The one with Sir Mike.

Sometimes, with the way events fall, this weekly Column is more diary than essay.

Today is one of those days.

At some point, I wanted him to say that it wasn’t an asset class. I wanted Sir Michael Moritz to say that sport should never be considered as an asset class.

In these years my whole rant schtick has been that sport should not be considered as a homogenous investment theme, but rather a unique special situation opportunity every single time, needing individual experienced due diligence. To use the vernacular, investing in sport, for me, is always micro, never macro, and any idea that capital should be deployed into our sector as the best option to tick the “alternative, uncorrelated” asset box is just misguided. I fear many innocent people are going to learn that the hard way, and get burned at what is perhaps a “top”.

I didn’t have to worry about the man sitting beside me, or even ask him the leading question. He offered the opinion right off the bat. 

I don’t believe in asset classes. I only believe in individual opportunities for return.

I silently smirked.

 

Rugby is now “in play”.

 

Dubai sits four hours ahead of London and my phone started pinging around 3am UAE time on Friday morning. The story of the rugby union breakaway league had apparently broken in the UK. Leaked before the due time.

The sport of rugby is a governance shambles and a flawed business model, a Calcutta black hole for investors like CVC. So, it was inevitable something needed to happen, hopefully, something positive. Many operators and journalists remembered a previous Sunday Column, and began reaching out. We wrote this. 

It contained a specific titbit on what is now obviously very much in the public domain.

…

It’s all in that podcast.

It wasn’t nine months, it was six, and this project is a clear alternative to the existing structures and blazers of the sport, because it addresses and solves a very simple problem.

Players are overplayed and underpaid.

I like challenger leagues, as so often they offer the only credible road to salvation, in an industry where the existing governing bodies are often too corrupt and too conflicted to transform themselves. But the challenger needs to set out very early why they are a force for good.

Players are overplayed and underpaid.

In 1998, I set one up myself, in Scottish football, and the difficulties and challenges were objectively immense. People with a vested interest in the status quo, including the media, politicians, will come at you very hard, and it will either make or break you. You need to get on the front foot early, and win hearts and minds. Challenger leagues need a leader; a “face”.

The truth will out soon enough, and we should all support the team behind this plan. They are good people, many well known, and they are frankly on a mission of mercy for a sport currently going down the plug, as heavily loss-making and criminally under-marketed (by the clueless).

…

I switched off the notifications on my phone and tried to sleep. It would be a big day when the sun came up over the desert.

 

The PTO is the definitive challenger league.

In Dubai, the host city of the splendid season-end T100 triathlon event, the PTO had assembled a bit of a dream team of “players” in our industry. Danny from Surj, Elis from Goldman, Sandford from Oakvale, and a load of “name” investors from big American and the Middle East funds. Various local dignitaries. 

A serious room.

Many of these people were directly interested in the progress of the PTO itself, a poster child for sport challenger leagues, now raising a “Series B” of growth capital. That round, advised by Oakvale, is well advanced and, once announced, will represent a much needed boost of optimism for our whole industry. It is a vote of confidence that sport, in certain micro opportunities, still has a viable business model that can look after both athletes and investors. Its model, its traction, its learning curve, bodes so well for the rugby project, and it is also such heartening news to see the quality of financier now getting behind this type of sport vision.

They should like the rugby version also. 

I was asked to sit down for a “fireside chat” with the guy at the top of the bill, venture capital legend Sir Michael Moritz of Sequoia Capital. He is the cornerstone founding investor of the PTO, and it is his only investment in sport IP (he did Strava, but that’s not sport IP).

There is no fireside in Dubai btw.

 

Perhaps the most famous Welshman alive.

Certainly the richest.

In these last 25 years, when you think how the global economy has grown, from where productivity and innovation have come, how the best returns on capital have been generated, it’s really been all about venture capital (VC), Silicon Valley and especially him. We spent a lot of pages on exactly all of this in our book, because you need to. VC is still badly misunderstood, as so many found out when the mood music changed two years ago. From scale-at-all-costs to breakeven-tomorrow. In the blink of a Palo Alto sunset. 

The search for the unicorn has most definitely changed.

Moritz, a proud Welshman, the son of Jewish refugees from Nazi Germany, followed his parents into higher education. He studied history at Christ Church, Oxford and earned an MBA at Wharton. As blue-chip as it gets. He became a (very good) journalist, and caught the eye of a certain Steve Jobs, who asked him to be the official historian of Apple. In the mid 80s he then joined Sequoia, and the rest is history.

