a business case solely on on, on, on player trading and expect that to work within two years or so. If that hasn't been set up before you arrive there. Right. The question is obviously also what asset are you buying into? And what's the starting point is whatever your your value creation strategy is that a continuation of someone of something that someone has set up before and that you are optimising further? Or is it a pivot for that club? And if it's a pivot, obviously you need to you need to have a bit more time to see players grow and develop and and evolve over time.

Richard Gillis, Unofficial Partner 16:09

Yeah. One of the, one of the themes that, again, is emerging about the NBA Europe case study, which again, is very current and we don't know where it's going to go, it's very early. But one of the running sort of thesis on the money side is that this is a, it's about sport, but it's also about venue and it's about a sort of 52 week a year sort of entertainment package. And your, and sport is a part of that sort of bundle, if you like. And I get that. I sort of under I understand it, but it's again, how long these things will take to bed in is quite an interesting question. But I guess we started off by talking about the sort of the IP thing and the i Premium IP is like a magnet in these conversations. It sort of, it draws you in and you end up sort of citing NBA and Premier League and European football, let's. Sort of go down back to the picks and shovels. I'm interested in that because again, there's been some nice stuff over the last sort of few months. George Pine Brewing sports Capital's, billion dollar fund seem to be talking. This game seem to be focused on the, in ecosystem of the sports industry rather than premium ip. Let's just sort of, again, go through that because a lot of people listening are in that marketplace, in that sort of world of either service supplying or products or tech or whatever the the product is. Let's just sort of unpick that for a moment. What is the sort of near future of that market? Is there a consolidation going on there? Is that, so when private equity looks at that bit of the marketplace, what do they see and what do they hope is gonna happen and how are they going to make a return from that market.

David Dellea, Altman Solon 17:56

Yeah, looking at peaks and shovels, right? I think consolidation is definitely one, one aspect that is actually is is driving the broader sector. However the upper anchor, I would say again is the fundamental of the fact that professionalisation really taking over within sports and basically having a lot of the key stakeholders within the sports industry just going through a transformation process. And ultimately that's when then the tech and layer services really comes in strong and helps really bring about that transformation. And that transformation really goes at the core of all of the operations of of the sports industry, right? It goes, it really cuts across and technology specifically cuts very much across now consolidation. It indeed, I think often it is a bit referred to a bit a bit a bit loosely, right? I think within the sports tech and service ecosystem obviously you can play it both ways, right? You can play, I would say, vertically to really offer an absolutely best in, in class point solution, right? And I think typically that's the entry point for many service provider and tech providers. But then at the same time, also you start to have, depend on the proposition, you start to be able to build a proper platform on it. A good example of that, for example, is anything related to sports performance. You see the likes of huddle or catapulted have built true platforms. It spans from video scouting, analytics, athlete monitoring, and it all naturally kind of sits together, right? And that's where then the platform play actually comes comes about agencies is another area where kind of platform play start to play out. And then two circles is a good example of of of of someone starting obviously off the back of taking data, of fan data as the anchor, but then building on top of all of that, creating a true platform play that allows you to cross sell, upsell and the likes. So that's the way, at least I see, kind of picks and shovels. And I see actually the kind of, I would say the theme one,

Christoph Sommer 19:50

David also talked about before, the professionalisation of the sports industry. This peaks and shovel layer is obviously a layer that can help drive that. And that, that's also an element of where investors see opportunity that you, you asked before, why now and why are investors looking at this now? Right. I think that the overall perception is still that the market is less mature than other markets in terms of. What value can be created, and especially also if you look at let's say the US sports ecosystem and compare it with the European sports ecosystem. So, so I think that there's a perception of a lot of opportunity there. And this is underlying layer where you have a lot of smaller businesses, medium sized businesses, right? And finding the right elements to put together to build something is a very interesting opportunity for private equity.

