Lessons from a VC Investment in Sports

Recently it was announced that Supponor has been sold to TGI Sport, owned in part by Bruin Capital.   It’s been a fascinating journey with the business, having been an investor and board director.  Reflecting on the time we have been involved in the company I wanted to share some thoughts on the lessons I have learned along the way.

Supponor when we first saw it was truly a groundbreaking technology company.  Whenever you put senior executives in the room and showed them what it could do – even as far back as 2012 when we first invested, their jaws would literally drop when they could see on screen a different advert to what they could see on the pitch in front of them. 

Interestingly it went on to also be one of the first to really use AI/ML to drive new revenue opportunities and drastically reduce the cost of implementation.

Yet the uptake in the company’s services took much longer than anticipated. 

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Power of Tech

The first thing to say is that the technology truly is phenomenal, from the highly patented tech that we started with, which enabled the initial growth, to the AI solution, which is Supponor AIR, which accelerated growth. 

It has enabled leagues, teams, agencies and others to really grow a part of their revenue streams that had reached maturity and in my view stagnated.  The advent of the AIR product really means almost any sport or team can build more substantive revenues in the perimeter/dasher space.  It removes the costs of reverse productions, drives revenues, opens up new markets and partnerships etc.

It's great to see how many are now benefiting from such technology and ensuring that not just is there an increase in revenues but also that fans see the appropriate partnerships for their market – there is no need for an English fan to see an advert in Chinese on their perimeter boards anymore (though some are still in the stone ages!)

Investment in Growth

I recall many years ago sitting in a Leaders in Performance event where a senior banker from Renaissance Technologies stated to the room that Sports had not yet understood that technology was an investment in growth not a cost center.  It was striking that he said it because the room didn’t understand him – his example of spending a $1bn on a new fiber optic cable meant Renaissance was quicker than its rivals in black box trading and was a key source of its profitability.

My experience in Supponor demonstrated the level at which this permeated sports.

There were multiple times that we saw independent or even client-commissioned studies (not just the models we created) that showed hugely significant increases in revenue if there was an implementation of the technology.  We are talking multiples on what was being generated at the time.

Yet it went nowhere…because the clients would need to invest some capital upfront in terms of infrastructure.  It never made any sense to me as on whatever basis you ran an analysis – be it NPV, IRR, Cash, Terminal Value etc.

This was very educational for me as an investor in the space as it has adapted my expectations of how sports can embrace the future relationship with the fan and better utilize technology.

Old Metrics

Early on in the Supponor days we came across this issue.  Perimeter boards were valued on a fraction (often roughly one third) of the value of a 30 second advert.

This made sense in the past but was effectively the model I had experienced as an intern in 2001 with IMG / TWI Research.  Given it was already a decade on I was surprised the model hadn’t adapted.  I expect Nielsen and others still run a similar model today…

As time has progressed the reality is this.  Adults rarely sit to watch adverts in main sports during a commercial break.  In the UK for example they get up, run the kettle and do other things.  Younger generations are on their other screen – often for example playing the game that was on TV on their console, or simply surfing social. 

This means few people see the 30sec ads…What that means is that the in game adverts should be sold at a premium because they may be more discreet but they are seen by the audience and can be created in a way that is native to the viewing experience. 

Native, in play advertising is inherently more valuable but the reluctance to update analysis models slows implementation and honestly for us impacts valuation.

Incremental not Transformative

I am delighted to see so many leagues and teams now embracing Supponor and the growth really accelerating.

At the same time it’s symptomatic of the obsession in sports to see tech as a way to incrementally improve the current business model and not as an opportunity to rethink the model and drive real growth.

Even before I left to go to FIFA it was clear that the technology existed not just to replace streams by region or country, but by being able to provide a stream to the individual. 

The implications of this are amazing.  True personalization of advertising, the ability to build in affiliate fees directly linked to purchase and to provide real value to advertisers and consumers respectively.

The ability to tap into programmatic advertising, affiliate fee structures and other media models that dwarf the value of sponsorship is enormously exciting – and my personal hope is that as part of a larger family this type of business transformation will be possible.  The fact that today its seen as an add on to ‘sponsorship’ is an outdated model.

I understand the threat a change to the business model represents to many of the incumbents in the industry but at the same time the inability to grasp a concept that offers a better product to brand partners, consumers and can drive an increase in revenue seems at odds with where the industry needs to go.

Don’t Just focus on Elite

This has become a common refrain from me both as an investor and advisor.  I do not have an issue with aiming high – far from it, I think its admirable and to be lauded.

What I would encourage earlier-stage companies to do is to both chase the giant but also to build up a roster of clients that are smaller but demonstrate the business model, the reliability and stability of your product, the impact it can have on the client and generate tangible case studies that demonstrate the risk in being used by a big client is minimal at worst, and negligible at best.

Conclusion

At the end of the day, I loved being a part of the journey. Sitting on the board providing advice and opening doors whilst helping management play a way forward was exciting and a massive learning experience.  My frustration over the past decade has been the wasted value that in my view partners have left on the table by being either scared to make an investment or for using only a tenth of the technology’s actual potential.