The great sharks of finance are revolutionizing sports and boosting athletes’ income

Sovereign wealth funds from the Persian Gulf, investment banks and venture capital giants are redoubling their investment commitments. These groups are searching for profitability, legitimacy and fame through competitive sports

Negocios 18/06/23 web Portada Deporte
SR. García con fotografías de Getty

At first, brands are like empty carcasses — strange and hollow names for customers. Over time, value is added to them, according to the experience that people have when consuming their products or services, the publicity they broadcast, or the personalities who are associated with them. “A shoe is just a shoe — until my son steps into it,” says Michael Jordan’s fictional mother in the movie AIR, which is about the fierce battle between Adidas and Nike to cast him as the face of their brand.

The sports industry is an asset that is increasingly coveted by investment firms. Although the controversies involving violence and racism in stadiums are still nagging problems, the millions of hours worth of sports-related broadcasts reflect, above all, the power of famous athletes, who arouse admiration for their resistance, intelligence, talent and capacity for sacrifice.

These virtues attract lots of new money — the arrival of which is transforming the business in four major ways. First of all, those who want a piece of the sports pie are no longer just millionaire entrepreneurs looking for fame: the participants in the sector have become more sophisticated, with sovereign wealth funds, venture capital giants, investment banks or select family groups coming into play. Second, capital flows are looking beyond the monoculture of buying traditional assets — they’re breaking new ground, finding profitability in the operation of stadiums, the sale of broadcasting rights, the financing of competitions, the representation of athletes, or the lucrative niche of sports gambling. Thirdly, the diversity of investment is greater today, with sports such as soccer or basketball no longer having a monopoly over the public. Finally, big capital — albeit in a more gradual way — is beginning to show interest in women’s sports, which are growing in popularity.

The hikes in interest rates that have taken place in developed countries over the last year — which are meant to cool growth and combat inflation — have made financing more expensive, while lowering the valuation of many assets. However, the impact of the central banks’ decisions hasn’t been felt in the sports industry. In 2022, according to Bloomberg, this sector made $17 billion worth of business details, compared to $10 billion in 2021. In 2023, a new record can be broken. The great beneficiaries of this new economic boom are athletes, whose income — from salaries and sponsorships — is skyrocketing. According to Forbes, the highest-paid athlete in the world is Lionel Messi, with an annual income of 130 million euros (or $141 million). Just behind the Argentine soccer player is the NBA star Lebron James, with an annual income of $121 million. The third place in the ranking is occupied by Cristiano Ronaldo, who rakes in $115 million yearly.

Companies that are linked to athletes yearn to be identified with their virtues. There are also countries — such as the controversial petromonarchies of the Persian Gulf — that are eager to gain legitimacy and counter negative news stemming from their human rights violations. Even entire sectors — such as volatile and risky cryptocurrencies — are seeking to make themselves better-known by attaching themselves to athletes and sports. These industries want to pull in new believers, who can gravitate towards their utopia of a decentralized economy… while achieving more friendly regulations from governments.

Both companies and countries have made multi-million (or billion) dollar investments in the field, from the World Cup in Qatar, to the signing of Cristiano Ronaldo and Karim Benzema by soccer teams in Saudi Arabia. Undoubtedly, the latter nation is embracing the soft power of sports diplomacy. The Spanish Super Cup was played in Saudi Arabia — with a payment of $40 million per edition — and LIV Golf was born in the Gulf country. This parallel golf circuit — with much larger cash prizes — agreed to merge with the legendary PGA Tour last week, ending a dispute that divided the sport of golf for several months. And all these steps may just be the beginning: Prince Mohamed Bin Salman says that his goal is to bring the 300 best players in the world to Saudi Arabia’s soccer league.

Other parties have suffered major setbacks. The bankrupt FTX exchange couldn’t continue putting its name on the Miami Heat’s basketball court, as it intended to do until 2040 in exchange for $130 million. Meanwhile, other crypto companies are still fighting over important audiences in Formula 1 racing, the NBA, tennis and soccer.

The trend is clear: money likes sports more and more. And vice-versa. The cost of broadcasting rights is growing as new investors — who are loaded with cash — enter the bidding war. Streaming platforms — such as Apple, Amazon and Netflix — are trying to snap up as many rights as possible. Meanwhile, the salaries of athletes and the valuation of sporting clubs — which are authentic cash cows — continue to rise.

