Hogan Lovells identifies seven key trends to watch in the sports sector

Like many other sectors of the economy, COVID-19 has wrought havoc upon the sports world. However, the pandemic has also opened up opportunities. Hogan Lovells’ Sports, Media & Entertainment group provides insights concerning key trends in the sports sector as teams resume play and welcome back spectators.

Key trends to watch in the sports sector

1. Re-opening with caution

The onset of COVID-19 this year brought an abrupt halt to major sports events in the United States and globally, leading to billions of dollars of losses. Now that sports play has resumed, the industry is facing a new reality.

In the U.S., the major leagues—including Major League Baseball, the National Football League, the National Hockey League, Major League Soccer and the National Basketball League—are still looking for ways to bring their fans back into the stands. In the UK, the government recently put on hold a plan to allow some sporting venues to admit spectators with strict safety standards.

“Welcoming fans back raises a host of issues, including the need to conduct health screening, and the privacy concerns associated with the collection of health data,” said Hogan Lovells Partner Craig Umbaugh, Global Head of Hogan Lovells’ Sports, Media and Entertainment Group.

“Sports teams, event organisers and venue operators aren’t used to handling health data, which is regulated differently from the consumer data that these organisations typically collect—such as fan experience and merchandise data,” Umbaugh said. “As businesses decide which measures will be implemented for fan health and safety, anticipating privacy concerns will help build trust and create an experience where fans feel safe.”

Another issue associated with reopening is potential liability if people contract COVID-19 following attendance at games. There are discussions in the United States about seeking federal legislation that would include liability protection for promoters, teams, and venues that host live events in accordance with applicable health and safety guidelines.

2. Investors look to Europe

Even before the pandemic, investment in European sports franchises was an increasingly attractive alternative to U.S. teams. This continues to be true.

“International team audiences are growing, revenues are increasing, and teams are likely to become more profitable,” said partner Matthew Eisler, who is Global Co-Head of the firm’s Sports group. “The moment seems ripe for interested investors to look into cross-border team ownership opportunities.”

Advantages to investment in Europe include the opportunity for greater growth, since the market for sponsorship and naming rights in many foreign countries isn’t as mature as it is in the U.S. Different ownership rules in Europe enable investors in teams to have greater involvement in the decision making. Further, the ability to sell player contracts in Europe provides investors with diversified access to cash flow.

“Another key investment driver in Europe is the growth of the popular profile of football across the continent—beyond its traditional powerbase in the UK and Spain—which has led to more lucrative television and streaming rights,” noted partner Raj Panasar.

Investment in Europe may also be affected by efforts to cap salaries. “This summer the English Football League approved salary caps, which previously only existed in the UK’s English Premiership, French Top 14 and Pro 14 (all Rugby Union) said partner Daniel Norris. “However, the European Union has rejected salary cap proposals in football as an unlawful restriction on competition, so it remains to be seen how widespread salary limits will become.”

3. Private equity looks to sports

Private equity firms are sitting on historic levels of investable “dry powder” that needs to be deployed for them to raise new funds. Despite the challenges that COVID-19 poses for event-based industries, the sports sector is viewed as one of the hottest asset classes available right now.

“The sports and live-entertainment industries were booming before COVID-19, and private equity still sees sports and entertainment assets as high cash-flow businesses that, while mature, will still experience extraordinary growth,” said partner Mark Kurtenbach.

While founders of private equity funds, in their individual capacity, own numerous U.S. professional sports teams, the funds themselves largely have been prevented in the past from owning teams because leagues required individual controlling ownership and limited debt leverage. But these restrictions are loosening. MLB and the NBA have opened the door to allowing private capital groups to acquire minority ownership in professional teams, and Major League Soccer is considering a rules change that could allow investment funds to take minority stakes in clubs.

Despite the recent stop in play, professional sports have seen an explosion of private funds focused on acquiring minority stakes in U.S. professional teams and even controlling interest in European teams.

“These funds include some of the most savvy and experienced sports executives around,” noted partner Michael Kuh. “They can quickly and efficiently do their diligence and execute on deals, even when complicated structures and issues are involved. This can be extremely attractive to leagues, teams, and sellers.”

Outside of team ownership, private equity investors are acquiring ancillary sports and entertainment businesses, bringing with them the PE mindset—an emphasis on profitability and growth.

4. Growth of individual outdoor sports

With many gyms still closed or operating at reduced capacities, and fitness classes on pause, sports enthusiasts have rediscovered the appeal of outdoor activities that can be enjoyed while maintaining social distancing, such as running, cycling, golf, hiking, and fishing.

“Amid significant economic retraction, outdoor brands are seeing positive economic impacts,” Kurtenbach said. “The uptick in individual outdoor sports presents significant opportunities for private equity and strategic buyers, and we expect this trend to drive M&A activity.”

We’re still early in this cycle. The growth in individual outdoor sports has only taken off in the last few months as the effects of COVID-19 have spread. We expect this growth to fuel increased M&A activity resulting in further consolidation across outdoor sports.

5. Rise of niche sports

Another trend picking up steam is the migration of sports from traditional pay television to digital platforms. This can create new opportunities for non-marquee sports.

