The players v P/E; Who are the bad guys here; Sportal's near miss; Bridgepoint's never-ending Dorna story; Moneyball's forgotten legacy; What game's George Pyne playing; Netflix v Apple Podcasts;

The newsletter of the podcast

Jul 15, 2021

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Sport and P/E: Who are the bad guys?

Stephen Nuttall has challenged one of my core arguments against private equity’s role in sport.

It’s the short term, long term thing.

My prior assumption is that P/E’s outlook is essentially short termist: deploy capital, apply operational expertise and then sell for a profit after five to seven years. This leads to decisions that prioritise money over longer term growth or broader, non-financial objectives.

By definition, this positions the rights owning body as guardians of the soul of sport, who will be there to pick up the pieces once the Barbarians at the Gate have left the building.

The framing of Silver Lake’s proposals for the All Blacks follows this shape, with the players union defining themselves as the defenders of New Zealand rugby from ruin. This ‘them v us’ stance runs through most analysis of P/E from the sport side (which includes most sport media).

Nuttall’s analysis takes this and does a 180 degree turn. And it’s a useful lens in to the money side of the debate.

I think a stronger commercial focus and greater willingness to invest is something that private equity can bring. Sports bodies can tend to be a bit short term biased on occasion: Thinking about, ‘How much money can we get in this year and distribute out to our stakeholders immediately’, as opposed to retaining money and investing for the long term.
I think therefore it can help also with governance and the long term value creation for sport, which is what any sports administrators should be thinking about. But if you're an elected sports official, you have certain pressures on you to make sure you get re-elected in a few year’s time.
And that is going to drive your behaviour in the same way that it drives the behaviour of politicians and governments when there's an election coming up. So I think that perhaps private equity can balance out some of that.
Typically a private equity fund will have a life of seven years.
So they'll raise the money, deploy the money and then look to exit from the investment. So that leads you to probably holding an investment on the average for let's say, five years. But that five-year investment is longer than the administrative career of most General Secretaries of sports federations, because they'll probably be up for election every three years.
So actually that already says that the directors from private equity have got a longer term perspective. Secondly, if someone's not an elected official, but they're just doing it for a job. People change jobs every two or three years, don't they?

There are caveats, which Nuttall lists in our conversation.

Not all P/E is equal. Some are short term sharks looking for a quick turn while money’s cheap. So, buyer beware, due diligence, yada yada yada.
A crisis is a terrible time to make long term decisions on future ownership.
Some of sport’s highest profile P/E deployments have run for longer than the five to seven years usually quoted. Bridgepoint has moved Dorna/MotoGP through multiple generations of its own funds.

On this final point, below is a table from the FT of how Dorna’s value has increased in the years since Bridgepoint first purchased it.

By way of comparison, the value of FTSE 100 grew by 25% over the same period, the Dow Jones Industrial Average grew by 126%, and the NASDAQ grew 336%.

But this is the narrow view of ‘P/E success’, and it’s dangerously easy to measure, compared to broader KPIs, such as for example, the perception of a sport in the broader sense or any participation agenda, which I'd argue is far less relevant in motorsport.

Go deeper: I’m enjoying Ed Rhys’ Skin in the Game newsletter on sports tech and its relationship with the markets.

The players view of P/E

FIFPro General Secretary Jonas Baer Hoffmann was our guest this week, and his views on private equity are worth hearing in full.

FIFPro is the voice for all professional footballers, men and women, from the superstars to the part timers.

For it to fulfil the promise of P/E - and by that I mean build greater value in the sport beyond the financial returns - it calls for high quality management expertise on the football side of the equation.

But does that exist in sufficient quantities? And to Stephen Nuttall’s point about political pressures and short termism, are the personal and corporate incentives pointing in the right direction?

Hoffmann: I'm cynical about football’s ability to regulate to the degree of excellence this will require.

The women’s game is an interesting element of this discussion.

Remember Kelly Simmons prediction that the FA Women’s Super League would be financially sustainable by 2032, or three media rights cycles? (See UP #159)

If you follow the theory, P/E would come in and move that date closer.

It also poses a question I’ve asked several guests. Is the women’s game better off within The FA, UEFA, FIFA structure, or outside on its own, to grow in the wild?

One to watch.

Issues arising: The Moneyball legacy

An aside, prompted by Jonas Hoffmann, who asked whether the owners now thought of players as employees or financial assets to be traded?

This is a thread I’ve pursued previously, with Ed Smith, who wrote the original foreword to Michael Lewis’ book when it was published in the UK in 2003.

The question is this: what is the legacy of the Moneyball story?

My view, stolen and adapted from Ed Smith, is that the mindset of a generation of football club owners and execs is that players can reduced to a set of their data points, dehumanising them and making it easier for accountants to categorise them as financial assets rather than employees, with rights and needs.

Throw in the neo-liberal impulse to remove costs and break up trades unions, and below the top level, much of sport looks a bit like Uber. The tension between sport’s 1% and the rest is hotting up, from swimming, UFC to football and tennis.

See also: Will Novak Djokovic’s PTPA disrupt the ATP’s 30 year economic plan? Djokovic is an unlikely Arthur Scargill (Gen Z reference) but this piece paints a surprising picture of professional tennis. Good quote: ”While most major sports leagues share roughly 50% of their revenue with players, tennis players get less than 20%.”

Go deeper: Women and the UFC, our conversation with Jennifer McClearin, on working conditions and the ‘purpose’ role women played in changing the image of cage fighting.

The story of Sportal

The Euros were a reminder of one of the sport business’ great near misses.

Sportal was a pioneer of the first dotcom boom.

Its business model was delivering video via digital channels.

The high point was winning the bid to run UEFA’s Euro 2000 website, which broke the record for most visited sports website in the world to that point.

News Corp and Canal Plus wanted to buy it, the price was rumoured to be $300million, and the latter was in due diligence when the dotcom crash hit and the markets collapsed.

Stephen Nuttall: We had got our timing wrong by about two or three weeks, literally two or three weeks, if we'd been two or three weeks sooner in the sales process that deal would have gone through and Sportal would have been a great exit for all of the investors. As it was the sale couldn't be completed. You need a bit of luck, a bit of timing and a good idea.

Sportal was an idea ahead of its time. It was SVOD in the era of the 56k modem. The digital ad market wasn’t mature enough to sustain it and Facebook and the iPhone were yet to be invented.

That said, I often think about Sportal when the conversation turns to sports tech, disruption and the relationship between sport and the money markets.

Those three components - ‘luck, timing and a good idea’ - remain a valuable cocktail for every sporting startup.

Sportal’s legacy lies in the people who went on to make things elsewhere. Nuttall left for Sky and then led YouTube’s sport offer. Simon Denyer set up Perform, which is now DAZN, and founder Rob Hersov is a serial investor and entrepreneur, based back in Cape Town.