Gravitas Spark CrowdFunding

Tag: Internet Trends

  • Welcome To Growing Sports Opportunity

    Welcome To Growing Sports Opportunity

    “Sports is now no longer a hobby for rich guys” was the introductory quote in this week’s Fortune magazine profile of ex-Goldman Sachs dealmaker Gerry Cardinale. The day before, it was the turn of an earlier Gravitas name-drop and breakfast ‘buddy’, Todd Boehly, to appear in Forbes magazine. One owns AC Milan, the other Chelsea FC – both former investment bankers. Two articles in two days….hmmm. Curiosity tweaked, I did a bit more reading and my sense is that sport as a business has evolved significantly and is staring down the barrel of a seismic technology shift. Let’s start with evolution.

    In a week when Taylor Swift becomes music’s first billionaire on personal performances and song-writing alone (Source: Forbes) we are reminded of the increasing value attributed to exclusive entertainment. Sport is a form of entertainment but the lines between showbiz and professional sport are beginning to blur. Swift’s attendance at her boyfriend’s Kansas City Chiefs games might have helped NFL TV viewing figures but that’s a superficial coincidence and misses the critical building blocks required to create wealth in sport these days. One could easily presume that the huge growth in value of sports franchises in recent years can be attributed to simply more (and wealthier) buyers than there are available suitable selling franchises. Yes, Saudi Arabia’s sovereign wealth fund(PGA golf, Newcastle Utd),  the UK’s richest man Jim Ratcliffe of INEOS(Man Utd) and Wall Street’s finest (Boehly, Cardinale etc) are buying assets but, to use a property analogy, they are developers not real estate landlords/traders. These purchases are not about spotting undervalued assets to trade, but are all about building franchise value across the entire operation.

    Gerry Cardinale’s RedBird has merged sport and entertainment in investments across football (AC Milan), media (LeBron James’s Spring Hill), Formula 1( Alpine Racing team with Ryan Reynolds) and stadium hospitality(Legends Hospitality) and he’s a believer in layering event expertise on top of sporting excellence:

     

    “Sports is a multibillion-dollar live event entertainment business, and you have to bring relationships and multidisciplinary skill sets across a range of activities to be able to get these things done”

     

    The formula for modern sports ownership needs deep pockets and is focused on three key areas:

    Brand:  The on-boarding of multi-year sponsors requires relationship and story-building skills.

    Infrastructure: Building world-class stadiums, training grounds and player rosters.

    Rights: Expertise and finance skills in the area of media rights are critical in modern sport.

     

    Clearly, investment in the product (arenas, players) builds the brand and leads to the showbiz discussions where audience and finance are the key leverage points. It is no accident that the owner (Boehly) of the LA Dodgers and Chelsea FC is also the owner of Hollywood’s Golden Globes awards event and Oscar-winning film production company A24. Boehly also was once a bond trader for Guggenheim which brings a world-class grasp of financing and risk. So, should we be surprised that it was he who structured the richest individual sports contract in history for the LA Dodgers’ signing of baseball star, Shohei Ohtani? The deal is worth $700 million but Ohtani has agreed to be paid only $20 million of the package until 2034, then the balance over the next 9 years to 2043. Meanwhile, the Dodgers press conference introducing the deal and their new star drew an audience of 70 million and sold more jerseys in 48 hours than Lionel Messi did when going to Miami’s soccer franchise.

    Phasing payments over decades is only one side (liabilities) of the balance sheet evolution of sport. On the assets side of the franchise balance sheet, the LA Dodgers back in 2014 signed a 25-year broadcasting rights deal with Time Warner Cable for…..$8.4 billion. Now consider that Boehly and his Eldridge investment vehicle bought the Dodgers two years earlier for $2 billion. Smart business, but there’s another smart thing in the Eldridge investment approach. The sports and media portfolio of Eldridge holds more than 100 companies and includes Bruce Springsteen’s song catalogue as well as betting site, DraftKings. Yes, for those using Spark’s EIIS Private Portfolio service, the risk-sensible ‘portfolio approach’ is music to our ears. Now, let’s hit the senses with five more data points before we tackle the technology revolution coming.

