Sports’ market research 3.0.

Anyone who seriously thinks about sport from the business perspective is torn apart every single day.

The legacy product is so important to us, and society, but the future direction of travel needed to follow the money is the complete opposite of everything we love. The Force is not in balance.

If that in itself wasn’t enough, money is no longer certain. Too tight to mention, in many cases. An industry that for 30 years has been so attuned to easy ever-growing revenues and cheap infinite capital, now needs to come to terms with a new paradigm.

What is going to replace the automatic increase in the value of broadcast rights every cycle?

“Flat is the new successful”.

That’s the phrase, and just doing as well as last time is now celebrated as a huge result, certainly for every rights holder below blue-chip premium.

The universal answer to the question on revenue replacement is now always some version of knowing your customer better, with a new data platform of fan insight, that can be sold to sponsors, and/or used for internal ARPU plays on betting, e-commerce, and content.

Indeed, “Know the Fan” has evolved in the last two years from just good conference speak, throwing in the Barcelona–Spotify case study for effect, to something now approaching an existential necessity.

How do you bust? Slowly and then all of a sudden. – Ernest Hemingway. 

Stormy weather.

Two Circles (2C) were the pioneers of this whole sport-data theme and have created serious value in their agency, now also bringing in heavy private equity backing. They did something very smart a few years back: they added the monetisation side to their offering, buying a sponsorship agency. Well done Matt Rogan and Gareth Balch.

Bringing the money to rights-holders is crucial, because selling products into this industry, as a service to be paid for, is soul-destroying. Every single start-up or provider has likely learned that very painful lesson. Bluntly, sport just doesn’t do “cost”, if not on the field. It only understands the concept of the Minimum Guarantee (MG) income cheque.

The sector, especially football, has no issue being horrendously reckless and inefficient in paying megabucks for athletes and players, but it will always cry poverty when you want to ask them a small SaaS (Software as a Service) license fee, or a budget for strategic marketing. They will actually say you should pay them, just for the ability to use their logo shield, and to have a sexy case study to point to.

Selling “data as the new oil” is now a very crowded marketplace, and we have a series of wannabe competitors that have sprung up, all saying they do it better. More and more of these founders come from the big tech companies like Palantir or Oracle, and they will often approach someone like me for some feedback on their deck and go-to-market.

Do you tell them this inconvenient truth?

Sport won’t pay you for this, no matter how good your service is. Even if you get a foot in the door, the sales cycle is crushingly long, where you can get blackballed in any one of the committees for approval. Even if you do get to the end, they will screw you on price, and you will eventually need to take on risk; either offering a minimum guarantee and/or working on revenue share.

I’ve seen this dynamic play out with market disrupting world-class offerings from the likes of Prozone, to Wyscout. Sold for relative peanuts.

SPORT WON’T RECOGNISE YOUR PRODUCT FOR WHAT IT IS WORTH, OR WHAT YOU INVESTED TO GET IT TO THIS PLACE, AND THERE IS JUST NO PRICING POWER IN SPORTECH.

Shivers will be going down the spine of a good portion of the community reading today’s Sunday Column. They know.

In fact, they know this so well that one of the very biggest dangers facing our industry is that smart innovating founders are now deciding to “de-prioritise” sport as a vertical, to focus on other sectors which operate more normally, and offer a better prospect on making a sustainable business.

That’s pretty important, as sport, to date, has gotten a very welcome free ride on these ideas and products, because frankly they were all being paid for by the venture capitalists (VCs) funding losses for land-grab.

But VCs are now in a different game, so it should be clear that the boom years of sportech innovation are thus ending. And I don’t say this lightly.

Who now is going to fund sport’s R&D?

This isn’t a small question for an industry that really does need to grasp that Big Media, with their MGs, aren’t going to be the bank anymore. They can’t afford to be.

So who is going to fund the capital investment in innovation needed to pivot from a B2B sector, to a B2C direct-to-consumer mentality, in the context of an AI revolution?

The descriptor of sport that should never leave us is this:

We are a business that has sold 90m live games as its core product. Today, alas, new audiences don’t want 90 minutes, they want 90 seconds. We are a business that has outsourced its risk to a florid broadcasting partner that can no longer guarantee us that level of MG.

Put like that.

Whichever way you cut it, sport is going to need a lot of innovation and change to become a modern community business. That will cost. Harlequins Rugby isn’t going to survive on the current trickle-down economics of a broadcaster buying their league TV rights, and it is going to have to find some way to monetise its fan base directly.

Mike Armstrong at Juventus, one of the Como 50, understands well this need to invest. He is doing great things, especially when his club is the usual shambles: financially, organisationally, and politically. So our Canadian in Turin deserve a shout-out.👏

Today, the PE and VC providers of sport investment are calling themselves “growth capital”, and they are no longer looking to backstop risk and bleeding-edge innovation. Sports clubs are going to need to fund this themselves, and that’s not easy. Juventus, for example, is currently drowning in red ink.

