🎙️ Check out these two All-In-style sports business riffs I did with my good friends Brent Peus Jr. and Dominyck Bullard.

Our best episode yet.

HYROX; Commercializing Identity and Belonging; Permanent Capital Holding Companies; Mixed-Use Real Estate Developments in Collegiate Athletics

I may be biased, but it makes for a great listen on a 5k run.

NFL’s New Money vs. Old Money; Unrivaled vs. Project B; Las Vegas’s Over Saturated Sports Market; Immersive Entertainment

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A note before we begin -

In August of 2023, while I was bouncing around the NFL, I took my first job in sports, media, and entertainment investing.

By this point, I had a firm grasp on the broader VC world, especially its intersection with human performance technologies and other sport-adjacent categories, but nothing had prepared me for what I was stepping into.

The institutionalization of sports as an asset class was happening in real time as the Big 4 was fresh off of opening up to private equity investment, dozens of emerging leagues were launching week after week, and new funds began flooding the zone.

I wanted to better understand the industry from the ground up, and I had just written my 60-page Senior Thesis on “Venture Capital Decision Making Following the Burst of the Dot.com Bubble” at Princeton University, so naturally I felt the compulsion to dive into the data in search of the patterns underneath it all.

Over the following two months I wrote a research white paper on the “Future of American Sports Investing,” and I titled it Evolution.

This white paper set out to articulate my understanding of the evolving landscape of the burgeoning sports, media, and entertainment asset class.

I didn’t know it at the time, but this exercise would go on to build the foundation of my career as a sports investor and lay the groundwork for what would eventually become this publication, 🧭 At the Center.

It’s now three years later, and I’m getting married in two weeks.

As I step away for a while to marry my bride, I am publishing that paper here exactly as I wrote it.

No edits, no retroactive wisdom. The version of me who wrote this had a thesis, and I want you to meet him on his own terms.

Evolution is a four-part essay series.

Parts I - III are the paper in full, exactly as it was written.

Part IV, when I am back from my honeymoon, is the debrief. Here, I will hold my years of experience up as a mirror to my initial theses, guiding you on where it held up and where it broke.

You will see seeds of my 🧭 At the Center register come through in these writings. Understand that Evolution, at the time of this publication, is 3 years old, and uniquely is the last essay I ever wrote which remains completely untouched by AI.

This essay, Part I, lays out the thesis itself: the monopoly American sports hold over us, and the forces converging to deepen it.

Class is in session, let’s begin. 📝 📝 📝

Franchise investments into the Big 4 American professional leagues (NFL, NBA, MLB and NHL) have outperformed the S&P 500 by 300-1200% over the last 20 years. This alternative asset class is unique in a variety of ways, many of which explain why these investments have had outsized success.

The following paper aims to explain the economic mechanisms driving this outperformance and detail the landscape of sports investing going forward.

The legacy model of franchise ownership once restricted owners to billionaires and their immediate families, but in 2019, the NBA, MLB and NHL relaxed ownership regulations, allowing private equity firms to own minority stakes in their franchises.

The success of this winning asset class has brought more attention to franchise ownership, but the scarcity of these assets meant that the multibillion-dollar valuations that have followed limit the potential pool of principal investors.

By allowing private equity firms to enter the space of minority franchise ownership, franchises are able to capitalize off of various investor’s networks, expertise, and management; moreover, private equity firms provide liquidity options for existing owners, allowing majority owner’s to fund expansion efforts.

These minority stakes often fetch a 20% to 30% discount to market value, so as the overall demand for these assets increase, the underlying franchise valuations will continue to rise.

While the Big 4 leagues are not technically, there are in essence, monopolies. Each having begun up to 100 years ago, these leagues have a unique hold over the American population, and more importantly, the economy.

The Big 4 leagues are monopolies over 1) American culture and the American psyche, 2) the global sports market, and 3) other corporations.

Professional sports have become so incredibly ingrained into the fabric of American society, it’s hard to accurately describe the depths to which these leagues have an effect on the American population and economy.

The daily lives of Americans around the nation revolve around sports. Sunday’s are synonymous with NFL gameday and Saturday’s in the Fall are reserved for college football. Parents see sports as a way for their children to earn a free college education, or hopefully, secure generational wealth.

