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

• 📰 This Week’s Topic: Several challenger leagues have sprung up in the professional sports ranks, and some are now setting their sights on going toe-to-toe with the heavyweight incumbent leagues. We look at this new trend through three recent proposed leagues to see how and why this is happening.

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

• 🤯 “Whoa of the Week”: The NHL has a hit on its hands, and DraftKings shows which revenue stream is its holy grail

• 💪 Weekly Reminders that Sports are Awesome: A fan takes down an NBA star in a shooting contest, and an Eagles fan does what he must to attend the championship parade.

Hey team,

During the tech boom of the last two decades, unicorn startups have challenged the status quo on several longstanding industries ripe for disruption and innovation. Think Uber in transportation, Airbnb in hospitality, or Square in payments.

This disruption trend led to several startups attempting to enter other markets and draw parallels to these hot companies in order to draft of their auras and create a mental model in the investors’ minds of what they were trying accomplish.

In practice, this meant venture capital firms would routinely hear things in pitches like, “we’re the Uber of [insert industry that is not at all related to transportation],” or “think Airbnb for [insert mundane business that needs some marketing pizzazz].“

Well, this attempted disruption wave has made its way to sports.

Well-capitalized competitive leagues are forming to challenge the incumbent leagues in respective sports. The goal is to innovate and carve out a piece of the sports rocket ship for themselves. Whether they like it or not, many of these leagues are earning the moniker “the LIV Golf of [insert disrupted sport]” as they rattle the cages of what has been a relatively peaceful last 30 years for the sports establishment.

In this week’s SBP, we’re looking at this new trend through the lens of three recently announced upstart leagues — the NBA’s potential Europe league, the new investors trying to challenge the NBA, and the USL’s MLS competitor. You’ll learn:

• What is the high-level business plan for these competitor leagues

• Why are these attempted disruptors popping up more frequently

• How we can expect to see this play out

The three disruptors

NBA’s Europe League

There have been rumblings since last year about the NBA considering the idea of setting up a separate league in Europe to compete with the existing EuroLeague, which looks like a lot like European soccer’s Champions/Europa Leagues.

While this is still a theoretical idea, it could pick up steam quickly, as the NBA has held meetings with FIBA, the international governing body, and there appears to be mutual interest in the NBA setting something up.

As for why, basketball has become a global game in the last half century, and FIBA says there are 3.3 billion global basketball fans between the ages of 16 and 69. The NBA believes there is a significant amount of untapped money in the European market and potential to develop further talent now that the league has become international (roughly 30% of all NBA players now). As NBA commissioner Adam Silver stated back in September following a meeting between FIBA and NBA owners:

The expectation would be the NBA could leverage its business savvy in key revenue drivers — i.e., media rights — and attract foreign investment — the Gulf States have been trying to get into EuroLeague for a long time, for example — while capitalizing on the fanatical connection Europeans have with their sports clubs.

Maverick Carter’s group challenging the NBA

While the NBA is on offense with their own challenger league, they’re also now playing defense against another upstart.

A group of well-connected investors, led by Maverick Carter, LeBron James’ business partner (yes, you read that right, but LBJ is reportedly not involved), is looking to raise $5 billion to create a new international league that rivals the Association. Other investors involved include the Saudi PIF, Singapore government, and a number of reputable investment firms and high net worth individuals.

The reasons for starting up the league are similar to the NBA’s European motivations, but this new league wants to put a new twist on the game by bringing the Formula 1 model to basketball (not going to lie, “the F1 of basketball” is pretty slick). A group of 12 teams — six men’s and six women’s — would play in eight major cities around the world, with the teams spending two weeks in each city.

Given the NBA’s lengthy season — now October to June — there is bound to be schedule overlap here, and that’s not counting the potential impact to the WNBA. These facts, plus the amount of money being raised, suggest the new league will likely attempt to poach marquee talent for high dollar figure contracts, and it is reported that the players will be given equity in the new league as an additional pot sweetener.

USL competitor to MLS

Mostly known for smaller market clubs in two divisions that are considered “minor league” in sports circles, the United Soccer League (USL) announced last week that it was planning to launch a Division One men's professional league in 2027, working under the sanctioning standards set by U.S. Soccer and thus directly rivaling MLS.

The new league would create a European-style pyramid system in the U.S., with Division One being the highest of three levels for the USL — USL Championship (Division Two) and USL League One (Division Three) would be the bottom two. For the soccer purists, yes, this would mean promotion and relegation up and down the three divisions.

The “why” here is likely due to the trajectory of soccer in the States. In addition to the organic growth occurring the last several years, the USL is looking to capitalize on an expected surge of interest in soccer in the U.S. the latter half of this decade, with the 2026 Men’s World Cup and 2028 Olympics taking place in the U.S.

