Sep 2, 2021

Sports Technology – September 2021

SportsTech Speeds to Market

Many companies In the SportsTech and FitnessTech sector have accelerated their growth at faster rate than they had planned prior to COVID-19.  We expect this to drive increased capital investment and M&A in the sector during the remainder of 2021 and into 2022.

Pete BaileyDirector, Capstone Partners

The Sports Technology (SportsTech) industry continues to see a flurry of activity in 2021 with several trends that emerged in verticals including FitnessTech & Wearables, Sports Betting, and Name, Image & Likeness (NIL).  Global SportsTech investments eclipsed $5 billion through June 2021, surpassing the total amount in any of the past five years, according to SportTechX.1  Professional athletes have increasingly partnered with strategics, private equity firms, and venture capital firms to invest in companies with a variety of sports technologies and the rapidly-maturing industry has generated significant interest from Special Purpose Acquisition Companies (SPACs).  SportsTechX identified 42 sports dedicated SPACs with $13.5 billion available.  Recent SPACs have included UK-based Genius Sports’ reverse merger with dMY Technology Group for ~$1.5 billion in April 2021. Genius Sports (an online betting platform whose partnerships include the NFL, PGA Tour, and NBA) went public on the New York Stock Exchange (NYSE) under GENI. Another notable SPAC was online fantasy sports operator DraftKings’ reverse merger with Diamond Eagle Acquisition in April 2020 for $400 million.  DraftKings, now listed under Nasdaq:DKNG, was valued at more than $6 billion at the SPAC IPO.

FitnessTech & Wearables

The FitnessTech industry had a record high of nearly $2 billion invested in 2020 with ~50/50 split in funding between hardware and software, according to SportTechX’s report.  The trend has continued in 2021 as CLMBR, Ergatta, FightCamp, LiteBoxer, Strava, Tempo, Tonal, and other companies have raised capital in the sector. Amazon (Nasdaq:AMZN), Apple (Nasdaq:APPL), Facebook (Nasdaq:FB), and Alphabet (Nasdaq:GOOG.L) are some of the larger technology companies that are targeting expansion  of their respective FitnessTech capabilities.

Merger & acquisition (M&A) activity continues to increase, evidenced by Peloton’s (Nasdaq:PTON) acquisitions of Precor (April 2021, $420 million) and Atlas Wearables (March 2021, undisclosed).  In February, The Beachbody Company Group completed a three-way $2.6 billion reverse merger with connected fitness specialist Myx Fitness Holdings and Forest Road Acquisition, a SPAC, to go public and grow its digital fitness capabilities.2 Hydrow, which sells connected fitness rowing machines, has also been in talks with Sandbridge X2 Corp. to go public via SPAC, which would reportedly value the company at more than $1 billion.3  Additionally, 32 Equity-backed Hyperice, which specializes in performance recovery products, has completed three acquisitions: mental wellness company Core Wellness (July 2021, not disclosed); intelligent thermal technologies provider RecoverX (January 2021, undisclosed); and  NormaTec, an innovator of cutting-edge pneumatic compression systems. Notably, prior to the acquisitions in November 2020, Hyperice partnered with the NFL as the league’s first “recovery technology partner.”  Jim Huether, CEO, said in an article that the agreement positions them as a technology recovery leader and expects the company to attain a valuation of $1 billion in the near term.4

In June, STRIVE, a platform that provides actionable data to optimize muscle performance for elite athletes and teams, announced a strategic partnership with KINEXON Sports & Media, a leading sports performance and analytics provider. By combining STRIVE’s unique ability to measure muscle movement and activation in athletes with KINEXON’s advanced player tracking technology, the companies will offer a first-of-its-kind, complete performance optimization solution for sports teams, athletes, and trainers.5

“The STRIVE-KINEXON partnership is a powerful combination that will better equip teams to understand the muscle performance and fatigue of their athletes and help them to compete at the highest level. By joining forces, we are delivering a first-of-its-kind, truly complete performance optimization solution. We look forward to the long-term growth and value to come from this partnership,” Nikola Mrvaljevic, STRIVE Founder & CEO told Capstone.

In addition, MACNICA, a leading Japanese global technology provider, announced a strategic partnership with STRIVE to use artificial intelligence to optimize performance for elite athletes and teams.6

FitnessTech & Wearables Companies on the Rise

There are a number of fast-growing companies in the FitnessTech & Wearables sector that are developing innovative technologies to improve fitness, performance, prevent or avoid injury, and provide a social network. Many of them serve professional and amateur athletes and soldiers, with the leading companies scaling growth nationally and internationally.

Investors and acquirers recognize that consumer demand for FitnessTech products continues to increase. Consumers have increasingly adopted mobile fitness platforms outside the traditional gym and are embracing technological advances and innovation including virtual reality and gaming.  Furthermore, the Global Fitness Application market is forecasted to reach $14.6 billion by 2027,7 and community-focused fitness apps are expected to experience 4x growth over tracking- and training-centric apps.8

Sports Betting

Ark Invest estimates the U.S. Sports Betting market will reach $37 billion by 2025, a significant increase from the current $9.5 billion figure, and Technavio expects the Global Sports Betting market to grow by $134 billion from 2020 to 2024. Roughly half of all states have legalized betting in some capacity, and sportsbooks are actively pursuing the rest of the U.S.9 The rise in consumers' preference of viewing sports content in Over-the-Top (OTT) streaming format and on mobile devices has influenced the growth in sports betting. OTT is the future of entertainment consumption, with that portion of the Sports industry expected to be worth $85 billion by 2024.10 The younger demographic of sports consumers increasingly prefers viewing content on mobile devices including highlight clips.