For half of the year, football is aired on TV 5 out of the 7 days of the week. When you add in the other 3 professional sports leagues and overlapping season schedules, there is some type of sports game on every night of the week virtually year round.

The demand for sports is so high because Americans, who inhabit the richest and most lucrative market in the world, care a great deal about sports; fundamentally, it’s an acceptable form of tribalism for our society.

Beer, burgers (or hot dogs), and sports: this is what makes America tick, and this is where the money is.

The meteoric rise of social media and more recently, sports betting, have completely altered the ways in which fans engage with professional sports. Fans now follow their favorite teams or players, and interact daily with the content those stars put out.

Simultaneously, these same fans participate in fantasy sports, bet on, and thus have a real financial interest in, the success of individual players and the outcomes of games.

Sports have burrowed so deeply into the fabric of our society – from social media to sports betting – that it’s difficult to accurately measure the incredible rate at which the average American interacts with, and spends on, sports.

Because the Big 4 leagues are the best leagues with respect to other leagues around the globe, these leagues have a de facto monopoly on professional talent.

Even amongst other international professional major leagues – the EuroLeague, Japan’s Nippon Baseball League, the Kontinental Hockey league – the Big 4 are still considered “the big leagues.”

The best talent from all across the globe flock to the USA in order to play for our leagues; the Big 4 leagues have effectively turned all international leagues in their sport into feeder leagues.

Because the Big 4 have the most talent, the competitive landscape of these leagues are unmatched; more talent translates to more excitement and thus, more fans, more sales, and more revenue. This further drives international talent to the American leagues because players here can simply be paid more.

Beyond salary, elite players from overseas (Shohei Ohtani, Luca Doncic, Giannis, etc.) have a better chance at becoming superstars, and lucratively capitalizing off of their brand, in America.

Because of the unique hold that sports have over how Americans spend their time and money, corporations that cater to the American population have to appeal to their customers through sports.

Beer corporations, for example, rely heavily on the NFL and other professional sports league’s brands to sell their beverages, with Bud Light paying out $1.4bn over 6-years to be “the official beer of the NFL.” But where the true monopoly lies is in sport’s control over broadcasting and media companies.

Despite waning profits, media companies like CBS, ABC, NBC, FOX are forced to bid ever-increasing amounts and pay out billions to the Big 4 for exclusive media-rights deals.

Sports broadcasts are the only thing keeping these corporations in business, no other TV events on these networks bring in the type of advertising revenue that airing sports does.

In 2022, The NFL represented 82 of the top 100 most-watched US TV broadcasts, including 23 of the top 25; it is not an understatement to say that TV networks need sports to stay afloat, and with streaming services like Apple, Amazon, and YouTube TV recently entering the broadcasting space, the media-rights deals that the Big 4 are going to sign will only increase in value.

The ever-increasing speed at which the world is globalizing only serves to increase the exposure, reach and influence the Big 4 leagues have internationally.

Back when these league’s games were broadcasted over the radio, it was unthinkable to imagine that an NFL fan would be listening in Europe or Africa. The rate at which these sports leagues have developed into a global phenomenon is commensurate with the advancement of new technology – first the TV, then the internet, and over the last 20 years, social media.

Globalization has made investments overseas easier and more lucrative. Since the 1990’s, the NBA has billions in strategic investments tied up in China, a country which now boasts more than 500mm fans. In an attempt to spread basketball to Africa, a continent historically not keen on the game, the NBA built NBA Africa, a league which is now valued at $1bn.

Global broadcasting providers, and their partnerships with the Big 4, has led to larger viewership and markets overseas. The NFL saw a 30% increase in international viewership from 2016-21, with particular growth in markets like the UK, Mexico, and China.

Growing these markets drove the business of the corporation, as the league’s international broadcasting revenue increased by 25% over the same period. Similarly, the NHL reported a 15% YoY growth in international viewership in 2021, with markets predominantly growing in Europe and Asia.

The growth in their international fanbase yielded an 18% annual increase in international merchandise sales, while overseas partnerships with global brands grew by 25% YoY in the same period.

But reliance on global broadcasting providers is not necessary, as evidenced by the MLB, whose streaming platform MLB.tv reported over 1.3mm international subscribers in the 2020 season, with 12mm South Koreans watching the 2020 World Series Game 6 alone.

