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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• This week’s topic is analyzing the investment theses that are driving the growing investor base in women’s sports

• Want to show off your sports knowledge in a public setting but don’t have time to read the article? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• “Whoa of the Week”

• Reminders that sports are awesome

Hey team,

I’m going to my first Angel City FC match on Sunday.

If you’re not familiar with ACFC, they’re the National Women’s Soccer League (NWSL) club in LA that started play in 2022. While they’re not particularly good on the pitch right now (currently 10th out of 12 in the league), the club has set the bar for how to establish and operate a women’s sports team:

• They average almost 20,000 fans per game, good for second highest in the league

• A three-part documentary on their inaugural season was recently released on whatever HBO calls itself these days and drew rave reviews

• Their ownership group has massive star power

Now, when I say star power, you’d be right to assume I’m talking about prominent celebrities in the ownership group like Natalie Portman, Eva Longoria, and Billie Jean King.

But in the context of sports business, here’s who I’m really talking about when I say “star power”:

• Kara Nortman —> Former venture capital partner at Upfront Ventures and IAC (more on her shortly)

• Serena Williams —> The GOAT of tennis, and she’s also built an impressive business portfolio and runs her own VC fund

• Alexis Ohanian → Husband of the aforementioned GOAT, but also co-founder of Reddit, former Managing Partner of Initialized Capital, and current Managing Partner of Seven Seven Six Partners

These are serious people — as a former boss of mine used to say, they’re “hitters.”

Hitters like this can of course be interested in philanthropic causes and altruistic initiatives — tags that many naysayers would attach to women’s sports — but when it’s time to truly invest, there is an objective calculation and thesis that dictates their decision making.

This gets taken a step further and becomes a fiduciary responsibility when they’re raising institutional funds and investing other people’s money in this area.

So, why are hitters flocking to women’s sports?

Diamonds in the Rough

In sports, teams (assets) can be seen as undervalued or overvalued based upon the imbalance between the fan metrics (i.e., viewership, attendance, brand affinity) and business metrics (media rights contracts, sponsorship deals) and the get-in price required to invest.

For investors, the goal is to find the arbitrage opportunities with undervalued assets at a lower price point that are expected to grow exponentially and provide outsized returns over a period of time.

For example, venture capital funds, which we’ll use as our baseline, usually raise funds that provide returns in 8-10 year horizons and are looking for 10x+ return on their money (simple example: they put $10 into a company; they want to get out $100). The challenge lies in timing the market right and investing at the opportune moment to catch the wave before it becomes oversaturated and overpriced.

All assets can appreciate in value based upon a variety of factors, including:

• Strong business fundamentals

• Strong market dynamics (“tailwinds”)

• Momentum

We’ll look at women’s sports through this lens.

Business Fundamentals

Broadly speaking, women’s sports showcases strong business fundamentals. There has been objective data to back this up for years, but as I wrote in a guest piece for Sports Pundit back in April, 2023 is the year women’s sports has truly hit its stride in the mainstream. A couple of fan metrics to set the stage:

• NCAA Women’s Basketball Championship Final: 10 million viewers, on par with NBA Finals and World Series games

• 2022 European Women’s Soccer Championship: 87,000 attendees and 365 million viewers globally

• NWSL 2023 season: Attendance is up 48%, and total viewership is up 21%

Despite those sterling numbers, the business metrics have not followed suit. For example, 99% of all advertising, sponsorship, media, and investment dollars are being directed to men’s sports, and 95% of all current sports media coverage is on men’s sports.

That’s about as big of an imbalance as you can find, and the expectation is that the business metrics will catch up to the fan metrics over a period of time because media companies and sponsors both want to engage with brands that get people to move. Women’s sports does that, and achieving something close to equilibrium means those venture capital type returns.

And that balancing is already beginning, as the NWSL and NCAA have their media rights coming up over the next two years and are expected to both fetch 8-9 figures annually in their new deals; a significant increase from the current state. Looking globally, Viacom is now paying $116 million to broadcast the women’s Indian Premier League (IPL) cricket tournament in India, and that has helped to skyrocket the value of expansion clubs in the league (5 new teams paid a combined total of $500 million dollars in expansion fees).

Plus, 20+ global brands (i.e., Ally, Delta, Coca Cola) have banded together to form the Women’s Sports Club, a coalition of media and brands focused on investing in the women’s sports space. There’s an altruistic slant to it, but this type of group would not form if there was not a business opportunity at play.