Interestingly, this is also not the first time the USL has gone head-to-head with a competitor. The league also launched a first-division women’s soccer league, the USL Super League, last year to compete with the NWSL.

Why are these leagues popping up

This is not the first time we’ve seen new leagues challenge the existing powers that be.

Most startup leagues — i.e., the XFL in the early 2000’s, the revamped NASL in the 2010’s — don’t make it past a few years. There were a few notable competitors in the 60’s (AFL-NFL), 70’s (the ABA-NBA) and 80’s (the USFL-NFL) that went to toe-to-toe with the incumbent leagues for a period of time, but they ultimately did not have the staying power to remain in business on their own.

For the last 30 or so years, there has been relative stability amongst the incumbent North American major leagues. Other leagues have started up, but they are either variations of the game (think arena football, Kings League) or have tried to position themselves as the feeder leagues (the recently merged XFL-USFL) instead of direct competitors.

Much of this lack of direct competition has to do with the moat developed by these leagues due to their scale, payrolls, and relationships with media and business partners. As sports became more of a business and the dollars grew, this moat got wider.

So, why is this latest crop of disruptive leagues, kickstarted by LIV Golf taking on the PGA and now spreading to other leagues, emerging?

You may remember the macro trends, or “flatteners,” I wrote about in “The Sports World is Flat.” I see three of them on display with these upstart leagues that’s helping them to try to cross the aforementioned moats.

Technology advances

The growth of the internet, social media, streaming services, and more has unlocked the ability for topics and trends to traverse the world and cultural narrative like never before. Attention is the new currency, and it’s worth its weigh in gold.

In sports’ case, this means bringing the game and players to fans around the world and creating unique experiences that were once confined to local or domestic markets.

Instead of having to build a replica of the established leagues’ traditional media rights and business models, competitor leagues can instead quickly reach scale using social media, streaming, and new technologies to capture people’s attention, get them interested in learning more, and ultimately try to retain them as fans.

Accepted investment thesis around sports

Sports investing has always had a presence among the ultra wealthy, with the reasoning for investment, whether acknowledged or implicit, being to have a new, shiny toy and status symbol to show off to friends and peers.

This has shifted over the last few decades, as legitimate investment theses around sports have taken root.

A few areas of focus in these positions:

• In today’s on-demand world, sports is the last frontier getting consumers to watch live entertainment (for the most part — will explain more later)

• Non-collinearity with the global stock markets, which implies that the industry’s performance is not tied to stock market performance

• Opportunities for growth up and down the value chain (i.e., youth sports, leagues, suppliers, etc.)

According to stats from CNBC, annual global investment in the professional sports industry rose from below $10 billion in 2008 to more than $30 billion in 2023. In the broader sports ecosystem, investment bank Drake Star estimated that there was more $27 billion in M&A in the first half of 2024.

This interest has permeated upstart leagues, where investors see an opportunity that is higher risk than a traditional, established league, but there is a lower get-in price and there is the potential for venture capital-type outsized gains.

Growth of wealth around the world

A number of developing countries have created substantial economies that growing at faster rates than their more mature counterparts.

According to the World Bank, high-income countries averaged 2.8% gross domestic product (GDP) growth in 2022, versus 3.6% for middle-income countries and 3.4% for low-income countries.

While inflation, currency depreciation, and other headwinds may slow this growth, the law of convergence suggests that these nations will continue to grow faster.

And with the large amounts of wealth comes a consolidation at the top with both companies and individuals. To that end, a number of these developing countries are looking for opportunities to grow their profile on the international stage and diversify their wealth from natural resource exports.

This means that wealthy entities will both be looking to invest this capital abroad and attempting to bring events and foreign direct investment in local markets to shine a positive light on their country. In many cases, they are looking at sports as a great industry to help them accomplish this task.

When viewed through this lens, it’s unsurprising the Gulf States are heavily involved in the European basketball efforts. Tapping into a global sport with considerable growth potential in both Europe and eventually the Middle East/North Africa (MENA) territory is right in line with their sports aspirations.

What will likely happen

Basic economics suggests this competition is good. These mature major leagues are all forward thinking, but seeing a legitimate competitor enter the fray likely revs up their creativity and innovation, which means more interesting concepts for us, the fans.

The problem with sports is there is a finite amount of talent that can compete at the pinnacle of professional sports. Multiple leagues diluting this pool further — particularly in soccer’s case where there is already a glut of global leagues vying for talent — can lead to an inferior product, which is going to lead to issues attracting/retaining fans and business opportunities.

Given this small talent pool — and an even smaller group of marketable talent, for that matter — two leagues playing in the same pond is often not sustainable.

As with most of these situations — AFL, ABA, and LIV (sorta) — the upstart gets enough traction and makes enough noise to get the attention of the incumbent league and force a merger. The upstart gets legitimacy and a payday, and the incumbent takes a problem off the board and incorporates new teams and concepts.

