Sports Tech Funds Pile Up Cash as 2023 Sees VC Rebound
Sports tech investing funds raised cash at a record clip to start 2023, suggesting the back half of 2023 and 2024 should see robust deal-making, according to a new report from investment bank Drake Star Partners.
“There’s a lot of dry powder in the space,” said Drake Star principal Mohit Pareek in a video call. “Last year we had $5 billion raised by sports tech funds and now another $2 billion, which is a record for a quarter. All this money is going to come into play this year, next year or the year after. We expect to see a lot of activity taking place this year.”
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Drake Star is a technology-focused investment bank with operations in the U.S., Europe and Middle East. In its first quarter sports technology investment report, being released Thursday, it says businesses in fan engagement, AI, ticketing and venue management appear to be favored by funds. In addition to expectations that sports funds will begin spending their capital in earnest into new businesses, the investment bank also expects a strong run of roll-up, “buy and build”-type transactions, according to Pareek, one of the report’s authors.
Most of the new money that will largely be deployed in sports tech came from six new funds: the $750 million Isos7 Growth Equity fund, a $500 million fund from London’s Fasanara Capital focused on sports receivables, $300 million from Bluestone Equity, $181 million from Sapphire Sport and two $100 million funds from Courtside Ventures and Monarch Collective.
Already 2023 has started off robustly, according to the Drake Star report, with investors shaking off some of the tentativeness that crept into the market at the end of what otherwise was a record-breaking 2022 for venture capital investment and mergers and acquisitions in sports tech.
Sports tech saw 60 announced or closed mergers and acquisitions in the first three months of this year, led by Penn National Gaming’s $387 million acquisition of the remainder of Barstool Sports it didn’t own. Other large deals included Golden Matrix Group, a U.S. online system developer, buying Meridianbet, a sports betting group based in Malta, and the purchase of Embody, a specialist in sports-injury medical devices, by Zimmer Biomet for $275 million. Compared to past quarters, there were fewer large M&A deals—Endeavor’s $21 billion purchase of WWE came early in the second quarter.
Venture capital funding was also quieter among large companies, mainly because later-stage private companies have been opting not to raise money since it would require them to accept lower valuations in the current market. However, VC activity with early-stage companies appears robust, with 75% of VC deals in the quarter directed to younger startups. Total VC activity was $1.7 billion from January to April across 176 businesses, according to Drake Star. The largest fundraising deal was by Zwift, an interactive fitness platform, which raised $620 million from KKR, Amazon’s Alexa Fund and Permira Holdings. Other notable VC deals included the Women’s Tennis Association getting a $150 million investment from CVC Capital, and a $54 million Series E convertible stock sale by Toca Football, a tech-focused soccer training company.
Also boding well for sports-tech investing is the recovery in publicly traded sports companies to start the year. Digital media and content businesses had the best opening in 2023, with a selection of U.S. and foreign-listed firms tracked by Drake Star rising more than 22% through March. Fantasy sports and betting business, up nearly 9%, and sports franchises, up more than 8% in the first quarter, also beat the S&P 500 Index, which gained 7% to start 2023. Only wearables and performance enhancement stocks under-performed, gaining about 4%.
Drake Star has completed more than 400 transactions in the past 20 years. According to the firm, the sports-tech market had a banner year in 2022, with more than a thousand deals worth more than $90 billion.
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