By growing their fanbase in countries with a strong affinity towards baseball (Japan, South Korea, the Dominican Republic), the MLB's international revenues have grown to account for 20% of the league's total revenue.

It’s no secret that these incredible strides in international expansion, revenue, and consequently, franchise valuations, have occurred in the past 20 years alongside the meteoric rise of social media, and more recently, content creation.

Social media has made the world small, and now more than ever, social media has emerged as the primary fan-engagement platform for sports fans globally. Instagram and Facebook are effective for driving online merchandise and ticket sales, while Twitter is used for real-time messaging where teams provide game updates and fans interact with each other.

The NBA now boasts over 83 million followers on Instagram, making it the 8th most followed brand in the world, while every single NFL team has at least 1 million followers across Instagram, Facebook, and Twitter.

Because social media has grown to become how fans interact with sports, star athletes are in even more of a position to garner incredible social media presences and expand their individual influence.

This has two direct consequences: 1) people have started to become fans of players rather than teams, and 2) franchise valuations can explode virtually overnight by acquiring a star player with a large social media following.

So far in 2023, the MLS has seen their Instagram gain 25 million followers – 22 million of which came after the league acquired world superstar Lionel Messi. Inter Miami FC, who Messi plays for, is now the 3rd most followed sports team in America (only behind the Golden State Warriors and LA Lakers) – alternatively, the club Messi left from, Paris-Saint Germain, lost over 1.5 million Instagram followers the weekend Messi announced his departure.

Consequently, Inter Miami has seen their club’s valuation explode from $25 million in 2018 to $585 million in just 5 years, now projecting to bring in an MLS-record $200 million in revenue.

When LeBron James re-signed with the Cleveland Cavaliers in 2014 following a four-year stint with the Miami Heat, the Cavaliers saw their franchise valuation almost double immediately – from $515 million to $915 million within one year.

The star athletes that have these large social media followings now warrant more brand sponsorships and merchandise demand which consequently drives more revenue for the team they play for.

Alongside the rise of global stars and social media, we are now seeing team and player-specific content creation further iterate this feedback loop (where content and players drive franchise valuations) in the form of documentaries and podcasts. Amazon Prime Video recently produced “Welcome to Wrexham,” a sports-documentary covering Wrexham AFC under their new ownership with actor Ryan Reynolds.

In the four-weeks following the release of the documentary, the franchise saw their social media following increase 19.2% and their club’s retail website brought in over $300,000 in new merchandise sales.

Speaking to player-content specifically, NFL brothers Jason and Travis Kelce are in their second year of their podcast New Heights, growing their production to the number one sports podcast in America. By growing their individual brands, the brothers now hold the spot for the #4 and #8 most sold jerseys in the NFL, driving merchandise sales for their teams, the Eagles and the Chiefs.

It’s well established that the Big 4 leagues have sufficient control over the legacy broadcasting companies — FOX, CBS, NBC, ABC — because they need the demand that sports provide to stay afloat.

The value of these media-rights deals are only going to increase, in part because cable companies need them, but also because streaming services have entered the space. Apple TV+ recently paid $2.5 billion for the exclusive media-rights to the MLS, and they aren’t even a Big 4 league.

Over the next decade, the NFL has $113 billion worth of media-rights agreements kicking in: the four traditional broadcasters and ESPN are each paying over $2 billion/year for the right to air on Sunday’s, Amazon is paying $1 billion/year just to stream Thursday Night Football, and YouTube TV paying is $2 billion/year for NFL Sunday Ticket.

The NBA’s existing media-rights deal with ESPN and Turner, which was worth $25 billion from 2016-25, is expiring soon and the league is eyeing a new 10-year agreement that will be valued at $75 billion (3x).

The entrance of streaming services into sports broadcasting only serves to increase the bids at which providers will have to pay for media-rights. Across all sports, coverage includes: Apple TV+ (MLS), Amazon Prime Video (NFL), YouTube TV (NFL), DAZN (Boxing, MMA, NFL, NWSL), Disney / ESPN (NFL, NBA, Cricket), Viacom18 (Cricket), Paramount (NFL on CBS), and Peacock (MLB, EPL).

These companies now have exclusive access to sports league’s media-rights and thus, a de facto channel for future content creation in the forms of documentaries and short form social media, a move that will bring in more revenue for them, and the sports leagues they promote.

