In the Future of Sports Investing, Media Is the Best Bet
Sports investing is no longer just about buying teams and selling beer. Bob Higgins discusses why media, digital devices, and invention of fan-friendly sports are driving next-generation investors.
For sports fans, this time of year is like a chocolate addict's free pass to Willy Wonka's factory. Horse racing's Triple Crown. The National Basketball Association and National Hockey League championship playoffs. And next up, the most watched sporting competition of them all: World Cup soccer.
But if you ask Bob Higgins, Wyc Grousbeck, and Mark Wan—all seasoned sports team owners-—about the secret to investment success in sports, they'll tell you it has little to do with owning a team. Rather, it's all about the media surrounding the team.
"Selling tickets isn't where the money is"
"Selling tickets isn't where the money is," says Higgins, a senior lecturer at Harvard Business School, a veteran venture capitalist, and an owner of the Portland Pirates hockey team. "Sports media content is such a big part of entertainment and advertising, but historically it hasn't been thought of as something that's investable for private equity. We see exciting young, growth companies, and we want to make them available to our limited partners."
Hence, the creation of Causeway Media Partners, an investment fund Higgins launched last year along with Wan, a co-owner of the San Francisco 49ers football team, and Grousbeck, CEO of the Boston Celtics basketball franchise. The fund focuses on sports media content, an industry headed to $60 billion in revenue, according to the Causeway partnership. Higgins says the industry encompasses broadcasting companies as well as organizations that provide the content—that is, the sports leagues themselves.
"It took Wyc a few years and a $2 billion deal with Comcast to realize that he didn't own a basketball team as much as he owned a media company," Higgins says.
The fund's investors hope to earn returns on their investments by sharing in the profits generated by broadcasting rights and advertising revenues.
The founders initially placed a $100 million fundraising target on the fund, which will invest in young growth-stage companies. Causeway has already closed on $115 million of capital, largely from prominent team owners in the National Football League, the National Basketball Association, and Major League Soccer. The fund grew quickly, not only because the founders have decades of previous investment successes, but because the target industry produces extraordinary numbers.
- In 2013, Americans consumed 33 billion hours of national sports programming—a 27 percent increase since 2003, according to Nielsen.
- Worldwide, viewers sent 27 million tweets during the 2013 National Basketball Association finals, according to officials at Twitter.
- About 22 million Germans watched the 2013 Union of European Football Associations Champions League Final on television—that's 61 percent of German households—according to Nielson.
Television remains a very important medium for sports broadcasting. Viewers tend to watch sports events live, which means they'll sit through advertisements. That's why broadcasters pay a premium for licensing rights. In terms of affiliate fees, nine out of ten of the most expensive cable networks per viewer carry high-engagement sports content, with ESPN, the NFL Network, and the MLB network leading the pack.
"The most exciting stuff seems to be about new sports and new media"
But TV is no longer the only game in town when it comes to watching sports. Yes, in 2013, 94 percent of fans watched games on TV, but 71 percent also viewed sports online, and 49 percent got their fix on mobile devices.
"What constitutes a sports channel is rapidly becoming redefined," Higgins says. "The younger generation doesn't care as much about cable TV."
And for older sports fans, mobile devices are gaining popularity because they allow for multitasking.
"Wyc Grousbeck was on a tour of hospitals for the blind in India. He is Chairman of Mass Eye and Ear. While in India, he was watching the NBA playoffs on his iPhone, very easily, with high resolution," Higgins says. "I was at Disney World with my kids, holding a place in line for the family, and I was watching the NCAA Harvard basketball game on my iPhone. And there was plenty of advertising."
SKATEBOARDS AND ELECTRIC CARS
In developing an investment portfolio, Higgins says the investment group is drawing from classic business school lessons based on a two-by-two matrix.
"We're thinking in terms of old sports and new sports, as well as old media and new media," he says. "The most exciting stuff seems to be about new sports and new media, but there are also new configurations of old sports."
For example, some leagues now play "short form cricket," where matches last two or three hours rather than all day, or even five days for a Test match. "Five days doesn't work on TV, but two hours and ten minutes does. As a result, the Indian Premier League (IPL) is a big success in a few short years."
To date, Causeway has funded two growth-stage companies. The first focuses on a new adaptation of an older sport: auto racing. In December, the partners invested $21 million toward Formula E Holdings, the management team behind an all-electric racecar circuit that will launch its inaugural championship series in September. Ten teams will compete in ten races through the streets of ten major cities, starting in Beijing and culminating in London.
Formula E team owners include Leonardo DiCaprio and Richard Branson, both vocal environmentalists. Higgins says the green factor definitely appealed to the Causeway partners, but what really sold them was how the sport feeds the average sports junkie's need for speed and excitement.
"I don't know if you know it, but a Tesla is almost as quick from 0 to 60 as a Ferrari," Higgins says. "The way electricity transfers power is quite remarkable, quite quick. In racing, it's all about how you come out of a turn. It's expected that there will be more passing than there is in Formula One. In terms of average speed and top speed, Formula E will be a little slower, but in terms of acceleration it will be a lot faster."
The second investment lends itself to the probability that young fans are likely to watch sports on the Web, having been weaned on the medium. In April, Causeway purchased a non-controlling stake in Street League Skateboarding, founded by professional skateboarder Rob Dyrdek in 2010, which features 25 challengers competing on concrete skate plazas in various events. The league's partners include Nike, Monster Energy, and Fox Sports, indicating the sport's potential to drive both consumer advertising and new media rights.
"There's a rabid fan base," Higgins says of the skateboarding league. "They're very young, and they think that everything comes from the Internet—their computer or their phone. And for us, it's about figuring out how to market that."
In terms of future investments, Higgins says the partners are keeping an eye on technology—not the infrastructure so much as the data crunching that new infrastructure enables. "Sports fans like statistics," he says.
He is also looking at ways to incorporate his sports media expertise into the classroom.
"I am percolating the idea of a course on sports media," Higgins says, explaining that the industry offers great insights into long-term customer acquisition management.
"I have two six-year-olds. The Red Sox have acquired them as lifelong customers, with very little expense on the team's part. And for the next 80-plus years, they'll be Red Sox fans without the chance of another Major League Baseball team coming to town. That's a pretty attractive quality in an industry. There aren't many like it that are legal."