The game is changing in sports investment — three trends to watch

The way we watch sports is changing. The UEFA Football Championship, which kicks off today, and the Olympics, starting next month, will still bring people together to watch games live together either in a stadium or a bar. But increasingly, the way we consume sports is fragmenting.

For a start, we’re watching and playing a wider variety of sports. The US has seen growing popularity for sports such as flag football, volleyball— the first Pro Volleyball Federation season started this year — and even pickleball. The popularity of women’s football has been growing globally. It isn’t just more women playing, the top women’s teams in Europe have seen double-digit revenue growth in the past year as they attract more fans.

“Ten years ago there were probably eight to twelve high school sports that people were focused on both male and female. And now there’s all these other activities and teams and leagues developing outside of your traditional high school funnel,” Chris Traeger, executive director of Boomtown, the sports tech accelerator bringing with them decades of experience in sports and entertainment, told GCV in a recent webinar Moving the Goalposts: How to invest in a changing world of sports.

Traeger is an investor with decades of experience in sports and helps companies such as Comcast and NBC Universal find sports tech startups to partner with.

At the same time, as the number of popular sports is growing, established sports leagues are expanding to new parts of the world, said Kerry Carter, former professional NFL player and now a venture partner at Treehouse, a startup studio building sports-focused companies.

“There are huge investments that are going into leagues in Africa, from the NBA. The NFL is expanding into new markets globally, going into markets like Germany and even Mexico. You know, I think just the globalisation of some of these sports leagues, is seeing a tonne of interest and investment,” he said.

At the same time we are more often watching sports individually, and through digital media like YouTube and social media platforms. Generation Z, i.e. people born between 1997 and 2011, are more likely to watch sports on digital platforms than live, according to a number of studies.

“More and more, it’s becoming the social media platforms where people are going to consume content, talk about their favourite team, post content about their favourite team,” says Traeger.

There is also some worry that younger generations are less likely to identify as sports fans than older generations and are less likely to watch live sports. The high average age of viewers of sports such as baseball and NFL is worrying broadcasters and the sports leagues.

“There’s trends across every aspect of it from participation all the way through viewership and engagement and marketing to the fans,” says Traeger. “We’ve got get these people back.”

Winning back those younger fans will likely take new tactics than before. Younger viewers are more likely to identify with individual athletes than teams, following them on social platforms and seeking a more direct relationship with them.

All of these changing dynamics set up some challenges — and opportunities — for sports-related startups and companies wanting to invest in sports innovation. Traeger and Carter were joined on the webinar by Tim Brownstone, a scientist-turned-entrepreneur who is building a startup making performance-enhancing fabrics that can be used for sportswear. This is what they told us about the opportunities ahead.

1. Small brands can break through without breaking the bank

The proliferation of new sports and new viewing media makes it easier for a smaller sports equipment or sportswear brand to break through without having to go for a very expensive ad campaign.

“Five-ten years ago you had to have a $40m ad campaign to launch a new consumer apparel or shoe brand because all the channels were really expensive and highly curated,” says Traeger. Now a relatively unknown brand, such as sportswear maker Vuori, can get traction by working with an athlete such as gymnast Livvy Dunn

“That’s a brand that no one had heard of, a few years ago, which has been able to make a pretty decent dent in the marketplace very quickly, without having produced a $2m glossy TV commercial.”

An authentic collaboration with a sportsperson can be much more meaningful and effective than a big-budget ad, agrees Carter.

“The biggest thing that’s out on social media right now: there is nothing in between the athletes, celebrity, influencer and that audience. They are able to speak directly and tell you authentically how they’re feeling. These connections that they’re making give a lot of credence to any product that they put in front of them,” he says.

“I think people are much more connected to that authenticity right now. That’s what moves the needle across the board when it comes to new products, new services, and things that are being marketed in a truly authentic way.”

2. Sports teams are being left out of the direct communication with fans and are looking for a way in

While athletes and fans may be communicating more directly than ever, sports teams and sports leagues, on the other hand, have been cut off from fans by a legion of intermediaries. No one walks up to a stadium to buy a ticket any more, Traeger points out. Tickets for games are sold through intermediaries like Ticketmaster and StubHub; food and merchandise are sold through third parties; and viewing happens on digital platforms. That means that sports teams know less and less about their fans.

“Sports teams and leagues want more interaction and more engagement [with fans], more first party data. Social media networks are partners of the teams, but they don’t often share data,” says Traeger.

The trend isn’t going to go away, but teams and leagues need to learn how they can build their own first party relationships with their fans. Otherwise, he says, “that’s a dangerous place for the teams to be where they can’t monetise their own fans directly”.

This is an opportunity for a growing number of analytics startups.

“There’s been a proliferation of analytics companies in the sports space over the last 10 years. Nielsen Sports used to be a one stop shop for TV measurement. Now, there’s a dozen brands that are doing different versions of media measurement for sport, in different vertical, in consumer engagement, direct mail and database management. If you’re not paying attention to emerging startups in data gathering and analysis, and direct marketing and fan engagement, then you’re really missing out because that’s an area that has to be stronger than ever before,” says Traeger.

3. Athletes are more valuable than before — which means more investment in performance management and wellbeing.

“Ten years ago, fan engagement and fan experience was 100% ruling the roost when it came to sports investments. Recently the athlete performance side has been trending upward,” said Brownstone.

Brownstone’s startup, Kymira, plays into this trend. The company has developed materials that have a infrared emitting technology. These can be made into sportswear that captures visible light and body heat and other forms of energy in the surroundings and converts it into infrared, pumping it into the athlete’s muscles. The infrared waves create biochemical reactions that make the athletes more supple, increase blood flow and make them less injury prone.

Having a star athlete out for a season can have a material impact on a team’s financial performance. When NBA star LeBron James moved to the Lakers, secondary sale prices of Lakers tickets rocketed up more than 40% — but when he was out due to injury they would fall again. Sports leagues have a big incentive to look after their players — and are looking for any technologies that can get them to even higher peak performance.

“Winning cures a lot. If [fans] come to that stadium and your team is losing every game, you know, it makes it hard to for all the parties involved,” says Carter. “So looking at the technologies that can enhance the performance of athletes recovery benefits everyone.”

Watch the full webinar below:

This webinar is part of GCV’s The Next Wave series of webinars. We run a webinar on the second Wednesday of every month, alternating between advice for CVC practitioners and deep dives into specific investment areas. Our next webinar will be How to structure a venture studio for success on 9 July 2024. Register here to secure your place.