Communications experts predict that these streaming platforms will soon enter the upcoming battle for NBA broadcasting rights. The agreement of the most important basketball league in the world — currently with ESPN and Warner Bros Discovery — ends after the 2024-2025 season. The scenario today is very different from that of 2014, when the previous contract was signed. Back then, there were 100 million homes with cable or satellite television in the US, compared to 70 million today. But now, more than 100 million households in North America that pay for streaming services are in play — a change that’s revolutionizing the market. Analysts believe that, at a minimum, the NBA will be able to double its revenue from broadcasting rights.

Today, there are soccer clubs — such as Manchester United, Juventus, or Borussia Dortmund — that are listed on the stock market (they tend to experience a drop when a major title is lost). A Bloomberg analysis concluded that 17% of the capital of all the teams playing in the five major European soccer leagues is in the hands of investment groups. This phenomenon is much more visible in England and France — an example being the Qatar Investment Authority’s ownership of Paris Saint-Germain F.C. (PSG) — than in Spain, Italy or Germany.

With PSG repeatedly failing to reign in Europe — despite bringing together an all-star squad — the most successful sporting example is Manchester City, the newly-crowned victors of the Champions League. It’s currently in the hands of a sovereign wealth fund from Abu Dhabi, led by Sheikh Mansour bin Zayed Al Nahayan, who has also been the vice-president of the United Arab Emirates since March. There are many other sheikhs involved in soccer ownership… and the list continues to grow. The American owners of its rival in the city — Manchester United — have considered selling the club. Two interested parties are fighting over it: British billionaire Jim Ratcliffe — president of the chemical group Ineos — and an investment group headed by Sheikh Jassim bin Hamad Al Thani, president of the Qatar Islamic Bank. The disbursement could exceed $6 billion.

Eduardo Irastorza — a professor at Spain’s OBS Business School, who has advised large companies on sponsorships and branding — believes that investing in sports has become a way to gain prestige. This activity also has a powerful geopolitical dimension. “Saudi Arabia wants to present itself as an international power by celebrating the 2030 World Cup. It’s in a very strong competition with Iran and Egypt to lead the Islamic world, and it’s reinventing itself beyond fossil fuels. In a market like sports, you only need [to put in] money to be profitable. If you can pay Ronaldo or Benzema, then you make [a profit from] their image, the broadcasting rights and sale of shirts, just like Real Madrid did when they brought [David] Beckham. And today, those who have the petrodollars are the ones who can bid the most. It’s an excellent investment,” he affirms.

It’s difficult to know how much money moves through the world of sports. There are broadcasting rights, betting, millionaire signings, prizes, high salaries, commissions for agents, merchandising, tickets, nutrition products, subsidies and sponsorships. According to the Sports Global Market Report — which is prepared each year by the British consultancy SportBusiness — by the end of 2023, there will be around $500 billion in the sector. And, in 2027, the number will reach around $600 billion. A report by the consulting firm PwC estimates that the sports technology market will exceed $50 billion in 2030, while according to VIXIO GamblingCompliance, betting will exceed $20 billion a year by 2026. Therefore, across all facets, the sports sector is going through a massive expansion. Along with already-consolidated global events — such as the SuperBowl (where 30 seconds of advertising now cost a record $7 million) the tennis Grand Slams, the NBA and the Premier League — other emerging ones can coexist.

Formula 1 and Netflix

The aforementioned PwC report cites the unusual success of Formula 1 with American audiences, thanks to the popularity of the Netflix documentary series Drive to Survive. It also mentions the rise of pickleball, which “has grown faster than any other sport in the US,” or the 30% growth in viewership for a professional lacrosse league. But, above all, the report highlights another trend: “The biggest mover of all was women’s sports, particularly soccer and basketball. The WNBA had its most watched season in nearly two decades. These and other formerly fringe sports offer access to niche fan bases, whose brand loyalty offers a unique investment opportunity.”

More viewers means more competition to acquire the broadcasting rights. And the battle for attention is intense, with new names getting involved. “Sports broadcasting is still dominated by commercial television networks, but such streaming services as Amazon Prime, YouTube TV and Apple TV+ are making significant inroads by cutting deals with leagues worth hundreds of millions of dollars,” PwC notes.

The latest piece of evidence regarding how the barriers between business, audiovisual rights and sports are increasingly blurred is Lionel Messi signing with Inter Miami CF. Set to go to Saudi Arabia until the last moment, Messi’s departure from Europe to the US is a business and television breakthrough, with Apple at the epicenter. Last year, the world’s largest company by market capitalization — nearly $3 trillion — purchased the broadcasting rights to the US soccer league, the MLS, for the next decade… for the tidy price of $2.5 billion.

