Investors still bullish on sports tech despite sluggish IPOs
More than $3 billion in venture capital is currently invested in sports-centric funds, but with Wanda Sports Group falling 60% short of its IPO target, Peloton Interactive shares declining 11% on their first day of trading and Endeavor Group Holdings pulling its Sept. 27 IPO, questions have risen as to whether the public markets can be considered a viable exit strategy for companies in the space.
David Simmons, founder of DESBall Ventures, does not believe that the negative headlines relating to WSG, Peloton and Endeavor are indicative of a greater trend in the marketplace. “Each is an anomaly impacted by a unique scenario,” he said. “You wouldn’t see billions of dollars in capital flowing in if investors didn’t think there were exits still to be had.”
Sports Business Journal is aware of six new sports tech funds — operating in stealth mode, meaning they have not been publicly announced — that have quietly joined what has become a crowded market in the sports investing landscape. There are at least 25 team-backed investment operations, such as the Cowboys’ Stack Sports, formerly Blue Star Sports, and 40 additional sports-centric investment vehicles, many of which are backed by team owners, such as Courtside Ventures, whose backers include Cavaliers owner Dan Gilbert.
The soft market for WSG at its July IPO can be easily attributed to international trade wars that have made it increasingly difficult for Chinese companies, regardless of sector, to attract outside capital.
It is believed that the negativity surrounding Peloton’s IPO is driven by price. It was $27 per share at its first day of trading on Sept. 26 and was $23 at the market’s close last Wednesday. “It didn’t pop, but that doesn’t mean the company has done poorly,” said Simmons, who argues that “the media has lost sight of the fact that they had an exit. Late-stage companies often do rounds before an IPO to take care of their early-stage investors and employees, and as a result their price at opening trading may drop. Peloton is a success story, not a problem for the market.”
Michael Bapis, head of sports and entertainment at Vios Rockefeller Capital Management, agreed. “The range was $25 to $29. If they priced it at $25 [the share price after the initial day of trading], it would have been up and the narrative would be different.”
Endeavor’s decision to delay its IPO for a second time was driven by timing, and Simmons said he expects the company to try again in 2020. “Their business model works,” he said. “They had $200 million in net income last year and at some point, they will exit. They got caught in WeWork and Peloton crosswinds.”
Both Simmons and Bapis remain bullish on investing in sports, but caution that the size of the exits and when they come depend on each company’s circumstances. History indicates the retail investor has rarely had the opportunity to invest in a sports-related equity because earlier nine-figure private exits have become the norm in the space. Logitech, a leader in consumer electronics, made an $89 million acquisition of software company Streamlabs in late September, the most recent example of a promising sports-tech startup being bought out before it reaches the late-stage funding rounds.
Bapis believes sports tech is where the greatest investment opportunities lie. “Society has become so health conscious and the interactive technology element within sports has the most room for improvement,” he said.
Corey Leff is a writer in New York.
Editor’s note: This story is revised from the print edition.