It’s easier to list the companies (which have changed the world) in which Moritz did not invest. In short, in the world of finance, VC and asset management, Moritz is, in fact, Michael Jordan. And he does very very few interviews.

I am not prone to stage fright by now, but fuck me. Sir Michael Moritz.

You have an hour, and he says you can ask him what you want. 

Apart from obviously wanting to know what he saw, and sees, in the PTO, I needed to get him to discuss his career, his investing style, but more than all that, to take the audience back into those rooms (and those decisions) that have dominated our lives. 

When I was speaking with Sergey and Larry about YouTube…

It seemed to go ok. I looked over to Sam Renouf, (the ex-triathlete CEO of the PTO), and to Sandford. They smiled broadly and nodded, as we all realised what a very special privilege it had been. Those that were there know exactly what I mean.

A career highlight. 

 

Never invest in asset classes, he said.

Sport as an investable asset, if we want to describe it simply, splits between rights owners, IP businesses (like leagues and clubs), and what is now called “sport-adjacent” (media, betting, merch, sportech enablers, and of course sport data).

Today’s Sunday Column wants to spend a moment, as a didactic example, on the world of sport data, to analyse these last 5-10 years. There are lessons to be learnt, especially for all these new investors into sport. It’s a two-word lesson.

Caveat Emptor.

P.S. Congratulations to Sandford Loudon, and the omnipresent Oakvale, for advising on the sale of one of these businesses, Openbet and IMG Arena, here. As advisors in sport data, they pretty much dominate the space. 

In recents months, our AYNE podcast and these diaries have opined often on the Endeavor group led by Ari Emanuel and Patrick Whitesell. This below is still one of the most popular Columns of all time (and the analytics show in general that people seem to like the hard finance pieces, much more than the romantic philosophy of sport emotion. Interesting in itself.).

IMG have also this week lost their main business of producing the English Premier League (EPL), and that’s existential, Let’s see what Adam Kelly does now.

It no longer exists. As previously stated.

Today, we don’t need to revisit the convoluted financial engineering of selling all these assets, the M&A strategy of taking something private; the management incentive plans, the share price of TKO. 

No. Today, we need to ask something else, thinking of Sandford’s latest deal. What the hell happened to the once glorious “asset class” called sports data? The oligopoly of four that dominates this sector: Genius, Sportradar, StatsPerform and IMG Arena.

I don’t believe in asset classes. I only believe in individual opportunities for return.

Never a truer word, Sir Michael.

 

An “asset class” investment is a bet on sentiment.

Only a few years ago, these sport data companies were very much in vogue, with valuations boosted blindly by the usual popular delusion and madness of crowds. Narrative, momentum, linked to the rise of passive index asset allocation. 

I despise this approach to investing, but it is now everywhere. DOGE to the moon. GameStop. The FAANGs. The Magnificent 7.

Here is the “ narrative” that pushed the “asset class” of sports data conglomerates.

Data is the new oil, sports data is massively undervalued, the US gambling market is about to explode, data and modelling will enable marginal gains in performance and recruiting of athletes. Data will enrich the viewing experience. He who holds the (first party) data is King.

Data, Data, Data!

A lot of that is undoubtedly true, but the point is that this never constitutes a rationale to invest passively in an “asset class”. It should just motivate you to find individual micro opportunities in that theme, like a Starlizard, or one of our Albachiara successful exits called IoSport (sold to Superbet).

The real moral of today’s Column is that in investing, sport or otherwise, people too often act like sheep. Not all companies in an “asset class” are going to be winners. Not all are going to see their valuations increase. Caveat Emptor. 

 

Narrative and sentiment alone isn’t a tide that will raise all boats.

In fact, when this noise and hype reaches an exit velocity, that normally is what marks the “top”, and one could argue that this is where sport is right now. It’s what the finance industry calls the retail investor getting in just in time to “hold the bag”. The smart money sells off its holdings to the dumb unsophisticated investor (bag holder) and, to use an apposite betting analogy, it is the “sharps” fleecing the “squares”. 

“If, at the poker table, you don’t know who the sap is, the sap is you.” 

Finance is the biggest poker table in the world. It is a game for experienced insiders, who often use marketing words like “asset class” to pitch their own book and expertise. Don’t fall for the macro pitch; stay micro. 

Analyse each opportunity on its own merits.

