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Image courtesy of Raphael Henrique/SOPA Images/Lightrocket via Getty Images
Capital markets raised $90 billion in sports tech last year, driven by a six-fold increase in merger and acquisition activity, according to a new report from investment bank Drake Starr.
“Last year was a bumper crop of M&A activity with over a thousand plus deals, generating over $78 billion in deal value,” Drake Star Principal Mohit Parikh said in a video call. “Whether it’s betting or fantasy, fan engagement, venue management, ticketing – there’s been a lot of negotiation activity everywhere.” In comparison, sports technology M&A was $11.3 billion in 2021.
Parekh is one of the authors of the report, an annual overview of the sports technology market. Drake Starr is a New York-based investment bank that specializes in technology and has completed about 450 transactions worldwide over the past decade. The report, “Global Sports Tech Report 2022,” examines venture capital, private equity, and publicly traded company deals worldwide that occurred last year, but excludes direct sports team transactions, such as games distribution and capital transactions with franchises.
“While betting has been a key segment over the years, we’ve seen a huge uptick in fan engagement, with the number of deals increasing 1.7 times the volume and value paying more than 10 times by 2021,” Parikh said. “This is the key area that has grown the most.”
Media, including streaming, data and analytics and delivery, also saw strong moves, the report said. Drake Starr has raised a total of 1,014 capital markets, including 19 valued at more than $100 million.
Easily the biggest deal last year was Microsoft’s $69 billion deal to buy Activision, which has yet to close. ESL Gaming, which organizes esports tournaments, was a distant second—Savvy Games Group, a wing of Saudi sovereign wealth fund PIF, bought it for $1.1 billion. The biggest deal related to fan engagement was RedBird Capital’s exit of One Team, the player’s intellectual property company, for $1.9 billion in the transaction.
Rates in seed and early-stage VC have been consistently strong throughout the year, Parekh noted, as the low dollar value of startup investments insulates the sector from greater market volatility. Large, late-stage VC deals and private equity transactions showed a significant slowdown in the latter part of 2022, with investors increasingly reluctant to commit to follow-on funds of $50 million or more at earlier valuations. At the same time, many capital-seeking companies have opted to skip fundraising rather than accept capital at a reduced rate from previous rounds, the executive said.
Still, the most strategic deals for buyers are closed at strong valuation multiples, e.g New York Times‘ Purchase The athletics, the $550 million transaction occurred at 8.5 times earnings. Fewer strategic deals have been made at lower prices, particularly in Asia. The Manx conglomerate of sports betting and general gambling sites spent $2.1 billion on five deals, according to the report.
In the year With 2023 off to a cautious start, reflecting a fourth-quarter slowdown caused by equity market headwinds and economic worries, there’s plenty of dry powder stacked up in sports and technology-focused funds. “There’s a lot of money raised last year, and I think they’re going to deploy a lot this year,” Parikh said.
That includes $5 billion in startup sports-focused funds, including RedBird from Ares Management and the Jeff Zucker-led media fund, with Drake Star standing out from the crowd. The largest pool of capital to be invested is $38 billion from Saudi Savvy Games Fund, which will lead to several very large esports and fantasy M&A deals in the coming months.
Drake predicts Starr Entain, Fanatics, Flutter, Sony and DAZN will be the companies to continue making acquisitions this year, along with private equity backing from Core, TGI and Huddle. While the stock market has been quiet in terms of private deals, the middle of the year should improve, with possible IPOs from some businesses.
“We feel fan engagement is still huge and also generating more content based on content… and event and ticket management,” added Parikh. “There’s a lot of innovation coming into this space, which is very encouraging,” he said.
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