Market Tailwinds

Sports assets have benefitted from positive market dynamics (“tailwinds”) the last few decades. In addition to the generally strong business fundamentals, the following aspects are seen as positive tailwinds:

• Inherent scarcity due to the capped limit on the number of teams in a league

• Pooled money via league revenue sharing agreements that is distributed amongst the teams

• Expectation that the sports industry will continue to differentiate itself as the last frontier for live TV consumption, which drives incremental demand, and therefore money, for media rights

This all holds true with women’s sports, and there is the additional value created by marquee events like the NCAA Women’s Basketball Championship and the FIFA Women’s World Cup that will continue to raise the profile of the industry and drive increases in both fan and business metrics.

Plus, the get-in price is significantly lower than men’s sports right now. Men’s sports has already gone through this maturation cycle, and the most recent transactions (NFL’s Washington Commanders — $6 billion, NHL’s Ottawa Senators — $1 billion, and NBA’s Charlotte Hornets — $3 billion) show two things. First, men’s sports has seen both the incredible value accretion women’s sports hopes to achieve — see below for how much Michael Jordan made on his sale of the Hornets. Second, it also signals that men’s franchises are reaching price points that only the richest people in the world can tap into and the growth will be strong but not exponential like before.

On the other side, the most recent NWSL expansion fee was $53 million for a team in the Bay Area. Investors are feeling more confident in seeing $53 million 10x to $500 million than 10xing $3 billion to $30 billion.

In fact, Angel City has already exceeded this return threshold. Their expansion fee in 2020 was about $2 million. That new NWSL club in the Bay Area going for $53 million means that the ACFC investors have already achieved a 25x return on paper, and some valuation models even have them eclipsing $100 million (50x). Not bad.

Momentum

The above metric is a good segue to the final point — momentum moves markets. In addition to the early adopters, there has been a recent influx of smart money into the women’s sports ecosystem that signals the opportunity is being recognized.

Remember Kara Nortman? She raised a $100 million investment fund called the Monarch Collective that is going to exclusively invest in women’s sports.

Marc Lasry, the finance billionaire who just recently cashed out his stake in the NBA’s Milwaukee Bucks for a 6x return in just under 10 years, is raising a private equity fund that will invest in women’s sports and other emerging leagues.

And lastly, let’s go back to that Bay Area NWSL club that paid $53 million expansion fee. The lead investor in the group? Sixth Street, a global investment firm with $65 billion in assets under management (AUM). Their CEO, Alan Waxman, wrote one of the most compelling investment memos I’ve seen (outside of this newsletter of course!) for why the time is now to invest in women’s sports.

These prominent investors lend credence to the investment theses and attract attention. That attention means additional entrants into the market, which leads to increased demand for scarce assets, and that ultimately means to higher prices for the assets.

This supply/demand shift, along with the other factors above, signals why I, and so many others, are bullish on the business opportunities within women’s sports.

Parting Thoughts

I want to close this article in a similar way to the Sports Pundit piece. It’s important to take a step back and reflect on the following:

1. Let’s pay tribute to the people who came before and laid the foundation for women’s sports to ascend to where it is today. There are scores of people who have been saying this for years and working to make it a reality. While many of these contributions went unrecognized and underappreciated, they have forged the path which is now turning upwards.

2. There is still a long road ahead to address the numerous inequities that currently exist in women’s sports, and it’s a struggle for many female athletes today to make a living despite being the best in the world at something.

3. To that point, the ultimate benefit of fixing this fan metrics vs. business metrics imbalance is not only returns for wealthy investors, but creating a system that enables women athletes to be compensated what they are due. We’re not there yet, but if these market trends are any indication, it’s coming.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Women’s sports is on the upswing, and it’s begun to attract institutional investment. Think of sports teams as general business assets. Investors want to find the undervalued ones that they can get in early on and make a large return. There are three areas to look at: business fundamentals, market dynamics (“tailwinds”), and momentum

• Women’s sports has strong fundamentals due to a positive imbalance between strong fan metrics (viewership, attendance, brand affinity) but weak overall business metrics (media rights, sponsorship). The expectation is that the business metrics will begin to increase and come into equilibrium, which will boost the overall value of the assets

• Strong tailwinds due to the inherent demand for all sports teams right now plus marquee events coming up (i.e., Women’s World Cup) and the low get in price that could follow a similar trajectory to the men’s sports side.

• Momentum is growing in the space due to “smart money” coming into the industry. This creates a flywheel effect that ultimately benefits the early adopters

• While this is good for the investors, it’s important to remember and appreciate the contributions of the people who built women’s sports to this point. In addition, the benefit of women’s sports growing is that the women athletes will be able to compensated at their true value

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. Vegas’ unlikely ascent to the Stanley Cup in just six years has had massive business implications

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. 15-year Special Olympics veteran Charlie Phillips with some wise words for us all.

2. Top NBA prospect Brandon Miller talked trash at Michael Jordan during his pre-draft workout with the Hornets. It’s probably going to get him drafted second overall by the club.

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex