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Volume 23 No. 18
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Venture capital gets its game on

Sports-oriented startups, from daily fantasy contests to secondary ticketing, draw the attention of investors

In the typically complex world of venture capital, George Kliavkoff sees a simple dynamic these days when it comes to sports-oriented financing deals.

Kliavkoff, the co-president of Hearst Entertainment & Syndication, runs the media giant’s ventures group and recently led an $18 million Series D investment in discount ticket reseller ScoreBig.

And, in his world, the supply of investment capital is far outdistancing the demand from entrepreneurs.

Daily fantasy sites Draft Kings (below) and FanDuel combined for $111 million in investments.
“There’s simply more money than good deals right now,” Kliavkoff said. “There’s a lot more money out there chasing not enough good deals. It’s all cyclical, and it’s tough to know if we’re at the top of the market. But it’s certainly a very active time in the market.”

Hearst’s investment into ScoreBig was merely one of a bevy of major sports-related venture capital deals in 2014, a run that exceeded $250 million in total and one that industry observers expect to continue, if not further accelerate, in 2015. The series of investments (see chart, Page 17) covered significant new entities, such as daily fantasy sports upstarts FanDuel and DraftKings; more established players, such as ticket aggregator SeatGeek; and even toymakers such as Oyo Sports, which is seeking to redefine the traditional landscape of licensed packaged goods with a digitally focused business plan.

The funding deals cover an array of operational segments within the sports industry, but several common and important themes have emerged. First, sports has captured the attention of major venture capital operators such as Accel Partners, which has invested in companies such as Facebook and Vox Media, and Shamrock Capital Advisors, the investment arm of the family of the late Roy E. Disney.

Guggenheim Partners, which traditionally has operated in investment banking, wealth management and insurance as it has grown into a global financial giant, similarly built upon its 2012 purchase of the Los Angeles Dodgers with a $9 million investment last year in panoramic video play company Replay Technologies. The Israeli startup has quickly gained notice for its work at sports venues such as Yankee Stadium, AT&T Stadium and Dodger Stadium.

Not long ago, this kind of attention was difficult to generate, as the big investment shops were much more focused on other industries, such as software, biotechnology, life sciences and energy.

“The customer within sports is easily identified, very passionate and will spend disproportionately against that avidity,” said Brian Grey, former chief executive of Bleacher Report. Before that, Grey worked in venture capital for Polaris Venture Partners. “That’s a really powerful combination.

“But five years ago it was definitely harder to make that point within the investment community, certainly during that time [2008-10] when I was at Polaris. Now, there’s a much greater comfort level that one can build a new brand within sports and not necessarily be hamstrung by rights issues. And so it’s now about the supply side chasing deals.”

Besides larger players, sports-related venture capital has also attracted more celebrity investors, such as Sacramento Kings owner Vivek Ranadivé, New York Knicks forward Carmelo Anthony, Boston Celtics managing partner Wyc Grousbeck, and Denver Broncos quarterback Peyton Manning.

“A lot of these people have things to offer beyond just money,” said Jack Groetzinger, SeatGeek founder. The company’s $35 million Series B round this past summer included figures such as Anthony, Manning and his brother Eli, and current and former NBA players such as Mike Dunleavy Jr. and Shane Battier, in addition to Accel and Grousbeck’s Causeway Media Partners. SeatGeek had not been specifically seeking venture capital money. Rather, the round developed after inbound investor interest in the company.

“A lot of this business is about access, and the ability to align with people like this is a great opportunity,” Groetzinger said.

All about fundamentals

The current rate of venture capital activity is also no doubt influenced by an improved economy. But as the economy in many ways now resembles the late 1990s and early 2000s, investment executives insist there will be no repeat of the dot-com boom and bust that saw a similar run of investment activity, only to have many of those big bets fail quickly and spectacularly.

Quarterback Eli Manning is among the investors in ticket search site SeatGeek.
Photo by: Getty Images
“This is a fundamentally different market than 1999 or 2000,” Kliavkoff said. “The market now is frothy, for sure. But most companies receiving VC rounds now have real revenue, real profits, real customers and real market needs that are being addressed.”

Ryan Moore, a partner with Cambridge, Mass.-based Atlas Venture, agrees. Long active in the investment and startup markets, he’s observed how sports in the last decade has become the dominant form of programming on broadcast and cable television, and sees similar opportunities in other platforms. The company in the last year has participated in major funding rounds for DraftKings, Oyo Sports, and sports-oriented social network Fancred.