 

The Sport Data Conglomerate

These companies had (and have) a simple product-market fit. They collect and collate data from sports events, to sell it to the world’s bookmakers, for punters to bet on. So they are suppliers to the gambling industry. 

Here is how the market leader describes itself:

Genius empowers the biggest sportsbooks and betting companies to optimise operations, cut costs and keep winning — putting game-changing odds, risk management and player marketing tools in one place. For the first time.

Some of us have seen the full evolution of these companies up close, from the inside. Football Dataco, the data warehouse of all of British football, was set up in my time in Scottish football, by Brian Phillpotts of the EPL. In many ways, he was the genius pioneer of this entire value chain, and I have had the privilege to work with him on this stuff since then, recently for the AI production company Pixellot (enablers of event data/video for clients like Genius and IMG Arena). Brian and I did both of those deals.

In the early days, these companies sent students to sports fixtures to manually record the events, and send the data back to base. They may have also scraped some stats off of a broadcast feed. It was all a bit wild-west and old-school human-intensive, but it was becoming a good business. The bookmakers were hungry for this product and the money was rolling in. Valuations were pushed sky high by the capital markets, either public or private. Genius and Radar listed via IPO, StatsPerform was bought by PE.

An “asset class” was born. IMG, in one of the great strategic errors of our industry, missed the data/betting train completely, (Perform ate its lunch), and they belatedly invested in a new division, called IMG Arena. Others like Infront were/are marginal players. 

 

Letting the “retail” investor hold the bag. 

Those heady days of optimism are long gone for all these companies. The public share price performance of Genius and Radar has been massively underwhelming in the last 5 years. Bags have been held, squares have been screwed by the sharps, saps have found out who they really are. A story older than the Bank of England. 

Here is the Radar share price graph.

Genius is even worse.

StatsPerform has been for sale for three years, as its PE owner seeks an exit. One wonders if it has been written-down marked-to-market correctly in the meantime? IMG Arena is an unwanted and underperforming asset at Endeavor, being bounced around in various temporary states of ownership, until it eventually gets sold to (I guess) Radar. 

This sector, if truth be told, has systematically disappointed investors and providers of capital, and that also applies to the people who put very serious money into Pixellot. Rivers of tears and red ink.

And yet it was so much de rigueur, and flavour of the month.

 

What happened and what can we learn?

Investing in sport or sports rights is ultimately about understanding IP and value chains. All these are slightly different each time, and that can change everything. The micro is everything, especially in sport.

Genius and Radar have managed to productise the data for their USP and differentiation, StatsPerform is built from a more performance and athlete core. IMG Arena came late to the party, and overpaid for market share (tennis was its big asset, but that’s now gone).

The sector was evolving so fast, one could argue that all of these companies were making it up a bit as they went along. Throwing mud at walls. In fact, at the start of all this bubble, there was no real IP protection for data; certainly no clear monetisation model. All we had was an idea that the pools providers, like Littlewoods, had to pay football something for the fixture lists.

As sports betting grew, so did the demand from bookmakers for events to offer their punters, ideally also with watch-and-bet video. Demand creates supply, and, back then, anyone could record the action as “events” to be packaged and sold to bookmakers. All a bit of a mess, and this kind of chaos is always prevalent when technology creates new categories of IP.

A confusion of permissions, a plethora of people chancing their arm, all pushing the boundaries of porous legal precedent. We are entering this same world now with AI name, image, and likeness rights (NIL), and that’s going to be real fun and games. Back then it was around data. 

Sports leagues and clubs started to perceive their value to the wider gambling industry, no longer just the simple pools product. They began to define and ringfence their data, to demand payment for its use. Football Dataco won significant legal victories in establishing all this precedent, and companies like Genius had to now pay to get exclusive official data.

And pay they did. Actually let me correct that.

They massively overpaid to beat their competitors, and even gave some major leagues equity in their business for the deal. NFL was one of those for Genius.

 

Bear markets have harsher rules. 

These types of deals are always applauded in bull markets; less so, when the cost of capital rises. And here is the issue with the business model of paying big fees to rights holders for exclusive and official sports data: 

You may be official, but you won’t ever be exclusive. 

What your big fee is really getting you is the right to officially sit in the venue and collect/send data, with the blessing and help of the rights holder. But rest assured that there will be plenty of unofficial collecting of the same data you have just bought. By your competitors, clandestinely in the same stadium or scraping the broadcast feed.