Matt Del Percio 20:45

And maybe just one sentence on top of all that in terms of why now, if you just think about sort of the three levels of sport, sort of professional, collegiate, and call it youth and amateur. From a US perspective, there's been a lot of market and even regulatory changes that have created opportunities for change and opportunity for investment at the professional level. Over the last couple of years, you've seen the US leagues loosen their ownership requirements or restrictions to allow minority investments from institutional investors at the collegiate level. There's been a lot of changing regulation around, around the transfer portal around name, image likeness, which has really upended college sports and at the youth and amateur level. You know, COVID was a real sort of tailwind for youth and amateur sports, but it also exposed a lot of just issues around the management and the fragmentation and the frustration and what some would say the money grab around youth and amateur sports. And so there are a lot of, as I said, market factors that are also driving you know, some of these some investors to take a closer look at helping again to sort of professionalise, you know, consolidate better monetize these sports properties.

Richard Gillis, Unofficial Partner 21:55

a, I find it interesting Matt, and I think there's the, there probably is a Europe America sort of difference here, but I, let's just develop your idea of the ecosystem and the the, you know, the sort of lower end as it were. The participation end, the youth sports end, and the connection between that and the IP at the top. Because sometimes it's seen as, okay, it's a straight line. The more famous a piece of IP at the top is the more people will be joining at the bottom. And I've sort of lost faith in that idea a little. In terms of whether or not the actual sport as entertainment layer is a, is its own thing, its own rationale. And then when you've got down at the bottom, you've got interesting businesses like High Rocks or CrossFit, or you've got, you know, park Run, which is more charity focused, very successful at reaching a large audience of people, giving people what they want on a mass scale, on a regular basis. And one of the conversations you quite often have with Olympic governing bodies and national federations, international federations is, are you in touch with this group? You know, and they always say, yes, of course, but how relevant is swimming, cycling to. The mass of that show. Jumping to people who are interested in horses, that connection, there's a sort of comms play marketing wise, but I'm always interested in whether or not you see a di that line and whether it's actually connected as strongly as sometimes the sports industry. I think overplays that line. What do you think? Again I'm sort of being purposely provocative, but I do think sometimes I think actually, I think they're two different worlds quite often.

Matt Del Percio 23:41

Yeah, and I would agree. I also think it obviously varies sport to sport. You know, one, one thing that I've seen, and I'll sort of anecdotally I'll take a sport, like I'll take two sports, I'll take softball I have a daughter that plays, I'll take flag football. I have a son that plays, and, you know, those are not, I, neither of those are sort of tier one sort of trophy pieces of ip. But you have seen increasingly here in, in the us increasing exposure, increasing. Live broadcasts of those sports and top tier competitions within those sports, which I've seen on a, on, on, you know, again, on a personal level, connect directly to, you know, the athletes in my house who, you know I believe, you know, are that is creating a stronger sort of affinity and en and engagement with them. If that was absent, you know, would they still enjoy playing o Of course. But does it allow them to probably relate or at least look up to, you know, what they're seeing on the screen and does it maybe keep them engaged you know, an extra couple of years in the sport? I don't know. But you know, again, that's just anecdotal you know, on, on a personal level. I'm curious if David, so if you guys have experienced anything like that.

David Dellea, Altman Solon 24:50

Yeah it's a good thought. So, and so I can, so through our work we do quite some work with international federations. That is really the fundamental question, Richard, right? So how do we connect with, so we, it is a shifting focus away from say, look we, you know, we should add one more event to our calendar. We try to squeeze diesel that in to really how do I connect with this ecosystem of participant within my sport? That's a fundamental question. I think that exists actually for every international federation. Every international federation is having a slightly different nuanced way to answer it. Some try to answer with gamification, you know, keep including gaming itself, or they try to do it through some degree of of another digital platform. There's always, in any case, there's often kind of a digital proposition that comes at the centre of it. This being said, I would agree with you that and I would concur actually with what Matt just mentioned is that there is definitely a link between both. Now is that link Absolutely. Kind of statistically established and with clear evidence that there will just ace it? I wouldn't know of. What's for sure is also, again, anecdotally, clearly, if you want to be able to continue nurturing the fan base effectively, you need to have some degree of a link. Right. And I think that ultimately culturally practising a sport and then watching it has some degree of attention that of linkage that, that's for sure. Then we get to the elite, elite that becomes an entertainment product in itself. That's for sure. But I think from a broader sense, I think the fundamental hypothesis remains that practising a sport

Christoph Sommer 26:16

And a couple of years back we looked at fan segmentation as part of one of our sports surveys. And there we also tried to flash out the segment of people who's interested in, in, in watching sports from those who are mostly interested in participating in sports and in performing. Right. And the it was about 10 or 20% of the of the survey sample that, that was really focused on doing sports themselves, but said that they had little interest in. Either specific players or specific athletes. So there was very low athlete driven fandom as we called it back then, and there was also very low to little more like, club or team or sports driven fandom, right? That this was a segment of the market that was interested in exercising, in training. And I think the, some of the example like, like high rocks and and CrossFit that you mentioned, right? These are examples of someone addressing also, especially this target segment very well. And there is then also somewhat of a disconnect between the entertainment product and the sport. It is just a different segment of the market that you're trying to address with a different product and it can be very successful in either way.