These legacy media providers are forced to bid higher prices for sports media-rights, but it is getting increasingly harder for these corporations to justify these high prices as their profits decline. Ultimately, this threatens to push the Big 4 into exclusive partnerships with streaming services, completely changing sports viewership to a subscription-based model.

U.S. sports media-rights are forecasted to reach $30 billion/year by 2025, the global value of which will be around $60 billion/year. With the United States occupying 50% market share of the global media-rights landscape, and with the NFL alone demanding 15.2% of the global market, the Big 4 sports leagues (and thus their franchises via revenue sharing) stand to inherit hundreds of millions per year in broadcasting revenue.

The histories of these leagues ratify this, with the NFL’s largest single-year increase in average franchise value (1998) along with the NHL’s two largest increases (1998 and 2013) all being accompanied by a more than doubling of those leagues’ media-rights values.

The relationship between the Big 4 leagues and the American population has evolved even in the last 5 years with the legalization of online sports betting in 34 states and the introduction of national online sports-books like DraftKings and FanDuel.

Fantasy football and sports betting have always been popular, but with its transition to online mobile apps, the expansion of such activities have increased nationally. In this market, the number of online sports bettors is expected to approach 50 million users by 2027 in America alone.

Around one-in-five U.S. adults (19%) say they have personally bet money on sports in some way in the last 12 months, and depending on the league, the percent of Big 4 fan bases that are interested in sports betting varies from 48-62%.

This has fundamentally changed the dynamic of the relationship between the Big 4 and their average consumer. These fans now, on a national scale, have a real financial interest in the success of individual players and the outcomes of games in a way that just wasn’t present pre-2018. This only serves to further ingrain the importance of sports into the minds and daily workings of the American population.

Only half of the American population has access to online sports betting, and yet it is already a multi-billion dollar industry, with total revenue of the market projected to reach $7.62 billion in 2023.

There still exists a large untapped market for sports-betting, and with the DraftKings, FanDuel and Caesars shelling out over $1 billion to be “the official betting partner of the NFL,” the Big 4 leagues and their franchises stand to make millions off the backs of American sports bettors.

All of the Big 4 franchises have adopted and implemented many practices of horizontal integration, practices that are modeled after Disney’s success in the media industry.

These practices stem from franchise’s realization that they can commercialize, commoditize, and monetize a number of channels that exist outside of their core intellectual property (IP) in order to grow the business.

For a team like the Dallas Cowboys, who have a clear monopoly on the game of football within the market that is Dallas, TX, the core IP in which they operate in is their Sunday afternoon on-field play – revenue from gameday tickets, concessions, and their revenue share from the NFL’s corporate office, are all directly tied to the monetization of the vertical in which they operate, playing football.

However, similarly to Disney, the Dallas Cowboys business model extends far beyond Sundays. As a business, the Cowboy’s first put out content directly tied to their core IP (playing football), and then monetize that content through distribution channels (such as a broadcast).

From this core content creation spins-out a number of revenue streams that exist independent of the Cowboy’s on-field play, but rely entirely on the brand of “America’s Team” – revenue from merchandise sales, their real estate like Jerry World and the Frisco Star, and corporate sponsorships are all commercializations of the Dallas Cowboys brand.

What all of the Big 4 teams are doing is treating their sport as the franchise’s core IP, spreading the associated content through distribution channels, and then rolling out a number of alternate strategies of monetization to maximize the earning potential of the franchise.

This grows the underlying franchise valuation at a rate that would not be possible by relying solely on gameday revenues.

Jerry World, the $1.3 billion stadium in Frisco, TX, has hosted Super Bowl XLV, the 2014 NCAA Final Four, the 2015 CFP National Championship game, the Country Music Awards, WrestleMania, concerts, the Cotton Bowl game, the Texas high school football state championships, monster truck rallies, boxing bouts, UFC fights, and more.

AT&T bought the naming rights to the Cowboys Stadium in 2013 for at least $17 million a year, and Molson Coors signed a 10-year, $200 million extension to be the Cowboys' only beer provider at AT&T Stadium.

All totaled, revenue for the Dallas Cowboys came in at $1.13 billion in 2022 – less than 12% of that came from the NFL’s corporate revenue share.

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