    • The average Gen Z consumer is spending $56 per month on streaming subscriptions (Spotify, Netflix etc)
    • Netflix has done a $5 billion deal over 10 years for the live broadcasting rights to wrestling franchises, WWE and UFC, owned by the TKO Group.
    • Investment firm, Sixth Street, is the first to launch a sports team from scratch – the 14th franchise, Bay FC, in the US national women’s soccer league.
    • NBC’s streaming service, Peacock, paid $110 million in January to broadcast a single NFL play-off game between the Miami Dolphins and the Kansas City Chiefs. That works out at $1.8 million per minute of game action.
    • Legal sports betting in the US reached $119 billion in 2023 (Source: American Gaming Association).

     

    That Peacock-NFL streaming experiment annoyed plenty of sports fans but did draw a world-record live sport streaming audience of 27.6 million (Source: Nielsen). And, there’s a simple reason why the NFL risked fan fury and tried out new broadcasting tech. Streaming (via internet) is set to pass out cable viewership at some point this decade. This is a monster media technology shift. It means that the existing sports broadcasting giants like Fox, Sky, ESPN, Time Warner etc will be battling the likes of Apple, Amazon, Peacock and Netflix for live sports media rights. Please remember not that long ago Netflix said they had no interest in live sports broadcasting rights. Well, they do now and shocked everyone with the WWE deal. So, more buyers…..and then you do wonder what happens next to the value of sports broadcasting rights, particularly as live sport betting in its infancy in the US goes stratospheric? However, be wary of ‘build it and they will come’ expectations and strategies despite Sixth Street success in little more than 12 months. Note the various skillsets employed by the new sports investment giants – brand building, player and facilities investment, finance/media expertise and use of AI powered datasets. Also, recall that Formula 1 has no facilities or stadia. In essence, it is a travelling event circus. The success of Netflix’s “Drive to Survive” fly-on-the-wall series was the audience and brand build.

    Interestingly, I am currently involved in two sports finance projects and, in both cases, the ‘story’ and the product/people will likely be the key value drivers. It is increasingly apparent that both these elements – brand and product build – require planning before any financing comes into play. Not every story can rely on Hollywood stars like Ryan Reynolds and Rob McElhenney in Disney’s “Welcome to Wrexham”. Watch carefully as sport and web streaming services grow commercially closer and you never know, opportunities might appear closer to home than even Wrexham. Oh, and this is not our first sporting call. We did suggest watching back in 2019….

    “No Netflix, no WAG nor streaming device can generate the social capital of watching sporting thrills and greatness in real time. So, for those with an entrepreneurial bent get thinking. There’s a strong possibility governments and private investors will sit up and take notice of the rich returns available in sport in a low returns world. Sport loves a crowd and one would be confident that equity crowdfunding will equally love a sports story. Tell it soon with the data and, as they say, if you’re not in you can’t win”

     

  • Could The Internet Fracture?

    The debate about what is the true “fuel” of modern business is now over. The world’s largest oil company, Aramco, failed to drum up any international interest in its planned IPO last week. Not so for the world’s largest online retailer. And, we don’t mean Amazon. Despite plenty of shocking headlines about China in recent days, it would appear the world’s investors will park their social consciences if a tech-fueled business rolls into IPO town.

    Alibaba is the Chinese e-commerce giant that outsells Amazon by a factor of three times in terms of merchandise value and is listing its shares in Hong Kong this week. Yes, Hong Kong. Local elections may have delivered a bloody nose to Beijing-aligned candidates this week and blown up the party line that “the silent majority” was against the long-running protests against mainland political interference. However, Alibaba and its lucky stock code “9988” has provided some positive news for the Politburo. Investors have snapped up almost $13 billion worth of shares sending the stock price up more than 6% and delivering a vote of commercial confidence in Hong Kong. Alibaba’s success will be cheered in Beijing. Probably less so in the Chinese region of Xinjiang.