Richard Gillis, Unofficial Partner 27:33

I mean, flag football, you mentioned Matt. I look at that and in the same way as I look at Paddle and if I'm running tennis, if I'm running the ITF or the LA LTA or the USTA, I want to get my hands around paddle. If I'm the NFL, I want to, I wanna own flag football and I want it. Because I want to tell that story of, you know, a, a successful grassroots movement and then where my sport sits, the top of it. I just wonder if that's true. Can you just talk to me about flag football, what the connection is?'cause I can see it flag, you know, it's, they're talking about it ahead of the La Olympics, et cetera, but the, you get into sort of governing body or federation politics a bit. But there is a sort of attribution question in terms of who is leading who.

Matt Del Percio 28:22

Yeah. So the NFL does not own the concept of flag football, but it is heavily, you know, invested in well, it is heavily invested and also investing in helping to control the sports, both expansion and there is both professional flag football in the US small as well as youth flag football, which is big and growing and and. Not just for boys either. Participation in flag football amongst girls is also growing quite quickly. I have a dog that also plays flag football. The, you know, I think the NFL, it's sort of a de, it's sort of a delicate act, right? I mean, tackle football is very different than flag football. Why is flag football so popular and growing? It's because it is a much safer form of the most popular sport in America. There is a very big growing movement amongst us parents to not allow their children to play tackle football. That is a big problem if you're the NFL. And so the balancing act is how do we, you know, invest in a sport that is a safer alternative to the current sport that will get people excited and interested in f football as a whole. Everything's the same about it except for the really, just for the physical contact of it. It's the same rules. It's mostly the same team, slightly modified, and so that balance, that balancing act of how do we reach that next generation of football fans with a version of the sport that is slightly different and which could, in the long term impact participation rates in tackle football. I think there is some data from SFIA that has shown that participation in tackle football is either flat or slightly declining. Massive growth in participation in flag football. Where does that put the NFL in terms of a pipeline of players and fans for the future? I think it probably has more of a potential impact on the long-term pipeline of players as it does for fans. I think it's a smart investment by the NFL again to sort of reach and try to cultivate that next generation of football fan, regardless of whether it's the tackle or the flag variety.

Richard Gillis, Unofficial Partner 30:18

Yeah.

David Dellea, Altman Solon 30:19

Yeah. So now you know what what Matt spends his time over the weekend, right.

Matt Del Percio 30:23

This is why I don't get anything done on the weekends.

Richard Gillis, Unofficial Partner 30:25

Well, you fa you say that, but your family is a sort of, it's a case study of sports participation and the link between that and media, isn't it? It's like a, it's not you've, you could rent these kids out.

Matt Del Percio 30:37

Instead they're renting my wallet out and my car and and my sleep habits. But but look, the owners, they they've invested, I think something 30 plus million dollars the NFL has invested and it's the owners that have to approve that investment into flag football. There is an NFL flag organisation. There's an organisation that runs FLAG on behalf of the NFL around the country. So, and as you said it's an Olympic sport. And just to tie this all together, when I was attempting to get LA 2028 tickets during a drop last week, and I asked my son, you know, of all these 30 some odd events, if we could get tickets to one of them, what would you like to see? He said basketball and flag football. So, anyway, there weren't any of those tickets available, nor was there tickets for swimming or gymnastics. They had all been sold out in the presale. But anyway big big fan of flag. And I think it's smart that the NFL was investing there.