“Sports fanatics have been abandoning expensive cable sports packages in favor of mobile and subscription services offering popular, underexposed sports,” said Kuh. “COVID-19 didn’t start the move away from pay television, but surely accelerated it.”

The shift to mobile devices and internet streaming (OTT) service presents a prime opportunity for emerging sports to develop audiences and attract sponsors. These include women’s soccer, rugby, professional lacrosse, and action sports such as climbing, board sports and BMX and mountain biking. Many of these niche sports have devoted fan bases that will pay for programming.

6. Growing use of technology

While American sports have made innovative uses of technology for some time, the use of technology in sports is expanding globally.

“In the UK, the results of incorporating technological advances have been mixed,” Norris said. “In tennis, the plan to replace line judges at Wimbledon with hawkeye technology appears to be well received. Cricket has honed its use of technology to a degree that almost any player or spectator would consider materially beneficial. However efforts in other sports, notably EPL football, have been less successful in their infancy.”

The expansion of 5G wireless technology, over-the-top media platforms, and augmented and virtual reality will affect sports media rights, marketing, and fan interaction. New technology will change the stadium experience, encouraging stadium modernisation, and will be a key part to any growth in sports betting in the United States. The challenges of producing live events during a pandemic has led to new opportunities for cloud-based and autonomous production technologies for sports media.

“Whether we are talking about apps, data analytics, wearables, or new hardware, we can expect to see tech deployed to enhance fan engagement and improve athlete training. Teams, leagues, sponsors, and others will be on the lookout for joint ventures, investment opportunities, and ways to integrate new tech,” said Kuh.

7. Re-thinking funding for stadium improvements

Even before the pandemic, municipalities were less likely to spend public dollars on new stadium development, and sports team owners and public officials were looking for new partnerships to generate revenue for stadium upgrades. With the financial pressures brought on by COVID-19, this trend is likely to accelerate.

“In the face of growing resistance from cities and states, more teams are getting creative in identifying revenue streams for future stadium development that also benefits the city,” said Umbaugh.

These plans include funding stadium development and maintenance through real estate projects surrounding stadiums.

Hogan Lovells’ Sports, Media & Entertainment group

Our Sports, Media & Entertainment group advises major league sports teams, world-class media and entertainment companies, media streaming companies, media content developers, and investors. The group’s industry-focused experience extends to licensing and protection of content for video and television broadcasting, music, and web-driven streaming; commercial operations such as sponsorships, naming rights, and brand protection; corporate transactions; management of stadium and arena projects; and free speech issues. We offer clients geographic reach that few firms possess.

City law firm RPC comments on Saracens fine

During November, the Premiership Rugby fined UK Rugby champions Saracens with a 35 point deduction and £5.36 million for breaching salary cap rules.

Commenting on the Premiership Rugby’s decision and its wider impact on the sports industry, Jeremy Drew, Head of the Commercial Practice at the City law firm RPC said:

“The biggest surprise from a legal perspective is the severity of the sanction – simply because it is unprecedented for the Premiership. Saracens will no doubt have technical arguments around possible precedents for co-investments in relation to the cap, but as is the case with rules in a number of sports, the regulations are purposefully written to preserve the spirit of the rules not just the letter. A good example is Leeds United’s sanction for Spygate which focussed on a breach of the duty to act in good faith to other clubs, rather than an express obligation not to spy.

The case is a timely reminder that the objectives of the regulations are of critical importance, as is clear by the express obligation on the Salary Cap Manager to notify Premiership Rugby of any potential loopholes / lacunae and the clear references to the general principles of the regulations.

The big hurdle for the club now is its challenge of the Disciplinary Panel’s decision which will not take place as an appeal, but will challenge the decision in a form consistent with a Judicial Review (as is standard in many sports related arbitrations). Consequently the bar that Saracens has to reach to overturn the decision is a challenging one.”

If you would like to find out more information, please visit: https://www.rpc.co.uk/

Potential economic impact of the Rugby World Cup

Building on previous studies for the Rugby World Cup (RWC) 2003 in Australia, RWC 2007 in France and an advance study for RWC 2011 in New Zealand, we used our major event economic impact methodology to estimate the potential impact of a future RWC on a set of potential Host Nations.

Our report provided a thorough analysis of the possible economic gains a future RWC could lead to in various Host Nations. It outlined the generic economic benefits to a country of hosting a major event such as this and provided contextual data for the impact associated with other similar international sports events.

Using our tried and testing methodology for assessing the potential impact of major sports events, we estimated the direct and indirect economic impact of a RWC on the major rugby regions by building a model for each country.

For each region (including Western Europe, SANZAR, and for developing rugby nations) we also identified regional factors that could affect the level of economic impact. Our analysis incorporated the possible contribution of a Host Country’s government via taxation.

The report continues to provide important support to Host Unions and Governments when deciding whether to bid for future RWCs.

“Deloitte’s Rugby World Cup economic impact study was excellent. Deloitte have a real insight into major events and showed rigour in assessing the economic impact that the Rugby World Cup has on host nations.~ Robert Brophy, Head of Finance, World Rugby

SPORTS PHOTO

Is there a link between playing sports and success in business?

