Investors Cash Floods Agencies in search of sports growth, security –

Billions of dollars of investment capital have flowed through the sports agency business. In recent weeks, EQT Private Equity agreed to become a strategic investor and the largest outside shareholder of 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, over the past 20 months.

Look for the trend to continue as the smart money increasingly sees player representation companies “as an index of broader sports value sentiment, particularly media rights,” said Alex Michael (co-director of LionTree Growth). The thinking is that as long as the value of premium live rights continues to rise, so will league revenue, player salaries and agency fees, a relatively safe bet during an uncertain economic time.

The JWS dam: Investment opportunities exist within the agency business because all companies are 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 to grow is being driven by increased competition. “If you count all the available spots, 60-70% of the Big Four athletes are represented by just six agencies,” said Jason Belzer (founder of GAME, Inc.), and each is doing their best to retain “every less”. market share in the space.” That includes gobbling up smaller competitors. The six agencies Belzer was referring to are CAA, Excel, Wasserman, Boras Corporation, Athletes First and Octagon.

“They’re not just buying agents, they’re buying marketing agencies and listing agencies,” Belzer said. Larger companies leverage strong service capabilities as a recruiting tool and as a means to expand revenue for their customers.

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

Investors increasingly see the agency business as a way to play the future growth of sports without buying individual teams or leagues. Buying an individual team or league carries additional risks, such as the potential for poor leadership.

Escalating media rights, which have been driving the sport’s growth for the past three decades, come down to player contracts. But it’s also “tied to the sponsorships and business values โ€‹โ€‹of the franchises,” said Emilio Collins (partner and business director at Excel Sports Management). “And all of this creates opportunities for agency representation in various forms.”

The growing number of revenue generation 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 investors with stability and a huge upside,” Collins said.

Just like the growth achieved by the biggest agencies. “These agencies have become significant assets, with strong cash flow characteristics, which have [as a result] it attracted a variety of different types of capital, from private equity to sovereign and institutional wealth. This has increased the value of i [furthered] interest in these agencies,โ€ Michael said.

The predictable nature of guaranteed contracts seen in sports also appeals to risk-averse investors. Belzer, who represents several Division I college coaches, said he has “clients on seven- and eight-year contracts,” with fees that “are like an annuity.” As long as the client doesn’t get arrested and go to jail, that money will come in for many years.” This allows him to plan and budget accordingly. It also ensures that income won’t drop dramatically during a recession.

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

Even if the total market is a billion dollars, it represents a fraction of the amount collected on the contract side. Belzer said that in 2020, the world’s top 40 agencies accounted for more than $55 billion in managed contracts, earning nearly $3 billion in commissions in the process. A large part of this was in the main agencies. Belzer would know; spent seven years making Forbes‘ rankings of most valuable agencies and agents.

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

With pure tech growth assets falling out of favor, it may seem that investor demand for growth agency firms will only increase. But with the pay-TV universe shrinking and media rights the main catalyst for sports growth, investors entering the space today could be buying to the max, especially given that there is still no there has been a significant reset in sector valuations. “You’re still talking about low- to mid-double-digit EBITDA multiples for the best assets,” Michael said. Belzer doesn’t think so. “We’re 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 the [these rights are] on the air,โ€ and all the major tech companies are vying for sports properties for their streaming services.

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