With the landing of Messi, this league aspires to gain relevance. There’s even talk that the star player will receive shares of the team (just like when David Beckham — one of the owners of Inter Miami — joined the Los Angeles Galaxy), as well as a percentage of the subscriptions from the soccer television packages marketed by Apple. This is similar to how, for decades, Michael Jordan has been receiving a percentage of the Nikes that bear his name. In addition to all of this, the streaming platform will soon broadcast a documentary (already wrapped) about the Argentine soccer player. “Apple TV+ will essentially become MessiTV+,” ironized The Guardian. As soon as the signing was announced, the resale prices of tickets for Inter Miami matches skyrocketed.

The Crypto World

One of the companies that has contracted Messi is Bitget — a platform for buying and selling cryptocurrencies, based in Seychelles. The player — just as Cristiano Ronaldo or Iniesta once did with Binance — now appears in Bitget’s advertising campaigns. In fact, his image is splashed all over Bitget’s Twitter profile, where the firm has nearly a million followers. His face is also ever-present on the posts. By video call from Brazil, Caio Nascimento — Bitget’s marketing manager for Europe and Latin America — explains to EL PAÍS why they chose Messi:

“The crypto world is experiencing a moment of growing popularity and [cryptocurrencies are being picked up] by investors around the world… but there are doubts and misunderstandings about our business, which is why we’ve established alliances with soccer teams such as Juventus and Galatasaray, or racing teams such as Honda. In the case of Messi, he’s very loved and renowned, so he’s a great boost to make our brand visible.”

The results have already been noticeable: in the nine months since it signed an advertising icon, Bitget has benefited from Argentina’s World Cup victory in Qatar — the firm has gone from 800 to 1,300 employees. “The association with Messi is directly related to this growth,” Nascimento emphasizes. Leonardo Luiz Correa — the company’s public relations officer — declines to comment on how much the Argentine star is being paid, but he highlights Messi’s connection to a global fan base: “It’s very difficult to find a person who doesn’t like Messi.”

Messi can fit into what Irastorza describes as “projected sponsorship.” While leading brands such as Nike or Adidas sign agreements with large clubs and sporting competitions, the advertisements seen within these institutions and events tend to be taken over by beer and car brands. A new type of sponsorship model would reaffirm the leadership of these sporting goods brands.

Globant — an Argentine technology company with a stock market valuation of more than $7 billion — is another firm that has joined the wave of sports investing. In October, the company announced an agreement with the Los Angeles Clippers, to digitize the basketball court and transform the public’s experience. The firm’s co-founder — Guibert Englebienne — explains how they aspire to change the way sporting event attendees interact with the arena: “You can have an app that tells you which door you come in from, where to park, and where to go. And, once inside, you can [place] bets if the free throw is going to go in or not, see the game more closely from a second screen, order food to your seat, or buy merchandise. There are a lot of things in the experience that can be intertwined with technology.”

Another source of income that multiplies the teams’ bank accounts year after year is the naming of the stadiums and arenas. The most recent example in Spain is that of FC Barcelona, which — for the first time in its history — attached a commercial name to its stadium in the 2022-2023 season. Spotify — the Swedish online music platform — pays 64 million euros ($70 million) per season to link its name to the Catalan club.

Irastorza mentions another example: “In Spain, LaLiga is [sponsored by] Santander Bank… [soccer has been used] by banks to rejuvenate their brands. When they asked how they could reach more young people, the answer was to sponsor soccer.”

Atlético de Madrid — also part of the Spanish soccer elite — became one of the pioneers of this strategy in 2017, when it inaugurated its new stadium, after signing a contract with the Chinese group Wanda. These actions are so powerful that they remain in the collective memory long after the business relationship ends. While the stadium is now called Civitas Metropolitano, many people still refer to it as the “Wanda.” Something similar happened with the iconic Staples Center, which belongs to the Los Angeles Lakers. Since 2021, it’s called Crypto.com Arena (for the price of $700 million)... but most still call it by its previous name.

It seems that the sports industry is far from having exhausted its potential sources of revenue. “When you see a photo of a stadium, what you see is people with mobile phones pointed at the players,” Englebienne notes. “People comment on Twitter about what’s happening. Technology has changed the way we see everything. Before, we were focused solely on what we saw… today, technology is an intermediary. And the experience goes far beyond 90 minutes of play.”

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