Anyone with any experience of sports IP and rights knows how this ends. Money is lost and lawyers get rich. 

Welcome to 2024.

 

People want out of bad deals.  

Look at what is happening all around us now, to an “asset class” that 4 years ago was considered “golden”.

Chickens are coming home to roost.

StatsPerform used to be the official data partner of many of the European soccer leagues, but they lost that deal to IMG Arena. Allegedly, however, they still continue to send “their people” to collect data, undercover, and IMG Arena is suing them for basically piracy.

Meanwhile, both companies are also seeking to get out of those same deals with sport leagues. Realising they have massively overpaid, they are now trying to wangle their way out of the contracts, often by claiming that the leagues are not offering them the promised exclusivity. Sports Business with the scoop here. 

It is unclear if Serie A will prevail, even with a very solid contract. I’m told the American PE house that owns StatsPerform don’t care. They are trying to sell the asset, and just don’t want it carrying loss-making contracts. Hard hard ball.

Ironically, IMG Arena and those same European leagues are now also in serious legal dispute. People are desperately trying to unravel the madness of a bull market.

And even when it’s working, the whole money distribution tension is ripping the whole data concept apart. 

 

Here is a Glasgow boy’s blunt summary of this sector. 

These four companies are bi-polar.

Sometimes they are the official data partners to sport, paying rights fees like good citizens; other times, they are in fact the pirate (actively trying to undermine the IP that their competitors have legitimately paid for). Anyone with a micro knowledge of this sector, as an operator, has always accepted this. It is a very complex gameboard, with each company quite different in its DNA and offering.

They are all ducking and diving, selling their rights in forced bundles of premium and bulk events, where “value” resides in a valley of sixty shades of grey, in an evolving and unclear legal and political framework. This is also a market sector where over-saturated competition has squeezed out any serious profit margin.

The sports data space, this oligopoly of four, is now entering the Quickening. They are rationalising their go-to-market and polarising their rights budget to only the very premium sports. Sound familiar? There is no alternative to consolidation in this sector; what I call a “Highlander” eco-system.

There can be only one.

The play would be buying the four of them and merging. Antitrust permitting.

 

What should a Mike Moritz type investor now do?

To navigate all this with credibility, you need to know your way around what’s under the hood.

With distressed assets, as all these sport data conglomerates are, there are always opportunities. Each of these companies has now expanded their product offering, made it more complex, no longer just a data feed.

Here is how Genius sees itself going forward:

Genius Sports is the official data, technology and broadcast partner that powers the global ecosystem connecting sports, betting and media. Our technology is used in over 150 countries worldwide, creating highly immersive products that enrich fan experiences for the entire sports industry. We are the trusted partner to over 400 sports organizations, including many of the world’s largest leagues and federations such as the NFL, EPL, FIBA, NCAA, NASCAR, AFA and Liga MX. Genius Sports is uniquely positioned through cutting-edge technology, scale and global reach to support our partners. Our innovative use of big data, computer vision, machine learning, and augmented reality, connects the entire sports ecosystem from the rights holder all the way through to the fan.

It is a much more holistic company now, as is Radar, and one could argue that their share price hasn’t yet reacted to this better set of prospects, around say data-augmented video to media companies. Keep an eye out for Genius’s Dragon product.

Maybe valuations are stubbornly low because these conglomerates are still tainted by the narrative of an “asset class” which overpaid for betting rights, and is now struggling to trade its way out of the bad deals it made at the top of a bull market.

 

Maybe? Or maybe not?

Look better. 

Why has the Radar share price gone up nearly 50% in the last few days? Get one of your hustling bright young analysts to find out, and see what is really happening at the micro level? 

Might be nothing, might be everything. Do your homework.

This whole space is going automatic with cost efficiencies, taking data straight off video. Also, the analysis of any rights deal paid needs to look at the effect of being able to bundle low quality sport for serious money. There is a part of the gambling market that will bet on anything, and a volume of events will always have some value. That is why tennis is really all about gambling as a sport business model.

The margin in all this is in the bundle, the old agency business dirty secret. This is still the sports sector!

Great investors never think about “asset classes”. They think about special situations like this, especially in overly beaten-down companies that maybe have now found “a bottom”.

One remembers the Column about Buffett and the value investor. 

At the end of the day, all these Columns are really just always the same article, only told in a different way, with a different gravy.

Sport is not an “asset class”.

The sooner Big Capital accepts that, the more money they will make.

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