This is the true impact of the change in the capital markets. VCs wont fund losses.

Venture capital is shorthand for “adventure” capital, to describe an investor funding someone like a Cristopher Columbus, but VCs are no longer up for blue-sky promises of New World riches. They are more “special situations” vulture in outlook, and true innovation in sportech will now have to be funded by the high-net-worths (HNWIs) and family offices. Advised hopefully by people who know what they are taking about.

These old and wise sports advisors are always curious about start-ups. They look at a lot of decks, spend a lot of time with founders, and sit on a lot of Boards. It is only in this way that you see the knowledge and vision of beautiful minds.

More concretely, looking at the best disruptive ideas absolutely gives you early sight on what is coming around the corner, and that can be used intelligently in advising rights holders, investors and corporates. It makes you look smart and relevant.

It is a flywheel. Here is ours.

Knowledge for beautiful minds. 

But there is another huge advantage in working in early-stage. You meet some amazing people who, sooner or later, are going to make an impact on you, even if not in the company where you first meet them. Creating a network of innovators and founders, a community which trusts you, is an asset of immense value in itself.

To make that point, here is a working example.

I met Sean Verity in one of those early-stages businesses, called Antourage (a metaverse fan engagement company), that got brought down in the NFT crash in 2021. Sean has a background in sports production with BT Sport and knows content, and its consumption. One of the reasons we originally looked at Antourage was Sean, but it is always only in times of stress and challenge when you can really judge people. Sean handled the dark moments at Antourage with professionality and values.

He recently sent me his new thing.

(Full disclosure: Albachiara has no financial interest in his new start-up, x+y. Nor do we expect any return from this. It’s just the mechanism for this week’s diary entry, on a subject matter that is so so important for sport).

What is Sean seeing these days?

Assessing a start-up should always begin with scepticism as, more often than not, founders think that their baby is the prettiest in the kindergarten. It’s normally not the case. At best they are just me-too, or a better mousetrap, and good investors aren’t ever interested in better mousetraps.

So you read the elevator pitch:

x+y aggregates, monitors, and analyzes market data from publicly available sources to offer real-time insights for use by a broad range of marketers executives, and investors. Like a weather report: a sports heat index offering local, national or international perspectives on “what’s hot and what’s not.” The context could be a timeframe, a sport, a market or other metric you choose to access. The user can customise a range of sports properties, athletes, personalities, and territories to evaluate market performance indicators and offer a unique view of the sports landscape. x+y exists to be a source of truth among the puffery, enabling informed business decisions, better marketing strategies, and smarter resource deployment. 

Clearing the BS.

The sports industry is full of smoke and mirrors, especially in digital. Too many bluffers selling hot air to what they think are old guys who don’t even know what TikTok is. Clubs bragging about millions of viewers, tons of engagement, at first perhaps impressive, but all lacking meaningful context as to the “value” for a sponsor or investor.

So “truth among the puffery” catches my eye, especially when it’s from someone I know got burnt in Web3, and who has by now lost all and any naivety. Game on.

These vision and mission statements are all wordy like this, and a good investor should try and find his/her own summary in their head. If they can’t, they need to pass, because it means they’ve not really “got it”.

At first impact, it strikes me that Sean is trying to build a kind of Bloomberg terminal, a real-time data insights tool, to serve business operations in the sports and other verticals.

Then I happen on a better hook that works for me.

Market Research 3.0.
A radar and dashboard on popular culture.

To use a California phrase, I’m now motivated to press on.

In the old analogue world, before investing money on a product or business, you would have gone to some market research company with their hand-to-hand surveys and questionairres, or used various focus groups, or even explored some manageable small test markets. Market research was a very big industry, and for good reason.

Going forward, however, new tools will be needed.

Investors, marketing agencies, brands, athletes, clubs, leagues and broadcasters will want new ways to assess and scope risk/return in this much more complex and fast-moving digital world. To help them understand the potential total addressable market (TAM), competitor analysis, and the best place to priority scarse resources in go-to-market.

All are mission-critical decisions that need real data analysis, and any ability to intelligently crunch actual consumer behaviours, on social media, is genuinely disruptive. The very good news is that users leave a very distinct audit trail of breadcrumbs in their digital worlds. And that is the kernel of Sean’s vision as I see it.

Making the unknown, known.

To paraphrase Gretzky, if you can now actually know where the puck of popular culture is going, you can move there with confidence before anyone else.

