Cash floods from investors Agencies in search of sports growth, security –

Billions of dollars in investment capital flow through the sports agency business. In recent weeks, EQT Private Equity agreed to become a strategic investor and the largest outside shareholder in United Talent Agency (UTA), and Creative Artists Agency (CAA) closed its $750 million purchase of ICM Partners. Excel Sports Management and Wasserman Media Group have also taken strategic investments from Shamrock Capital and RedBird Capital respectively in the last 20 months.

Look for the trend to continue as the smart money increasingly looks at the player representation business “as an index of broader sentiment about sports value, specifically media rights,” said Alex Michael (co-CEO, LionTree Growth). The thinking is that as the value of premium live rights continues to grow, league revenue, player salaries and agency commissions will also increase — a relatively safe bet in uncertain economic times.

JWS’ Take: Investment opportunities exist in the agency business because of all the businesses looking for strategic capital to fuel their growth. Since Excel took Shamrock’s equity, it has expanded from three offices to seven, closed three new acquisitions, launched three new divisions and begun expanding globally.

The desire for growth is driven by increased competition. “If you count all the available roster spots, 60-70% of the Big Four athletes are represented by just six agencies,” said Jason Belzer (founder, GAME, Inc.), and each is doing its best to keep “less and less and less market share in the space.” This includes gobbling up smaller competitors. The six agencies Belzer is talking about are CAA, Excel, Wasserman, Boras Corporation, Athletes First and Octagon.

“They’re not just buying agents, they’re buying marketing agencies and agencies of record,” Belzer said. The largest firms use robust service capabilities both as a recruiting tool and as a means of increasing revenue for their clients.

CAA is the largest sports agency by a significant margin based on contract value under management and total commissions possible. “They now manage over $10 billion in player contracts, which will bring them close to $500 million in commissions over the life of those agreements,” Belzer said.

Investors are increasingly looking at the agency business as a way to grow the sport in the future without buying individual teams or leagues. Buying an individual team or league carries additional risks, such as the potential for poor leadership.

The escalation of media rights that has fueled the sport’s growth over the past three decades boils down to player contracts. But it’s also “related to the sponsorship and corporate values ​​of the franchises,” said Emilio Collins (partner and chief business officer, Excel Sports Management). “And all of that creates opportunities for the agency to be represented in a variety of ways.”

The growing number of monetization opportunities in the sports landscape has also attracted the attention of investors. NIL, sports betting, crypto, CBD and Web3 are among the new categories that have emerged in recent years. “This diversification really provides both stability for investors and tremendous progress,” Collins said.

As is the growth achieved by the largest agencies. “These agencies have become significant assets with strong cash flow characteristics [as a result] attracted a variety of different types of capital – from private equity to sovereign wealth and institutional. This increased the value of and [furthered] interest in these agencies,” Michael said.

The predictable nature of guaranteed contracts seen in sports is also attractive to risk-averse investors. Belzer, who represents a number of Division I college coaches, said he has “clients with seven-, eight-year deals,” with commissions that are “like an annuity.” Until the customer is arrested and goes to jail, this money will come in for many years. This allows him to plan and budget accordingly. It also ensures that revenue does not drop dramatically during a recession.

As player contracts continue to grow, so do the off-field earning opportunities. But Belzer was quick to point out that, in general, non-salary agency revenue pales in comparison to the commissions earned on player contracts, and that there are “literally thousands” of marketing agents competing for that business. He estimated that the marketing and agency of record commissions in all sports was “perhaps a $600 million a year business.”

Even if the total market is $1 billion, it represents a small fraction of the amount raised by the contract party. Belzer said that in 2020, the top 40 agencies globally accounted for more than $55 billion in contracts under management, earning almost $3 billion in commissions in the process. Much of that went to top agencies. Belzer would know; he spent seven years doing it Forbes‘ the most valuable agency and agent rankings.

The agent also reminded that once-in-a-generation players who make fortunes outside of the game, such as LeBron James and Tigers Woods, are very rare exceptions. “The average athlete makes a maximum of 2-3% of their career earnings from marketing,” he said. Player contracts remain the bread and butter of the sports agency business.

With pure-tech growth assets out of favor, it looks like investor demand for the growing agency business will only increase. But with the pay-TV universe shrinking and media rights the main catalyst for sports growth, investors entering the space today may be buying at a peak, especially given that a major realignment has yet to occur sector assessments. “You’re still talking about low to mid-double-digit EBITDA multiples for the best assets,” Michael said. Belzer doesn’t believe that’s the case. “We are still far from the top,” he said. “We have yet to see even potentially what the media industry will look like in 10 or 20 years, when none of [these rights are] over the air’ and all the big tech companies are competing for sports properties for their streaming services.

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