#105 – F1 & Investing in Sports

Good morning everyone,

Hope you’re having a great week!

Let’s jump in.

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read time 3 minutes 

#105 at a Glance:

• Quote: Jeff Bezos on one of the huge mistakes people make.

• Podcast: Nicolai Tangen x Stefano Domenicali.

• Deep Dive: Investing in Sports.

• Mental Model: “Just Don’t Give Up” by Thomas Koutavas.

• Tweet: Real mastery.

Quote I’ve been thinking about:

Podcast I listened to:

In Good Company with Nicolai Tangen: F1 CEO Stefano Domenicali

Great discussion between Nicolai Tangen (CEO of Norges Bank Investment Management) and Stefano Domenicali (CEO of Formula One).

It is truly remarkable the way that F1 has added such immense financial value to the sport through the Drive To Survive Netflix series and now again with the upcoming F1 movie to be released in June.

Since Liberty Media acquired the sport in 2017 for $4.4 billion, the empire is now valued at over $18 billion, with rumours that the American mass media company is ‘likely’ to take the group to market next year…

Wow, I wonder what that will sell for, and perhaps even more intriguing to ponder is who will buy it...

Some of my biggest takeaways from the conversation:

• F1 is not just a sport; it is an entertainment platform that is positioned to maximise its commerciality in that context.

• The audience of the sport has shifted massively in the last few years. The fanbase is now 40% female and 60% male with an average age of 35 years.

• “We are not competing against other sports, we are competing with movies, music, events, and other things that are in the agenda of our fans.”

• The sport is undergoing a significant decarbonisation strategy, from the fuel in the cars to the logistics and operations of the entire organisation.

• Drivers, before being selected, are now viewed as public faces and must be synonymous with the F1 brand. It’s not just about being fast.

Listen on Spotify, Apple Podcasts, or YouTube.

[Podcast Length: 47 minutes]

Deep Dive:

Investing in Sports by Goldman Sachs 

Goldman Sachs have released a fantastic series of white papers, reports, and podcasts which they have compiled on the topic of ‘Investing in Sports’.

I spent a little bit of time digging into them earlier this week, and these are some of the most significant insights that I was able to extract:

• From media rights and sports-adjacent businesses to the growing role of institutional investors in franchise ownership, the business of sports is evolving. Investors are beginning to bring attention (and capital) to the long underpriced and misunderstood industry.

• The growth of sports viewership over the last 20 years has led to a sharp rise in the competitiveness of media ownership. This increasing competition has contributed to substantially higher valuations, making it harder for any one individual to own media outlets outright, thereby attracting institutional investment in many sporting segments around the world. The emergence of institutional capital, particularly the approval of private equity investment in many US leagues, already has – and will likely continue to – improve liquidity, transparency, and access to sports investments.

• Media contract revenues are shared between leagues and teams. As a result, team revenue, player salaries, and team valuations have also increased. For example, in 2000, the annual value of the NFL’s media rights contract was $2.2 billion, and the average team was worth $423 million. Today, the annual value of the NFL’s 11-year contract signed with CBS, NBC, Fox, ESPN, and Amazon in 2021 is $10 billion, and the average team is now worth 1,301% more.

• One of the alternative ways for high net worth individuals to gain exposure to multiple sports across various jurisdictions is through a sports-focused private equity fund. (Not going to lie, this sounds like a dream job).

• The ability for investments into sports to act as proxy investments in real estate development and media is extremely exciting and a massive driver of value.

• Collegiate sports and youth athletics represent the final frontier of sports investing with large, untapped potential. It has historically been incredibly difficult, if not impossible, to invest in collegiate sports due to federal laws prohibiting National Collegiate Athletic Association (NCAA) athletes from profiting from their name, image, and likeness (NIL). There were also very few opportunities in youth sports, given the highly fragmented nature of youth leagues and the overall lack of investor demand. That landscape changed with the 2021 Supreme Court decision that allowed collegiate athletes to profit from their NIL and the explosion in demand for live entertainment that accelerated after the COVID-19 pandemic.

• “The days of just selling tickets and concessions are over; sports are rapidly expanding into 24/7 data management platforms that bring best-in-class customisation—helping teams grow and increase the monetisation of their fan base across all business verticals.” – Dave Dase (Global Co-Head of Sports, Goldman Sachs).

• If the history of men’s sports is a guide, future returns across women’s sports may be significant if revenues are realised to support expanding valuations. In contrast to men's sports, women’s leagues, such as the Women’s National Basketball Association (WNBA) and the National Women’s Soccer League (NWSL), are much newer, and media rights contracts have lagged their men’s equivalents. This creates the potential for both substantial and reliable upside. Contrastingly, some men’s sports may be reaching an inflection point of over-enthusiasm fuelled by a bubble-like mentality, making it harder to realise returns on investment amidst inflated valuations.

You can access all of the insights from Goldman Sachs here. Highly recommend.

Mental Model I’ve been thinking about:

“Just Don’t Give Up” by Thomas Koutavas

One of my critical-thinking and incredibly talented friends sent me this piece the other day and I felt compelled to share with you all:

“I don’t think we spend enough time thinking about the right things to focus on. I also think that’s because it’s a nearly impossible task. We can’t think our way to our goals, any more than we can think our way to the top of a mountain. No, what we get instead are an array of infinite paths in front of us to choose from. Each path could be the one that takes us to the top, but certainly none of them will be unless we pick one and start walking. As we venture up a path hoping that this will finally be the one, we face obstacles and road blocks; seemingly immovable boulders, packs of wild hyenas. It is at that point, I believe, that we have a moral obligation to do our very best to overcome them. If nothing prevails, we return back to the bottom of the mountain and begin up another path. I feel that we become easily discouraged as human beings; we feel as though just because we were forced back down to the bottom of our mountains due to a lack of resources, tools, skills or ability, that this is the end for us. I believe this to be far from the case. I believe that the experience we acquire and the skills that we build from walking down the “wrong” paths are precisely what enable us to succeed when we finally find the right one. Maybe a stick that you crafted into a spear while walking down an earlier path wasn’t enough to scare off the pack of wild hyenas that ran you out. But, maybe 17 paths later, you were able to trade that spear to a hunter who offered you enough of his food to survive your final ascent to the top. In the moment, I don’t believe it possible for any of our trials and tribulations to make sense. It is only in retrospect that I believe, we will look back and think “Ah. I understand why it had to happen that way.” To me, this means one very important thing. He who succeeds will not be the one who is most naturally talented or skilled, for even he will meet his own seemingly insurmountable obstacles. The man that wins will be the one who, in the face of rejection, failure and feelings of borderline insanity, simply refuses to give up. This man sees no time as wasted, for he understands that the experience he accrues by persisting so maniacally will be exactly the reason that he will, in the end, succeed.”

Absolutely sensational and so incredibly accurate.

Thomas, I speak on behalf of everyone reading this when I say: please keep writing.

Tweet I liked:

Real Mastery

Thanks for reading! Grateful for your support.

Stay hungry, stay humble, stay curious. ⚡

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