You start framing your own conclusion on x+y, using the Bloomberg analogy. Successful trading has always been about “edge”, having some data insight better than others. The greatest investors, from Ben Graham, to Buffett, to Drunkenmiller, to even the chartists, all study reams of data. They have a protocol that is based on facts and extrapolations. A lot of that is now labelled as “quant work”.

Yes, I’m sure of the maths.

Same with sports assets now? Do we need a Bloomberg screen and quant nerds?

The answer, I think, is a resounding yes.

Money, demographics and geopolitics.

This cute slogan is always our Como window onto the world, and today we are going through the Demographics window.

And what a dramatic window that is. Watch this, if you dare.

Yes, the post-smartphone generations are very different and very detached from us.

But they are our future, and what people do, on say Instagram, is actually a very decent proxy for where popular culture is going (at least in the West). Especially for the demographic up to 40 years old.

Exactly those getting screwed, as Scott Galloway points out.

Source: Statista

What these people are actually engaging with throws off truly amazing insight. With data analysis and AI, it’s going to be a radar for real-time market sentiment and forecasting.

That’s huge. But “engagement” as a term, like most things in the murky world of digital media, is intentionally jargon, used often to bamboozle.

For the record, it should be the average number of real engagements (likes and comments) per post, but that calculation is erratic, because most social platforms measure engagement differently. The next time you read about how many engagements a tournament or sports organisation gets, ask yourself what calculation they were actually using.

Third-party cookies are going to be totally phased out, so it is no longer possible to target fans in the old way. It’s very clear that we will need to find better ways to understand which marketing channels are the most effective, for a world where most ad spend is now digital.

Follow the demographic numbers.

The above graph illustrates that Rohit Sharma’s engagement in the USA is more than Travis Kelce, Tom Brady or Odell Beckham Jr. That’s kind of important, especially as Indians living in the States are a very wealthy audience.

…

The x+y platform is limited only by one’s imagination and curiosity. The “so what” question, after every graph, is because some readers may rightly take different insights from the visual. May even disagree. That’s not the point.

x+y won’t give you the talent to see patterns. Just like a Bloomberg terminal doesn’t make you Charlie Munger. 

That’s on you, I’m afraid. But you now have a jump-off point to engage your brain. Have a go yourself on the lite version, today only available on desktop.

But is it really actionable? 

Since the start of the year, x+y has run queries on the platform to prepare reports on:

1. A sports investment group.
   To give them and their investors’ confidence in demand forecasts for ticket sales and local sponsorship.
2. A major US sports league.
   Working to highlight the assets that help drive ticket sales for a marquee event. And deliver the greatest possible partner value.
3. A new proposed stadium build in Las Vegas (www.lvbeacon.com).
   Validating demand in specific markets on behalf of investors.
4. A major global sports league.
   Trying to break into the North American market. Specifically, strategising marketing assets that will raise awareness in key states ahead of their inaugural event. Prioritising those partnerships that represent value.
5. A sovereign wealth fund.
   Wanting to understand the impact and performance of investments, both at a macro level, by region and language.
6. An MLS club.
   To better understand the market in which they operate in relation to teams and wider cultural influencers in their area.
7. Athlete representation.
   To help benchmark the remuneration players should demand from sponsors.

Devastating.

At this embryonic stage, x+y is still in beta, so they are only sucking in limited data for now. Going forward, however, it will capture all publicly available digital footprints of social, television and further afield. Im sure other companies will get into this space as well.

A good early-stage investor will ask themselves if the platforms will allow you to do this? Scrape their data like this? Can they legally stop you? But when all this is publicly available data (no login and agreement to terms of service are required), it’s not clear that they can.

Our future, in some shape and form, is all about the precise segmentation of sports’ products, audiences, and the business models to monetise them. We will need analysis tools like this to define those segments.

Is Taylor Swift our future? 

Is there really a market for a future women’s team for Mercury 13 in Valencia or better in Santa Barbara?

Is the planned sponsorship, as crafted, really going to deliver the best ROI? Wanna check first?

How much should player representatives be demanding in contract negotiations?

Which market should leagues target for international expansion? Where should a band go on tour? Should they even go on tour at all?

What type of club are you acquiring? You know the colour of the strip. But do you know the avidness and make-up of the fan base in context?

Should CVC have invested into rugby?

At SportAccord last month, the Kansas City Chiefs made an excellent presentation on how, with Taylor Swift and Mahomes, they felt that they had a chance to actually be what they called “The World’s Team”. Their whole growth strategy is based on two huge personalities, giving a “once in a lifetime” opportunity to use engagement for global expansion, and convert fandom.

Sport is changing.

To do all this well you will need an edge. You will need tools of market research 3.0.

One of sport’s best and most famous marketeers, Steve Martin, is days away from announcing his new venture. I need to put him in touch with Mr Verity, a man with the perfect name.

Truth amongst the puffery.

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