    Xinjiang is home to 11 million Uighurs of the Islamic faith. The persecution of this minority by Chinese authorities is not a new story and has been consistently denied by Beijing spokespersons. However, in recent days we have witnessed an all too rare media occurrence. Multiple international news broadcasters and publishers have given over top billing and front-page headlines to a remarkable expose which has generated its own “handle”, The China Cables.

    The cables are actually leaked documents given to the International Consortium of Investigative Journalists (ICIJ) and shared with seventeen media organisations including the BBC, the Guardian and Irish Times. The documents are a damning account of deliberative Chinese attempts to intimidate and oppress the Uighurs. The numbers are staggering as a complex of mass detention camps house up to 1 million prisoners without charge or trial. The ugly truth revealed is, per the Irish Times, “the largest incarceration of a minority since the Holocaust”.

    The leaked documents further detail the monitoring of mobile phone apps usage by Uighurs and behavioural flags prompting investigation and likely “re-education” in internment camps. In fact, China is well on its way to compiling a massive database to assist surveillance of its entire population and ultimately deliver “predictive policing” based on a social scoring system. Seventy-five years on, Auschwitz meets Alibaba. We are faced with the uncomfortable prospect of technology, the internet, which has brought the world closer together now being used as a weapon, forcing communities and nations to put up barriers. Indeed, China itself already employs a “Great Firewall” to control information received by its citizens. It would seem our fears are shared at the very highest levels of the planet’s most important sovereign community, the UN.

    In a recent interview with Wired magazine, Antonio Guterres as UN Secretary General expressed his view that the world’s next major conflict will start in cyberspace. Clearly, a cyber threat requires self-protective actions and it was striking that Guterres sounded the alarm bells about the current confrontation on trade and technology between China and the US. More specifically, he spoke about the risk of “decoupling” between the world’s two largest economies, “in which all of a sudden each of these two areas will have its own market, its own rules, its own internet, its own strategy in artificial intelligence.” The current travails of Chinese 5G champion, Huawei, might be only the beginning of protectionist policies introduced by countries watching China’s weaponisation of the internet.

    It is striking that one of the few areas in US politics which generate fully-fledged bi-partisan policy support is challenging China on its aggression in the technology sector. This is often described as “phase 2’ of US-China trade negotiations. Seasoned US-China observers increasingly believe there will never be a phase 2 of negotiations. At the moment the Orange Toddler in the White House is trying to undo the self-inflicted trade tariff damage covered by phase 1 negotiations. However, one does wonder whether events in Xinjiang will reverse the direction of talks and lead to a discussion at the UN level of additional global trade sanctions against the Beijing regime? One sadly suspects sovereign commercial interests will supersede human rights, for now.

    Events in Hong Kong will be watched closely as Beijing patience wears thin with the protestors encouraged by voter defiance this week. A harsh crackdown by Chinese authorities could force further strategic appraisal by business leaders of commercial exposure to a country whose social and technology policies diverge from the ethos of their firms. It is slightly unnerving that Holocaust references this week haven’t already prompted significant discussions. As business owners and investors, be under no illusions that any “decoupling” from China will have a far more significant online impact than the conscious uncoupling of Gwyneth Paltrow and Chris Martin. The internet risks fracturing into geopolitical spheres of influence with real cyber defensive and offensive weaponry.

    Consider recent instances of protectionist cyber actions in India/Kashmir, Iran and Turkey as early tests of the internet world order as we know it. History tells us that relatively local events like Sudetenland, Anschluss, Saar and Kristallnacht combined with political weakness can add up to a sudden global destabilisation. The global internet faces new technology challenges and an increasing number of bad actors – democratic nations are falling in number. Even the UN is worried the internet could suffer a decoupling or fracture. We are worried too, albeit we suspect Boris’s technology “lessons” in Shoreditch won’t prepare him for the fallout…

     

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  • Internet Trends of 2019 – How Did We Miss That?!

    Internet Trends of 2019 – How Did We Miss That?!