Richard Gillis, Unofficial Partner 31:23

Okay, there's the squeeze middle question, and there's a leakage question. So the value that, the broader value that, that the you know, these televised sports mainly generate, let's take, I mean, the World Cup is an example. That's not a squeeze middle question, but it, when I look at Infantino and I look at fifa I see someone trying to plug leaks, trying to say, right, okay, I want to own the secondary ticketing market as well as the primary ticketing market. I want, you know, I, I want to own gaming. I want the money to come into my ecosystem, my world, and not be leaked out. And betting is an obvious leak. Piracy is another big leak, media, piracy, and there are lots of others. And the, one of the jobs of sort of today's C-suite is to try and identify, know what the market, the leak in your value is and to try and work out how to plug it and whether it's gonna be worth plugging. What do we think, David, of that as a framing for this?'cause again, if I'm an investor looking at your report, I'm thinking, okay, there's a lot to like about this, but I'm also worried about this is a leaky bucket and I'm gonna work out how to stop that happening.

David Dellea, Altman Solon 32:35

Yeah, look, so there's two, I think there is two facet to your question. So, and which is perfect segue to one piece of analysis that we've certain in our report, which is trying to kind of put in a bit of a structure of the broader ecosystem and put out the, I would say, sort of a map of what we believe is the economic importance if you want, of each one of the individual stakeholder within the sector. Right? And we did this market mapping because of that for two reasons. First of all, trying to understand,'cause there is a lot of numbers out there in the market, right? And what we wanted to do is really make sure that we understand how much money is being generated, how much money is being transferred from one stakeholder to the other. We believe that is an important thing for people to understand. And then of course, what is left over is ultimately the pool. We size that at about 400 billion. That is the pool ultimately that is available for sports organisation to fund their own operations, have a margin ideally. Fund or own operation, either through own in sources or staff, or also then for tech and service, that's kind of the pool that is available for tech and services to tap into. Of course, they're not capturing 400 billion clearly. But that's kind of the pool. Now, when you look at this at this data, then that's why you see a lot of leakage. And for example, what stands definitely out from a data perspective is what happens in bedding, right? When we look at a hundred billion gross betting revenues after payouts and only about 2 billion going back to rights owners, that's obviously a massive leakage. That happens right there. Clearly a lot more should be trans. Ideally, you'd have a lot more actually being transferred to rights owners and all the leakage, of course happens within event organiser when you think about virus, clearly, right? So that, that's a tremendous amount of leakage of value. But unfortunately it's not being generated. It's being captured by all the parts illegally, of course. But still again. Demand. There's clearly demand being captured by somebody else. Right. And then of course a lot of the move or the example you have mentioned earlier on around ticketing and dynamic pricing, which is very popular. Obviously it's kind of, very popular in the US I think that's not nothing new for sure, but now of course being adjust being

Richard Gillis, Unofficial Partner 34:45

when it goes down.

David Dellea, Altman Solon 34:47

Exactly. So, but very sorry, very prevalent. Let's

Richard Gillis, Unofficial Partner 34:51

Yeah. Yeah.

David Dellea, Altman Solon 34:52

the correct word. Right. And every one of us has probably been once in the US at least asked European and want to go to an NB agreement and paying absolute treous price for sitting basically with bending the head not to hit the roof of the stadium. Right. That, that we're used to that. So value leakage, important point to understand. But I think most importantly is really to understand exactly how much there is in each bucket. How does this move and how can you tap into it? Yeah.

Richard Gillis, Unofficial Partner 35:18

when I talk to people in the betting industry, they say, no, it's not leakage, it's marketing. One person's leakage is another person's marketing strategy. We betting is selling sport to a whole different marketplace that. FIFA U afa, the N-F-L-P-G-A, golf tennis, they will never do that. And that's what the job is. So see, even defining it as leakage is philosophically wrong. It should be seen as, actually it's more like the sports rights holder is the sort of base and then around which people plug in and make money. That's an invitation to make money from the sport. That's the other side of the argument, isn't it?

David Dellea, Altman Solon 36:01

Yeah, you could look at it from both

Christoph Sommer 36:03

then it's a question for you, right? Like, how do you want to make

David Dellea, Altman Solon 36:07

pending the, you

Christoph Sommer 36:08

of the core product? And to your point, right, what it is it I wanna do myself? And what is it that I may leave to, to others to bring to other target groups? And I think that one other additional component in looking all of this, you already said it, it's important to look at the size of the leakage, at the size of the hole. Is it even worth fixing? Is it something I wanna. Dedicate time to, right. And then it's, the question is the fix a commercial fix that can be found with a new optimised product or packaging strategy? Right. Do I have a gap in my offering that I can bring to market and that changes something about the whole or is it a technical solution, especially now in, in the privacy context? Right. And in, in some cases it might be a combination of the both. Right. Maybe some more ad supported viewing of some content, but also take advancement to be better at at monitoring piracy and shutting that down.

