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Sports Investors’ New Playbook | Middle Market Growth

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“What our ownership recognized is that there was an opportunity to connect midtown and downtown Detroit, have a hotel, have some real estate, and really create a front door to the city,” Wilson says. “We’ve grown exponentially and we’re partnering with organizations on sports, on concerts, on what is effectively the redevelopment of the city.”

Private capital has played a significant role in the sports-driven development happening in Detroit and Jacksonville, despite challenges to investing in teams directly. Most U.S. leagues limit the number of owners a team can have and the size of their equity stakes. League rules tend to treat each limited partner in a fund as an owner, disqualifying private equity firms from buying a team—although PE executives have invested in teams on their own. But when teams start eyeing real estate, restaurant concepts, technology and media, there are plenty of opportunities for private equity funds to support those efforts.

“When you put together a plan that is going to redevelop a major American city in a very short time and center that development on already profitable organizations, everyone wants to get involved,” Wilson says. “Our owners are very invested in the future of Detroit and we have been able to partner with stakeholders who share that passion.”

NEW GAMES, NEW LEAGUES, NEW TECH

Private equity is also supporting sports innovation by financing the creation of new leagues and helping to expand sports technology as a field—an area dominated by middle-market companies. One firm, Causeway Media Partners, now owns Formula E, the electric car version of Formula One. Another private capital investor, RSE Ventures, has a stake in the Drone Racing League, which serves a brand-new sport that runs drones through complex routes.

Other firms have bought into new competitions known as “cups.” Similar to well-known brands such as the Stanley Cup or America’s Cup, these emerging contests serve American soccer teams or minor league sports, which tend to have growing regional audiences outside of major markets. To capitalize on the opportunity, in 2015 Steel Sports acquired the National Youth Baseball Championships, whose games are televised on CBS Sports and streamed live on MLB.com. The firm plans to help the competition series grow through corporate sponsorships, celebrity appearances, and continued television and online coverage of games, according to its website.

Sports technology is another area catching private equity’s attention. Companies in this space provide virtual training, data and analytics. Their offerings serve teams, help athletes improve, and engage fans involved with fantasy teams, which thrive on the statistical side of sports.

PEAK6 Sports, a venture capital firm in Chicago, expects to see further innovation in sports technology. “We see an opportunity to apply technology and data in unique ways in the sports industry that haven’t been tried before,” says Jay Coppoletta, the firm’s chief corporate development and legal officer. “Sports tech is a really high-growth area. These aren’t just technologies for professional sports teams. There are broad applications for tech from youth sports all the way up, and that’s really compelling.”

This story originally appeared in the January/February 2019 print edition of Middle Market Growth magazine. Read the full issue in the archive.

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