Author: Maddy Colpitts
In 2023, the broader M&A market was met with a number of macroeconomic headwinds, including high interest rates, increased inflation and geopolitical issues. While these challenges caused a significant slowdown in deal activity over the course of the last year, the Sports Technology and Entertainment sector showcased resilience, as they are not typically impacted in the same fashion as other sectors. The global sports industry has experienced significant shifts over the past years driven by emerging technology trends, which creates a market poised for M&A.
Investor sentiment throughout the industry was high, and although both strategic and financial parties demonstrated increased interest in M&A, strategic buyers made up the majority of transactions. Key areas within sports technology and entertainment in 2023 were streaming platforms, data analytics, Esports, Artificial Intelligence, and Sports Betting and Gambling. The industry also saw a shift in consumer preferences with an increase in demand for fan engagement technology, including real-time analytics and different visual points of view for streaming during sporting events. The sector is ripe for consolidation as investors in the space are utilizing M&A to capitalize on emerging technology to expand their existing portfolio and offerings, while investors are willing to pay a premium valuation for opportunities with strong profitability and earnings stability.
As we look back on the first half of 2024, M&A activity has been and is expected to remain strong. As traditional frameworks in the sporting industry continue to shift and companies further adopt technological development, deal activity in 2024 is expected to be driven by strategic acquisitions looking to add emerging technologies to their portfolio. Increased efforts in artificial intelligence and fan data programs will play a crucial role in 2024 as companies continue to evolve.
M&A Activity – A Year in Review:
Global deal activity in the sports technology and entertainment industry has surpassed historical years, recording a record-breaking period. This indicates that not only is the sector recession-resilient, but it is also a very attractive area for investment from both strategic and financial investors. The industry saw an increase in both deal count and total deal value. North American deal count was up 39% from 2022, recording 328 deals in 2023 compared to 236 deals in 2022. The sector saw total investment value increase approximately 3x compared to 2022 with a value of $26.7B in 2023.
Multiples in the space have increased from historic years with the median EV/Revenue multiple being 2.5x and the median EV/ EBITDA multiple being 15.3x, a ~30% and ~145% increase respectively, from the prior year. Approximately 70% of deals in 2023 were completed by strategic buyers and ~30% by financial; and of that ~30% the majority were add-on opportunities with financials as a strategic initiative to focus on companies with loyal customer bases and innovative technology. FY2023 saw a rise in premium valuations, predominantly in the sports betting and sports entertainment sector due to trends in the market including increased demand, market consolidation, and a competitive technology environment. FY2023 also saw a number of large fundraises, including fourteen $100M+ raises, leading to a total of ~$5.7B raised. Although the total amount of deals were higher than that in 2022, ~790 vs 752, the overall amount of capital raised declined YoY due to the overall economic environment.
The sports technology and entertainment industry surpassed expectations of the greater M&A market in FY2023, with prominent trends across strategic acquirers even during a time of uncertainty around heightened inflation and rising interest rates.
Consolidation
- The wave of consolidation continues for the sports betting and entertainment industry as the two main players, FanDuel and DraftKings, make up ~70% of the U.S. market share and have completed over 20 acquisitions combined. This creates an extremely high barrier to entry for other companies. Flutter Entertainment and Fox Corp. announced in 2023 that it would be shutting down Fox Bet after four years of operations. The announcement comes after increased consolidation in the market and very little market share to grow. Fox Bet is not the first company to feel the heat of the two largest sports betting companies, as MaximBet, Fubo Sportsbook, Churchill Downs, and theScore also suffer from consolidation within the industry.
Consumer Preferences
- Millennials and Gen Z are driving the changes in consumer preference for the sports technology and entertainment industry, moving from traditional sports viewing experiences to an increased demand for personalized and immersive experiences. Interest in real-time analytics, diversified camera angles, and athletes’ points of view is driving M&A activity in the space and the heightened focus on technology adoption and development. Companies in the industry are looking to data analytics and technology in order to deliver a greater level of engagement for consumers and fans during sports events.
Technology
- The global sports technology industry was estimated to be worth USD ~$22B in 2022 with an estimate to reach USD ~$42B by 2027, growing at a CAGR of ~14%. AI is having a huge impact on the sporting industry and is the engine behind the technology growth in this sector. AI is providing value through AI-enabled performance analytics, helping to improve players’ performance as well as make more effective game time or training strategic decisions. Sports entertainers are also leveraging AI to create a better fan experience, for example, the Golden State Warriors use AI to create an immersive virtual reality experience while other teams are using it throughout stadiums to create an easier navigation system.