Richard Gillis, Unofficial Partner 37:07

There's two things there. One is that when I look at your report and I see the sectors laid out, it's always quite useful to have that, you know, the map as David described it. And then you go through each of those and say, right, okay, where's the leakage in that? Okay, I see things like you know, we mentioned betting, media, piracy, but you then get to things like hospitality. You get to sort of areas where, okay, what could I own? What shouldn't I own? Or is just too much effort., Let's take the FIFA World Cup this summer. So one of the ticketing questions is, you know, is the hot one at the moment now. Is it worth the PR hit that FIFA and Infantino are taking to try and control the secondary marketplace? Is that worth it? Both. There's a tangible and intangible que bit of the question whether it's actually worth it money wise. Are they making that much more money by capturing that secondary revenue for the potential brand hit that they're taking by doing it, and actually, which they monetize incredibly successfully via sponsorship and marketing. Because people will look at the World Cup and say, we need to copy that. We need to do a version of that. That's what the top of the market is doing. And the NFL are always ahead of the game here. So let's just talk about that, whether it's actually worth it and whether there's a reputational downside. stemming some of these leaks.

David Dellea, Altman Solon 38:35

Yeah, well look, may the question maybe Matt you're so let's look at the perspective from the, from us. Do you feel that the ticketing strategy that have been adopted has posed a reputational challenge from a US perspective?

Matt Del Percio 38:48

In this moment. The transportation issues are the only thing that are top of mind right now, to be quite honest. Just given the cost and the amount of press and public debate and discussion that's happening between FIFA and some of the local you know, local municipalities. Look I think when it comes to an event like the World Cup, I think there's a tremendous amount of excitement. There's been a lot of demand for ticketing for primary tickets. I think what hap, you know, perception of that secondary market and their control of it, I think will somewhat depend on how the secondary market plays out. And, you know, that could be impacted obviously by the fact that there's more games. It depends on, you know, if people start to see that there are transportation issues getting to some early matches, does that impact willingness to spend on the secondary market for a match that you might have already? If so, you know, I think time will tell a bit on how that decision to, to keep that secondary market in-house will go in terms of the impact it has. I don't feel like I can comment on that, but what I would say is I think look, it's a once in a lifetime event for many people to here to have the World Cup here. I think. Ultimately the games will go off. I think fans will have a great time. I think people will be, you know, glued to their TVs gathered in bars. And I think, you know, any ill will, will probably soon be forgotten. But look, between the transportation challenges, potentially the secondary, the availability or the pricing of the secondary for fans like me that did not participate in the primary yeah, there, there's, there could be some real challenges here. Here. David.

David Dellea, Altman Solon 40:13

Less sensitivity than we or Europeans would feel in our echo chamber here. Right. Of on pri I mean, pricing of football is a, it's a big political topic in Europe, right? And you see different markets, right? Differently. The reality is that if you have a capacity constraint capacity, just like aeroplanes have, dynamic pricing is unfortunately very unfriendly, but it's the only way actually to optimise revenue. So it's a matter of priorities and clearly, right? So, and, yeah. So it is as simple as that. Then the reputation question, that's not the question for us to answer that. Obviously, the.

Richard Gillis, Unofficial Partner 40:43

We sort, it's sort of, it's also interesting in terms of the, where a governing body wants to start and stop, you know, where, so, you know, FIFA will be running New Jersey. Coaches and trains soon. You know, if that's, we say the footprint of the, of a major event is seemingly sort of, you know, both physically but also philosophically expanding. These things are really interesting'cause it talks to, back to the sort of market that you mentioned. There are a number there David which is 400 billion. Can we just sort of unpick,'cause I see a lot of numbers and you do as well in terms of what is the size of the sports business and what's the marketplace. Let's just focus on that 400'cause people land on numbers and we just, and I agree with you that I see a quite a lot of double counting and I'm not an accountant. Just talk to me about that 400 number.