    There is one report worth a read every year. Veteran Wall Street analyst and technology investor, Mary Meeker, publishes an annual “Internet Trends” slide deck which has become a valuable source of information for business owners.

    It can be downloaded at www.bondcap.com and is just the 330 pages long(!)

    For those a little bit time poor we thought it might be helpful to flag a number of the key trends. Some of them might even have been covered previously in this corner.

    America is already great – the greatest it has ever been. Eight of the ten most valuable companies in the world are US owned and six of them are from the technology sector. As ‘Agent Orange’ in the White House threatens trade wars across the globe, readers should be mindful that only 30 years ago it was Japan who filled eight of those top 10 spots. Fingers crossed for the G20 meet this week!

    Technology is the new oil. The tech sector’s phenomenal ability to scale rapidly has ensured its position as the ‘fuel” to power almost all business activities. As recently as 1980 six of the ten largest companies in the world were oil companies. More than half the human population( > 3.8 billion) is now online but user growth is slowing to a single digit growth rate of 6%.

    The business future is East. The Asia Pacific region now accounts for 53% of global internet users with China and India combined making up a third of the global user base. However US technology companies are the leaders occupying 18 of the top 30 positions in the valuation tables for the global technology sector. China holds 7 of those slots but expect that to grow with its more than 800 million strong mobile user base!

    Advertising spend is chasing user behaviour changes. In 2010 US consumers spent 8% of media time on mobile with mobile ad spending at barely 0.5% of total ad budgets compared to TV time and spend at 43%. Fast forward to today and mobile user time and ad spend is at 33% compared to TV at 34%. Expect 2019 to witness mobile as the top recipient of advertising spend as time spent on mobile, estimated at a daily 226 minutes, will overtake TV at 216 minutes. Also, watch out for the likes of Amazon, Twitter and Pinterest to gain additional share of those advertising revenues from Google and Facebook.

    Humanity is returning to the caves. Early human communication was delivered via images/stories. Our brains are wired for images. Writing was a hack, a detour, but we are now returning to what is most natural. The principal delivery platforms of digital images, YouTube and Instagram, are gaining share of daily user time from Facebook and TV. Digital video consumption as a share of total watching time vs TV has doubled from 14% to 28% in just 5 years. Possibly more stunning is the fact that another image-based activity, interactive gaming, has become a social platform in its own right with total players now standing at 2.4 billion(!). Thank you Fortnite…..

    Video didn’t kill the radio star. Arguably, voice is on the come-back trail. Podcast usage has doubled in 4 years while the Amazon Echo installed base has doubled to 47 million US users in just one year.

    Banks beware. In the week that Facebook announces its own crypto-currency and Bitcoin rockets through $10,000 again the whole area of mobile payments is exploding. As European bank valuations plummet how would you value Alipay in China? This payment platform has more than 1 billion users and doesn’t just do payments; this is a full- blown financial services player providing loans, wealth management and insurance products to hundreds of millions of consumers and millions of businesses. Even closer to home, Monzo raised money this week pushing its valuation over £2 billion; and another European bank challenger, Revolut, has seen its user base double to 4 million in just 10 months.

    Cloud deployment is booming. Cloud service revenues for Amazon, Microsoft and Google are growing 58% year-on-year. The cloud has also been instrumental in allowing businesses scale up using ‘freemium business models’ – Gaming, Google G Suite and Zoom are good examples where excellent free user experiences drove subscriber revenues for additional functionality. Slack in the week of its successful IPO is also worth a mention as a business service following in the footstepos of Wix, Dropbox and SurveyMonkey. According to Mary Meeker we are only just getting started with freemium business models for business and the consumer. It was gaming which proved the model – just the 2.4 billion players later and yet we are only now writing about freemium models for enterprise/businesses. Perhaps those 330 slides of Internet Trends might be worth a closer look if you want to get a better picture of the digital future of your business……

    “Data is now fundamental to how people work & the most successful companies have intelligently integrated it into everyone’s daily workflow… Data is the new application.”
    Frank Bien – CEO & President, Looker, 6/19