Key M&A Transaction in 2023
Subsectors within the Sports Technology and Entertainment space that saw the majority of M&A activity in 2023 include Media & Broadcasting, Fantasy, and Esports and Betting.
The activity within the sports betting space in 2023 has carried over into 2024 with a number of transactions occurring over the last twelve months.
- DraftKings (NAS: DKNG) invested USD $750M, representing a 9.6x revenue multiple, to acquire Jackpocket, the leading provider of a digital lottery service in the U.S. using its proprietary technology. The transaction will allow DraftKings to gain access to the massive U.S. lottery market and provide their customer base with another differentiated product.
- DraftKings also recently completed the acquisition of a Canadian company, Sports IQ Analytics, for an undisclosed amount. Sports IQ Analytics develops cutting edge sports software for the sports gambling industry.
- Fanatics acquired Pointsbet Holdings USA, an online casino operator, through a $225M LBO. This transaction allowed for Fanatic to accelerate its expansion, making sportsbooks available to 95% of the online sports betting market in the U.S. Fanatics completed three other acquisitions in 2023 within the media, trading card, and e-commerce industries.
- LNW Gaming (NAS: LNW) invested USD $488M, representing a 3.1x revenue multiple, to acquire the remaining 17% stake in SciPlay, the developer of a portfolio of games including Jackpot Party, Quick Hit Slots, Gold Fish Casino and more. The CEO of LNW Gaming explained integrating SciPlay will create a more streamlined organization with the financial strength to accelerate its cross-platform strategy and deliver better returns for shareholders.
Other sub-sectors within the sports and technology space that saw an increased amount of activity was the media and broadcasting sectors.
- Endeavor (NYS: EDR) invested USD $8.4B, representing a 7.4x revenue multiple, to acquire World Wrestling Entertainment (WWE), a leading media and entertainment operator. This acquisition presents Endeavor with a huge opportunity to control two globally recognized combat sports and run a “pure-play” sports IP ownership entity.
- Since the acquisition of WWE, Endeavor has made five separate investments in companies spanning the larger software industry to further the development of AI.
- Group Artemis invested $7B, representing a 4.7x revenue multiple, to acquire Creative Artists Agency (CAA), an operator of an entertainment and talent agency representing many different industries including the sports industry. This transaction will add increased diversity to CAA’s portfolio including increased geographic reach.
- Better Collective (STO: BETCO) invested CAD $285M to acquire Playmaker Capital, a Canadian digital sports media company. This acquisition allows Better Collective to expand its overall product, geographic, and demographic diversification. This transaction allows them to take a significant step in becoming the market-leading digital sports media group.
Consolidation in the industry and the need for advanced technology to capture consumer preferences has and will continue to benefit the M&A industry.
To Conclude – Trends to Keep an Eye Out for in H2-2024:
M&A activity in the sporting sector has shown no signs of slowing down. There has been continued interest in the technology and entertainment industry within sports that is driving higher valuations and increased activity.
Women’s Sports – Women in sport are finally seeing the attention they deserve, with increased viewership and sponsorship, this is a sub-sector poised for investment. Investment opportunities present themselves in the form of women’s sports teams, leagues, or any other related businesses. According to a report released by Deloitte, revenue generated from the women’s sports industry will for the first time surpass $1B in 2024, a 300% increase from 2021.
Consolidation – Consolidation efforts in the sports entertainment and viewing sector continue to strengthen. Three main streaming services, Disney, Fox, and Warner Bros, plan to combine efforts to create a new platform that aims to streamline the viewing experience for sports fans. A significant driver of consolidation within this space is the high value of broadcasting rights. Large media companies are continuing to compete for the rights to stream sporting events, however, market experts believe this to be an area ripe for consolidation as companies look to strengthen their portfolios.
International Expansion – The sports technology and entertainment industry has been growing internationally over the past couple of years and market activity indicates it will continue. Different sports leagues and teams have been looking to different regions for expansion. Examples include the NFL looking to Europe for potential partnerships to schedule international matches; as well as heavy investment amongst soccer leagues in Europe from outside investors.
Technology – Data analytics and AI continue to be a topic of interest as companies look to acquisitions to remain competitive within the industry. Integrated data and video analysis tools are expected to merge wearable data with video analysis to gain further insights into athletes’ performances.
Sports M&A activity remains robust in 2024 and with interest rate cuts on the rise, we believe it will only continue to increase as the general M&A market is projected to rebound.