David Dellea, Altman Solon 41:39

So, as I was alluding before, so with our purpose here was really map out the market, right? And have a distinction, a clear distinction between what are core participants within the sports ecosystem, what we call rights owners or rights holders, right? And let's make the distinction either you own or you know, you hold the right, A sponsor is a rights holder, not the rights owner. So understanding those, and we've purposely put the agencies there because they are often a rights holder within that spectrum, beyond offering services. So for us, it was really important to really identify exactly clearly who who are the, and this is important specifically for a professional investor, is not just living within the, and breeding within the sports ecosystem to understand the structure. The second one is then understand in the second exercise that we've done, okay, now let's see how much money moves, right? Within, how much money is being generated and how much money moves actually within this, right? Because otherwise you run the risk of double counting, right? So if you, obviously you sum up how much a media a broadcast is doing in terms of subscription and you add up to the value of rights or obviously double counting, right? And we see a lot out there also of this. So that's why we've taken that out and we've seen that in the end, how much again net revenues remains available. And the reason we were doing this was to try to understand how do then the stakeholders spend their money. So obviously, tech and services is driven ultimately by the operation of an event, organiser of a team. Of athletes, of a rights agency, of a sponsor, et cetera. Right. And I think that for us, was important to try to identify really how is money being spent by the key stakeholders, because that ultimately will be the proxy for you to identify where tailwinds and headwinds are driving opportunity or challenges for tech and service provider. That's why we believe that this is valuable to bring that level of structure and rigour in terms of how you look at it now of the 400 billion I was mentioning earlier, it's a big number. I would say maybe 20, depending on the stakeholder, could be 20 to 50% being outsourced to a service or a tech provider. And of course, second question needs to understand how much of that is actually liquid. Many contracts are long term, they don't come up every year. Right. So that is obviously all of that needs to be, you know, need to take, be taken into consideration. But again, you see already through this conversation I'm trying to bring out that level of structure that would allow then a professional investor to kind of place place, I would say the pieces of the puzzle together.

Richard Gillis, Unofficial Partner 44:08

Okay. Right. I'm gonna ask, we're gonna sort of finish off with a bubble question. Is this a, are we in a sports bubble? Are we in a sport asset value bubble? Christophe, what'd you think?

Christoph Sommer 44:19

When it comes to media rights, right? There's a lot of discussion about the plateauing of rights and we definitely see differences in, in growth trajectory. If you look at the top assets and their performance and a bit more of the of the mid-market as, as soon as you get to the mid-market, though, there is also a bit less of reliance on those media revenues, right? And higher relative importance of of sponsorship of of matchday and gate revenue. So I, I think in the if you look at the industry really holistically and if you now, from our more European perspective comparing that to, to the US especially it, it seems like there is room for further growth. So I would argue that it's not bubble territory yet.

Richard Gillis, Unofficial Partner 45:07

Okay, Matt, you might have an American lens on that question.

Matt Del Percio 45:13

Yeah I would say not yet, but I think the next, I call it three to five years will be very telling. And I say not yet, because there is still, you know, we're still seeing healthy growth in step ups in the value of media rights that us broadcasters and cable networks are spending to be able to carry live games, live. The NFL is, as you probably well know, is going to be exercising it an opt-out clause in its media rights contracts and is expected to see, you know, anywhere from a 50 to a hundred percent increase in the value that they will receive from certain from certain distributors of its content. You but it will be, and you certainly have a wider base of bidders for those rights with Amazon and Netflix continuing to lean into live sports. And, you know, even on the most recent Netflix earnings call, talking about the value that live sports has brought to them. All that being said there's a tremendous amount of live sports content and a lot of live sports content in the US that is becoming available over the next three or three to four years. And when you look at the the bidders for those rights the likes of Fox and Paramount and NBC and others, they're spending a tremendous amount of con of their overall content budgets on Sports. Fox is spending over 60% of its content budget on, on, on live sports. It's more in the 20 to 30% range for some of its peers. But there are gonna, you know, have to be some decisions made about, you know, where do we put those dollars within the sports content ecosystem or are we gonna have to pull some of those dollars out or reallocate them given, you know, some of the changes elsewhere within those businesses. So I would say not quite yet, but the next three to five years will be very certainly interesting in telling.

