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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.

Pinsent Masons announces new partnership with World Athletics

Pinsent Masons yesterday announced its appointment by World Athletics as their first official supplier of legal services. The appointment was made after a detailed tender process and is for the next four years.

Drawing on their multinational network of over 100 specialist professionals within their business of sport advisory group, Pinsent Masons will provide legal support, advice and strategic guidance to World Athletics on a global basis. The scope of areas covered will include regulatory and governance, commercial rights, negotiation and arbitration, intellectual property, insurance, employment, brand protection, dispute resolution and technology.

“Our world is changing rapidly, even more so with the current pandemic, and we need nimble and forward-thinking partners to help us make the most of the opportunities this will present.” ~ Sebastian Coe, World Athletics President 

The firm will also provide a full range of legal support around World Athletics’ major events and deliver guidance and training to assist the sport’s administrators around the world.

Commenting on the partnership Sebastian Coe, World Athletics President said: “In many ways, this agreement represents our ambitions for our sport as a global powerhouse. We will need Pinsent’ skillset in a number of areas as we build athletics around the world and I’m delighted that they also see the value in this relationship. Our world is changing rapidly, even more so with the current pandemic, and we need nimble and forward-thinking partners to help us make the most of the opportunities this will present. Like us, they see innovation as a key component of success.

“Their global presence will allow us to access their services wherever we are, which is particularly useful for an organisation with 214 Member Federations and major events staged across the world, and their expertise will help us to maintain world best practice in our governance and commercial relationships.”

Head of Sports at Pinsent Masons, Trevor Watkins said: “We are thrilled to have won this appointment and very much look forward to an exciting and dynamic partnership with World Athletics. It’s a tremendous achievement for our team to have been chosen and, after such a competitive process, is recognition of the global strength and expertise of our specialist lawyers.

“We believe we have a strong synergy with World Athletics in its desire to be the best example of a well governed sports federations, particularly in areas of governance, regulation, integrity and innovation. That message really rings true to us as a firm that embraces innovation, technology and strategic thinking. We’ve had a tremendous response from our multinational network of offices to the prospect of this agreement and the opportunity to work with a sport that our team finds inspirational on many levels. Many of the team are members of running clubs and participate as volunteers within sport and this partnership will allow them to combine their existing passion for the sport and their professional expertise.”

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/

Advisory Excellence is fundraising for Get Kids Going!

Advisory Excellence is raising funds for Get Kids Going! on the JustGiving website and would appreciate our readers’ support. JustGiving is a global online social platform for giving. Donating through JustGiving is simple, fast and secure. Your details are safe with JustGiving – they’ll never sell them or send unwanted emails. Once you donate, they’ll send your money directly to the charity. So it’s the most efficient way to donate – saving time and cutting costs.

Get Kids Going! is a national charity which gives disabled children and young people – up to the age of 26 yrs – the wonderful opportunity of participating in sport. We provide them with specially built sports’ wheelchairs so they can do: athletics, marathons, tennis, skiing, rugby, sailing, boccia, basketball, sledge hockey, table tennis, fencing, shooting, archery, powerlifting and many more sports. Get Kids Going! inspires British disabled youngsters to compete in sporting events, from start to Paralympic level, by also giving them sports grants to help with their; training, physiotherapy, travel, competition fees, design and development of sports’ equipment etc. With your help many can become world record holders and Paralympic champions!

Our aim is to give support to all our budding Paralympians in the build up to the 2020 Tokyo Summer Paralympics, the 2022 Beijing Winter Paralympics and many more such events. Like any aspiring athletes all our youngsters need long-term support, often over many years, to achieve their sporting dreams. Sadly, we are aware of cuts in funding for such youngsters from the government and other sources, and so many of our youngsters are forced to rely on friends and family for financial help. As you can imagine, this causes enormous burdens on many, already cash strapped, families and a constant worry as the cost of participating in their favourite sport is forever increasing.

There are hundreds of talented, disabled, youngsters who have the potential to participate in events throughout the UK and all over the world but receive either none or very little funding and are desperate to achieve their life-long sporting dreams. With your help, together we can turn their dreams into reality and help make them into sporting heroes!

Not only does Get Kids Going! focus on helping disabled young athletes but it also provides manual wheelchairs for children to use every day; at home, at school, and to enable them to play with their friends. These are our wonderful athletes of the future! We believe that all disabled children and young people should receive the right equipment to get them going!

We support children with all disabilities and from all backgrounds. We take pride in ensuring that any equipment which is out grown is recycled to other children, so our supporters’ valuable donations are never wasted. Many people who support Get Kids Going! feel a marvellous sense of achievement and satisfaction. They see that even the smallest donation makes an amazing difference! Get Kids Going! gives disabled children and young people the chance of a life time, freedom, and many wonderful opportunities that you and I take for granted. Opportunities they may never have without you and the support of Get Kids Going! No other charity in the UK focuses on helping disabled children and young people with sport in the same way.

The cost of a bespoke sports wheelchair is about £4,000. A lightweight manual wheelchair is around £3,000. All are designed individually, and perform just like a Formula 1 Racing Car!

The cost of a sports grant can be anything from £500 to £15,000 per year for each youngster.

In general there are over 200,000 disabled children and young people in Britain who need the help of Get Kids Going!

Help us turn their dreams into reality!

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

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.