Even within their disparate extensions into fantasy sports, packaged goods and social media, the companies have a common thread of content generation around them. And each is generating seven- and eight-figure sums of annual revenue and fast-growing audiences.

“Sports content has become such a huge thing,” Moore said. “It’s basically keeping radio alive and drives cable TV. So our goal is to see what kind of market share we can take in some of these other platforms.”

Digital disruption

The other thread linking the various sports-related investments is the prominent presence of a digital component.

Whether it be the online and mobile gameplay of fantasy sports operators such as FanDuel and DraftKings, the social media-based marketing and real-time production of Oyo Sports, the dynamic inventories for several ticket operators, or the online high school content business of Virginia-based BigTeams, the Internet and digital technology are being fundamentally used as a disrupter within sports. And investors are betting hard against that.

“This has become a very fertile and exciting space in which to launch and build businesses,” said Rich Battista,

Toymaker Oyo Sports attracted an $11 million Series A investment in 2014.
chief executive of Mandalay Sports Media, which led an $11 million Series A round for Oyo Sports. “The advent of new technology allows entrepreneurs to create new ways to create a closer connection with fans and give them more access to the teams, leagues and sports they love. That makes for a very compelling situation.”

The Internet similarly allows smaller and less prominent entities within the sports industry, such as high school sports and participatory events, to gain exposure they typically would not have in traditional media.

“I was in team sports for 15 years, and there didn’t necessarily seem to be a significant focus on innovation beyond the pro leagues,” said Greg Bibb, chief executive of Capital Sports Ventures, which has helped lead two rounds of investment in the last year for BigTeams. “But there’s a huge marketplace out there for underserved properties and sports, and investors are now seeing that and actively working to grow those areas. And we’re particularly focused ourselves on the intersection between participatory sports and technology that we think is now very vibrant.”

Venture capital executives said that amid this rush of activity, there is still not an all-out competition between firms to secure key investment deals, at least not yet. But, all the same, many of the key players are actively positioning themselves to communicate their specific attributes and capabilities to entrepreneurs.

“We think it’s great to be a differentiated investor,” said Kliavkoff of Hearst Ventures. “Because we’re obviously a large media outfit, we can have a very long investment horizon. And our operating role gives us access to market information that we think makes us better investors.”

Venture capital in sports
A sampling of major sports-related venture capital deals closed during 2014

Business: High school sports content
Headquarters: Warrenton, Va.
Series A; Series B
When: April 2014; December 2014
Amounts: Undisclosed, low seven figures; $5 million
Investors: Capital Sports Ventures, SWaN & Legend Ventures, Roger Mody, Scott Brickman

Business: Daily fantasy sports
Headquarters: Boston
Round: Series C
When: August 2014
Amount: $41 million
Investors: The Raine Group, Redpoint Ventures, GGV Capital, Atlas Venture

Business: Sports-oriented, mobile-based social network
Headquarters: Boston
Round: Seed
When: August 2014
Amount: $3 million
Investors: Atlas Venture, Militello Capital, Breakaway Innovation Group

Business: Daily fantasy sports
Headquarters: New York
Round: Series D
When: September 2014
Amount: $70 million
Investors: Shamrock Capital Advisors LLC, NBC Sports Ventures, KKR & Co.

Business: Last-minute, mobile-based secondary ticketing
Headquarters: San Francisco
Round: Series A
When: September 2014
Amount: $4 million
Investors: Accel Partners, Vivek Ranadivé, Jeff Mallett

Business: Sports-related toymaker
Headquarters: Acton, Mass.
Rounds: Seed; Series A
When: June 2014; September 2014
Amounts: $3 million; $11 million
Investors: Mandalay Sports Media; Boston Seed Capital, Atlas Venture

Business: Panoramic video replays for televised sports
Headquarters: Israel
Rounds: Series B; Class A Stock Round
When: February 2014; June 2014
Amounts: $9 million; undisclosed
Investors: Guggenheim Partners, Samsung Venture Investment Corp.

Business: Discount ticket outlet for live entertainment
Headquarters: Los Angeles
Round: Series D
When: October 2014
Amount: $18 million
Investors: Hearst Ventures

Business: Ticket search
Headquarters: New York
Round: Series B
When: August 2014
Amount: $35 million
Investors: Accel Partners, Causeway Media Partners, Melo7Tech (Carmelo Anthony), Peyton and Eli Manning, Mousse Partners, Stanford University, Shane Battier, Mike Dunleavy Jr.

Source: SportsBusiness Journal research