Evolution of M&A in Sports Technology and Entertainment
Soc Csirt, et al. “High-Performance Training: How Technology Is Shaping the Athletes of Tomorrow - Security Investigation.” Security Investigation - Be the First to Investigate, 17 Aug. 2024
The sports technology (SportsTech) and entertainment sector has experienced significant transformations over recent years. These transformations have been driven by advancements in data analytics, increasing valuations of sports franchises, and evolving fan engagement technologies. Despite the many macroeconomic challenges the sector has faced in recent years, new investments characterized by strategic mergers and acquisitions (M&A) have allowed for continued growth and look to shape the future of the sector. This article delves into the key trends, notable transactions, and future outlook for the sports technology and entertainment M&A landscape.
Data Analytics Revolutionizing SportsTech
Data analytics has become a cornerstone in the SportsTech sector, revolutionizing both the fan experience and executive decision-making processes. Initially employed to optimize athlete performance through wearable diagnostic tracking devices, data analytics now play a crucial role in attracting a broader customer base, including sports fans and franchise executives. The integration of data analytics into SportsTech products has not only enhanced fan engagement but also driven team management and sponsorship deal flow.
In recent years, the increasing value of sports franchises has spurred M&A interest in the SportsTech sector. High-profile transactions, such as David Rubenstein’s acquisition of the Baltimore Orioles for $1.7 billion and the Adelson family's purchase of the Dallas Mavericks for $3.5 billion, underscore the growing significance of sports franchises. Former Mavericks majority stake owner Mark Cuban now plans to build a resort and casino alongside the Adelson family and Las Vegas Sands around a new Dallas-based arena. This is just one example which highlights the trend of enhancing fan experiences to maximize franchise value.
M&A Activity in Sports Technology and Entertainment
The broader SportsTech and entertainment sector saw a remarkable increase in M&A activity in 2023. According to a comprehensive analysis by Capstone Partners, the industry experienced a record-high deal count and total disclosed deal value, particularly in North America. The North American deal count increased by 39% between 2022 and 2023, with 328 deals recorded as opposed to 236 in 2022. The industry's total investment value tripled between 2022 and 2023, reaching $26.7 billion.
Several high-profile transactions marked this period:
DraftKings (Nasdaq: DKNG) announced its intent to acquire mobile lottery ticket application developer Jackpocket in February 2024 for $758.1 million.
Flutter Entertainment (LSE: FLTR) acquired omnichannel betting company Max Bet in September 2023 for $290.8 million, with a valuation of 1.9x EV/Revenue and 8.6x EV/EBITDA.
Fanatics acquired online casino operator PointsBet USA in May 2023 for $225 million.
Standard General announced its intent to acquire Bally’s (NYSE: BALY) in March 2024 for an enterprise value of $5.6 billion, equivalent to 2.3x EV/Revenue and 11.7x EV/EBITDA.
These transactions highlight the consolidation trend in the sports betting space, driven by increasing market share and premium valuations for technology-enabled gambling businesses.
Strategic and Private Equity Investments
Strategic buyers dominated the M&A landscape, accounting for 68.5% of total transactions in 2023. Notably, private strategic buyers represented 40.9% of these transactions. Despite an interest rate environment not conducive to private equity deal-making, private equity sponsors increased their share of total transaction activity from 26.9% in 2022 to 31.5% in 2023. This trend is expected to continue, with private equity firms showing heightened interest in data analytics businesses that can enhance franchise revenues through improved fan engagement and commercial performance.
One prominent transaction was Charterhouse Capital Partners’ $315 million acquisition of Two Circles in January 2024. Two Circles, a data-driven marketing business, helps sports brands maximize fan-generated revenues and advertising sales. Another notable deal was Monroe Capital-backed Playfly Sports' acquisition of The Aspire Group in May 2023. Aspire provides consulting, research, and marketing expertise to sports franchises and college athletics departments.
Emerging Technology Trends
Emerging technology trends are significantly influencing M&A activity in the SportsTech sector. Artificial intelligence (AI) and advanced data analytics tools are at the forefront, enabling businesses to deliver personalized experiences and predictive insights. For example, Bruin Capital-backed FairPlay Sports Media acquired Quarter4 in January 2024. Quarter4 develops an AI platform that predicts sporting outcomes through data automation. Similarly, FTN Fantasy’s acquisition of DFSForecast in September 2023 underscores the importance of integrating advanced data analytics into sports betting and fantasy sports platforms.
As businesses seek to enhance fan engagement and improve operational efficiencies, the integration of AI and data analytics into SportsTech products is expected to drive further M&A activity. The consolidation in the sports betting industry is likely to continue, with leading companies expanding their market share through strategic acquisitions of data-driven gambling tools.
Future Outlook
Looking ahead, the SportsTech and entertainment sector is poised for continued growth and innovation. The rising global value of sports media rights is projected to reach $60 billion by the end of 2024; increasing the attraction for further investment from private equity firms. A total of around $5.7 billion was raised in 2023 as a result of many significant fundraisers. Although there were more agreements overall in 2022—roughly 790 as opposed to 752—the total amount of money raised decreased YoY as a result of the overall economic conditions.
As the sports betting market expands, especially with the potential legalization in populous states such as California, Texas, and Florida, businesses offering data-driven betting tools will see increased buyer attention. The heightened interest in enhancing fan experiences through technology integration will continue to shape the M&A landscape, with strategic buyers and private equity sponsors actively seeking opportunities to invest in innovative SportsTech businesses.
The SportsTech and entertainment sector is undergoing a dynamic transformation, driven by advancements in data analytics, strategic acquisitions, and evolving fan engagement technologies. The sector's resilience amidst macroeconomic challenges and its potential for continued growth make it an attractive area for investment and innovation. As technology continues to revolutionize the sports industry, the M&A landscape will play a crucial role in shaping its future trajectory.