What do a disproportionate number of CEOs have in common? They played sports when they were younger.

Former Whole Foods CEO Walter Robb was the captain of the Stanford Soccer Team. Bank of America CEO Brian Moynihan played rugby at Brown. Even Mark Zuckerberg was a high school fencing star.

But according to a series of Ernst & Young studies, it is even more common for female executives to have played a sport.

Ernst & Young surveyed 821 high-level executives and found that a whopping 90% of women played sports. Among women currently holding a C-suite position, this proportion rose to 96%.

In high school, Meg Whitman, CEO of Hewlett-Packard, was the captain of the swim team and also played varsity lacrosse, tennis and basketball. At Princeton University she played NCAA squash and lacrosse. In her book “The Power of Many,” Whitman writes: “I liked team sports the best. When I’m pulling a business team together, I still use those basketball aphorisms I learned as a young person: ‘Let’s pass the ball around a little before game time.’ ‘Do we need man-to-man or zone defense?'”

There are a few reasons why playing sports may boost your odds of business success.

Athletics builds character

Sports keep you physically and mentally healthy, teach you important relationship skills and forge determination. These benefits often spill over into the business world.

Sporting organisations help with networking

The NCAA has a robust career center. Wall Street’s “Lacrosse Mafia” recruits All-American players at staggering rates. You can even scroll through the 42 best lacrosse players on Wall Street.

Northwestern sociologist Lauren Rivera notes that hiring rates increase the most among candidates who played “sports that have a strong presence at Ivy League schools as well as pay-to-play club sports, such as lacrosse, field hockey, tennis, squash and crew.”

Sports often reflect privilege

It may not be that playing sports causes someone to become more of a leader; instead, the truth may be that people who are already competitive and have leadership potential are drawn to sports as kids. They and their families are also often more likely to be affluent, since participation on so many teams requires significant cash outlays.

Sports consume time, energy and resources that many families cannot spare. People who are well-off are more likely to play sports, as well as become CEOs. If you can afford fencing lessons, your child’s odds of becoming a CEO are already quite good.

But why are women in the C-suite more likely to have played sports than their male counterparts?

It might be that sports encourage women to break gender norms, something that is often required for them to reach executive positions in the business world. Sports teach young women and girls skills beyond teamwork and dedication. Learning to be aggressive, competitive and tough may make them the kind of employees eager to take on more responsibility and seek promotions.

It could also be that the same families that encourage girls to be athletes encourage women to be competitive and successful at work and at everything they do.

Whatever the reason, it is becoming more and more apparent that starting on the court or field may be the best path to the boardroom, especially for women.

Multisport PHOTO

A List of Athletes Turned Successful Entrepreneurs

In today’s sports-crazed world, athletes like Lebron James and Tony Hawk have quickly become household names. But it’s not just their sport that’s making them famous.

Athletes are becoming known for their entrepreneurship and savvy business deals—earning more off the playing field than on. From personalised apparel to multimillion dollar investment companies, see why these athletes truly “score” in the business world.

Please find a list of successful athletes turned entrepreneurs below:

  • Oscar De La Hoya
  • Michael Jordan
  • Venus Williams
  • Tony Hawk
  • John Elway
  • LeBron James
  • George Foreman
  • Dave Bing
  • Roger Staubach
  • Chris Webber
  • Wayne Gretzky
  • Magic Johnson

An athlete is a person who competes in one or more sports that involve physical strength, speed or endurance. The use of the term in sports such as golf or auto racing is somewhat controversial. Athletes may be professionals or amateurs.

Rugby PHOTO

Why do rugby players make such good business people?

Former New Zealand All Black Sean Fitzpatrick and ex-England rugby coach Sir Clive Woodward explain why rugby and business go so well together.

George Gregan, Australia’s talismanic former scrum half, is one of the country’s most successful rugby union players. His international career spanned 13 years and saw him win 139 caps. Only two people have represented their countries more in the history of rugby – New Zealand’s Richie McCaw and Ireland’s Brian O’Driscoll.

Yet just five years into his international career and at the peak of his powers – the same year, in fact, that Australia won the Rugby World Cup – Gregan started his own business: GG’s Espresso shop, based in Sydney’s bustling business district.

To a football fan this might sound like an odd move, a bit like David Beckham drawing up a business plan for a greasy spoon café. But there lies, in a nutshell, one of the major differences between a game in which you throw the ball and one in which you kick it.

Rugby union went professional in 1995, and although the amount of money pumped into the sport has steadily increased, players’ wages are still small compared to that of football.

All-Black Dan Carter will become rugby’s highest-paid player after the World Cup, yet even on his new wages it would take him more than 20 years to amass the annual salary of Cristiano Ronaldo. Ronaldo also enjoys bonuses and endorsements that take his earnings beyond £50 million a year – exactly 100 times more than the fourth highest-paid rugby player, Sam Burgess.

Rugby’s historical frugality is a major reason for its close and practical ties to business, says Sean Fitzpatrick, who recently spoke at Grant Thornton’s Inspiring Business event, part of a series dedicated to stimulating ideas among business audiences.