Richard Gillis, Unofficial Partner 46:47

Okay, David.

David Dellea, Altman Solon 46:50

My top line answer would also be no. And reason, so I building on top of what Matt said and what both, both Christo actually and Matt said. So one obviously looking at kind of additional revenue stream that are kind of the arching rev value drivers. Then also looking at pockets of media that obviously are going quite well. But to me, so the fundamental reason why there is not a bubble, or not a bubble yet is the fact that ultimately the broadest sports industry is still undergoing significant amount of transformation. That means that ultimately there needs to be a a certain level of investment because ultimately what, when we talk about bubble is from an investor perspective, right? So, and if you have an industry that is undergoing this level of transformation, let's remember that a few years ago we're all wondering whether streamers were even going to come in. So. That was still an open question. I think it was in 2022 that the Netflix CEO was asked about sports and say, we love sports, but we also love to make money. So as if both We're in an

Richard Gillis, Unofficial Partner 47:51

We're in the, we're in the profit business, not the sports business.

David Dellea, Altman Solon 47:53

that's it. Exactly. We're in the profit business. So look where we are right now. So that gives obviously optimism to the fact that actually the transformation happening in media, we're not gonna have a shadow. You know, it's not gonna be broken glass only, but there's new players coming in. Those new players are hiking their pricing and it's working, you know, so there is optimism actually from that perspective that thinking about media, but again, look at the broader spectrum. So we have fundamental transformations in media, but across all of the other actually activities and operations of of of sports industry. We have pro, sorry, within the ip we talk about deliveries of professionalisation that still allow actually for second tier. Properties actually to experience and uplift and look indeed about how then all of this profess is translating ultimately downwards and tech and service provider that helping stakeholders to manage complexity. That is I think a fundamental driver of investments today. So, you know, Richard transformation is synonymous with investments. So you, there is clear a need to deploy capital. Deploying capital can be different ways of deploying capital, private equity being one, right? But once you deploy capital, then you need to anchor it, of course, into a case that will work for that capital deployment. That doesn't mean necessarily that any investment in sports is only predicated in continuously growing meteorite frame. That's a wrong way to look at it.

Richard Gillis, Unofficial Partner 49:22

Yeah.

David Dellea, Altman Solon 49:23

You could deploy capital even in the context of decreasing media, right? Trade, because you need to transform your sport. You need to transform your product, right? That's.

Richard Gillis, Unofficial Partner 49:32

It's impossible to tell, but it's interesting moment, the Saudi sovereign wealth.'cause people over the last three or four years, years, have made the assumption that money is just a tap that will just carry on being flooded into the marketplace. A lot of, and a lot of rights holders obviously, but then what we've referred to or what you refer to in your report as the picks and shovels businesses is predicated on that money continuing. And now we don't know, but there are some ominous signs around the place. You'll have seen them as much as I have. What do we think a sort of, even a partial withdrawal of Saudi money into the sports economy would do? You know, what would next year's finance report look like if that happened?

David Dellea, Altman Solon 50:19

It's a good question. I wouldn't be able to give on my end. A definitive viewpoint is obviously going to have a lot of impact. There are actual people working on properties you know, and and, you know, working day in, day out, I think it's definitely going to have an impact. Leave being one obviously prominent example of a first alleged casualty. Right. Given I think the amount of these last couple of days I think there's going to be more, I don't think that it's going to change the predicament of how the broader sports industry is evolving. Right. I think there are some properties that will, that had hopes to be able to break through. And that they will, they showed that it didn't, that it didn't work. But I think it's going to have a normalising effect on the broader sector. So, I think some, I would say anomalies that eventually were being created now are going to go away. Some will suffer for sure, but I don't think it's going to have an absolutely cataclysmic effect on the broader.

Richard Gillis, Unofficial Partner 51:13

Okay. We'll see it's a nice place to finish off the conversation. Thanks so much for your time. And I will drive people towards, I don't might drive them, but I will point them towards the report. It's a good, interesting read, provokes a lot of questions for I think everyone in

Christoph Sommer 51:29

Thank you.

Richard Gillis, Unofficial Partner 51:30

So well done on that. Thanks very much for your time, David, Matt and Christophe.