So for the three leagues we’re looking at, you could easily see the NBA going ahead with its NBA Europe idea and folding the group led by Maverick Carter’s capital and F1-type concept into the mix so they emerge stronger together versus weaker divided. The touring model has seen a lot of recent success with F1 and on a smaller scale with the PLL, so bringing it to a red hot global sport like basketball in population dense, wealthy cities could be interesting.

For MLS, despite its teams’ skyrocketing valuations, the league is in a constant uphill battle for legitimacy and attention in North America and abroad.

I think the USL’s business case is the weakest of the three we’re evaluating given the talent issues and lack of obvious choices for major market franchise locations to compete with MLS, but it probably also has the most direct line to a merger given its attempt to contend adds an additional dimension of complexity for MLS and is surely going to cause some drag on MLS’ business.

Lastly, while these three are the newest, they will certainly not be the last.

Expect more of these contender leagues to pop up, particularly in individual sports. Golf was the first domino, but look for similar sports like tennis, combat sports, and more sports using the governing body-independent contractor model to be in investors’ sights.

🍸️ 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

• Opener: During the tech boom of the last two decades, unicorn startups have challenged the status quo on several longstanding industries ripe for disruption and innovation. Think Uber in transportation, Airbnb in hospitality, or Square in payments. That trend has now come to sports, and there are new competitor leagues challenging the established leagues. Whether they like it or not, they're getting the moniker "the LIV Golf of [insert disrupted sport]"

• Shot: There are three recently announced leagues that illuminate this trend. The NBA is looking to tap into the global growth of basketball and under-monetized European market with an European league, an investor group wants to create the F1 of basketball to rival the NBA, and the USL, long known for its minor league soccer clubs in smaller markets, is launching an MLS competitor

• Shot: This is not the first time we’ve seen new leagues challenge the existing powers that be. Most startup leagues don’t make it past a few years, though, and for the last 30 or so years, there has been relative stability amongst the incumbent North American major leagues. Other leagues have started up, but they are either variations of the game or have tried to position themselves as the feeder leagues instead of direct competitors. Much of this lack of direct competition has to do with the moat developed by these leagues due to their scale, payrolls, and relationships with media and business partners. As sports became more of a business and the dollars grew, this moat got wider.

• Shot: These startup leagues are using three flatteners described in my November piece "The Sports World is Flat" to attempt to cross that moat.

  • Technology advances: Instead of having to build a replica of the established leagues’ traditional media rights and business models, competitor leagues can instead quickly reach scale using social media, streaming, and new technologies to capture people’s attention, get them interested in learning more, and ultimately try to retain them as fans.

  • Accepted investment thesis around sports: There is institutional interest in investing in sports, and this interest has permeated upstart leagues. Investors see an opportunity that is higher risk than a traditional, established league, but there is a lower get-in price and there is the potential for venture capital-type outsized gains.

  • Growth of wealth around the world: As developing countries continue to accumulate wealth, they are looking for opportunities to grow their profile on the international stage and diversify their wealth from natural resource exports. When viewed through this lens, it’s unsurprising the Gulf States are heavily involved in the European basketball efforts. Tapping into a global sport with considerable growth potential in both Europe and eventually the Middle East/North Africa (MENA) territory is right in line with their sports aspirations.

• Chaser: While competition is good, the problem with sports is there is a finite amount of talent that can compete at the pinnacle of professional sports. Given this small talent pool — and an even smaller group of marketable talent, for that matter — two leagues playing in the same pond is often not sustainable. As with most of these situations — AFL, ABA, and LIV (sorta) — the upstart gets enough traction and makes enough noise to get the attention of the incumbent league and force a merger.

  • I'd expect the NBA to go forward with its European concept and roll Maverick Carter's F1 for basketball concept into it with them

  • I think the USL’s business case is the weakest of the three we’re evaluating given the talent issues and lack of obvious choices for major market franchise locations to compete with MLS, but it probably also has the most direct line to a merger given its attempt to contend adds an additional dimension of complexity for MLS and is surely going to cause some drag on MLS’ business.

  • Be smart here. This trend is likely not slowing down. Expect to see more of these leagues pop up, particularly in individual sports like tennis and combat sports

🤯 “Whoa” of the Week

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

1. The NHL nailed its 4 Nations Cup this weekend, and likely set the standard for other leagues looking to punch up their All-Star Games in the future. Tune in tonight for the USA-Canada rematch in the championship!

2. DraftKings’s earnings show the endgame for all of these gaming operators — iGaming is the holy grail of revenue and margin

💪 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. A fan beat future Hall of Famer Damian Lillard in a shooting contest to win $100k during the NBA All-Star Game. One of the lone bright spots from this year’s revamped All-Star weekend.

2. There are a variety of silly videos and scenes from the Eagles’ victory parade, but this felt like one of the most relatable

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