Sports betting companies are taking notice, and DraftKings recently acquired BlueRibbon Software (April, undisclosed) and Vegas Sports Information Network (March, undisclosed) to collect real-time news during games, personalizing the experience for consumers.  In August 2021, DraftKings subsequently announced the acquisition of Golden Nugget Online Gaming in an all-stock transaction with an implied equity value of $1.56 billion.  Also in in August, Penn National Gaming (NYSE:PENN) announced the acquisition of Score Media & Gaming, for $2 billion. The move provides Penn an established sports betting and media presence in Canada, where single-event sports betting is expected to become legal by the end of the year.11

Professional athletes are also actively investing in the sector. DraftKings will launch its own secondary marketplace to buy, sell, and trade digital collectibles. The marketplace will launch in partnership with Autograph, a non-fungible token (NFT) platform co-founded by Tom Brady.  Drew Brees has become a brand ambassador and an equity investor in the online sports betting operator PointsBet, an operating partner of NBC Sports.

Name, Image & Likeness (NIL)

NCAA college athletes gained the opportunity to benefit from their name, image and likeness on July 1, 2021.12  The policy provides the following guidance to college athletes, recruits, their families, and member schools:

  • Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for state law questions.
  • College athletes who attend a school in a state without an NIL law can engage in this type of activity without violating NCAA rules related to name, image and likeness.
  • Individuals can use a professional services provider for NIL activities.
  • Student-athletes should report NIL activities consistent with state law or school and conference requirements to their school.

Athletes have begun signing deals with a variety of companies, and the change in the collegiate landscape is expected to be significant with numerous complexities to be addressed. Alabama football coach Nick Saban fired a salvo across the NCAA and noted that Bryce Young, the expected sophomore starting quarterback, who has yet to play, has earned nearly $1 million, although some have viewed that number with skepticism and view it as more of a brand and recruiting pitch. Sportico reported that conversations with college administrators, marketing agents, and marketing executives indicated players at the top end of the NIL spectrum have earned around $500,000. EA Sports is potentially considering including real college players in its games, according to a report by Axios.13

NOCAP Sports is an example of a company that has identified a market need and has developed a platform to provide athletes’ background; equal access to the best technology; resources to maximize their name, image and likeness; and assist with compliance; and others are poised to likely serve the NIL market.

The rapidly evolving NIL market will likely see growth from SportsTech companies to address the complexities and changes to the collegiate and professional sports landscape and spur additional fundraising and M&A to the sector.

Pete BaileyDirector, Capstone Partners


Endnotes

  1. SportsTechX, "FitnessTech Report 2020," https://sportstechx.com/fitnesstech/, accessed August 18, 2021.
  2. Fit Tech, "Beachbody merges with Myx Fitness and lists on the New York Stock Exchange," https://www.fittechglobal.com/fit-tech-news/Beachbody-merges-with-Myx-Fitness-and-lists-on-the-New-York-Stock-Exchange/348026, accessed August 18, 2021.
  3. Bloomberg, "Hydrow in Talks to Go Public in Sandbridge X2 SPAC Deal," https://www.bloomberg.com/news/articles/2021-08-03/hydrow-said-in-talks-to-go-public-in-sandbridge-x2-spac-deal, August 18, 2021.
  4. CNBC, "Hyperice lands NFL deal as It moves closer to a $1 billion valuation," https://www.cnbc.com/2020/11/24/hyperice-lands-nfl-deal-as-it-moves-closer-to-a-1-billion-valuation.html?, accessed August 18, 2021.
  5. Strive, "Strive and Kinexion Announce Partnership to Offer Complete Performance Optimization Solution as NVA Kicks Off Combine Week," https://wearstrive.com/strive-and-kinexon-announce-partnership/, accessed August 18, 2021.
  6. Nikkei, "Macnica Networks Starts Initiatives in Sports Market with Digital Technology with Strive Tech," https://www.nikkei.com/article/DGXLRSP609767_X00C21A5000000/, accessed August 18, 2021.
  7. Globe Newswire, "Fitness App Market To Reach USD 14.64 Billion By 2027 | Reports and Data," https://www.globenewswire.com/news-release/2020/05/14/2033925/0/en/Fitness-App-Market-To-Reach-USD-14-64-Billion-By-2027-Reports-and-Data.html, accessed August 18, 2021.
  8. Fitt Insider, "Social+ Fitness: Community-focused Apps Outpace Competitors," https://insider.fitt.co/social-fitness-community-focused-apps-outpace-competitors/, accessed August 18, 2021.
  9. Front Office Sports, "Sports Betting Market To Grow $28 Billion By 2025," https://frontofficesports.com/sports-betting-market-to-reach-37-billion-by-2025/, accessed August 18, 2021.
  10. SportsPro Media, "From the Source | Sports OTT: The Big Mobile Opportunity," https://www.sportspromedia.com/resources/from-the-source-sports-ott-the-big-mobile-opportunity
  11. theScore, "Penn National Gaming to Acquire Score Media and Gaming, Creating North America's Leading Digital Sports Content, Gaming and Technology Company," https://ir.scoremediaandgaming.com/news/news-details/2021/Penn-National-Gaming-to-Acquire-Score-Media-and-Gaming-Creating-North-Americas-Leading-Digital-Sports-Content-Gaming-and-Technology-Company-/default.aspx, accessed August 18, 2021.
  12. NCAA, "NCAA adopts interim name, image and likeness policy," https://www.ncaa.org/about/resources/media-center/news/ncaa-adopts-interim-name-image-and-likeness-policy, accessed August 18, 2021.
  13. Sportico, "College NIL Market's Top End is Likely $660K Depite Saban Claim," https://www.sportico.com/leagues/college-sports/2021/nil-market-compensation-1234635276/, accessed August 18, 2021.

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