28 September 2020
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7 trends in the sports industry, according to Hogan Lovells

With the end of the first wave of the pandemic, many countries authorised the practice of sport, both professional and amateur. The sports sector is one of the most prosperous in recent decades, and the Hogan Lovells' Sports, Media & Entertainment group has published, trough a press release, the 7 trends to watch in the sports sector: 

1. Re-opening with caution

The onset of COVID-19 this year brought an abrupt halt to major sports events in the United States and globally, leading to billions of dollars of losses. Now that sports play has resumed, the industry is facing a new reality.

In the U.S., the major leagues—including Major League Baseball, the National Football League, the National Hockey League, Major League Soccer and the National Basketball League—are still looking for ways to bring their fans back into the stands. In the UK, the government recently put on hold a plan to allow some sporting venues to admit spectators with strict safety standards.

Another issue associated with reopening is potential liability if people contract COVID-19 following attendance at games. There are discussions in the United States about seeking federal legislation that would include liability protection for promoters, teams, and venues that host live events in accordance with applicable health and safety guidelines.

2. Investors look to Europe

Even before the pandemic, investment in European sports franchises was an increasingly attractive alternative to U.S. teams. This continues to be true.

Advantages to investment in Europe include the opportunity for greater growth, since the market for sponsorship and naming rights in many foreign countries isn’t as mature as it is in the U.S. Different ownership rules in Europe enable investors in teams to have greater involvement in the decision making. Further, the ability to sell player contracts in Europe provides investors with diversified access to cash flow.

Investment in Europe may also be affected by efforts to cap salaries. “This summer the English Football League approved salary caps, which previously only existed in the UK’s English Premiership, French Top 14 and Pro 14 (all Rugby Union)” said partner Daniel Norris. “However, the European Union has rejected salary cap proposals in football as an unlawful restriction on competition, so it remains to be seen how widespread salary limits will become.”

3. Private equity looks to sports

Private equity firms are sitting on historic levels of investable “dry powder” that needs to be deployed for them to raise new funds. Despite the challenges that COVID-19 poses for event-based industries, the sports sector is viewed as one of the hottest asset classes available right now.

While founders of private equity funds, in their individual capacity, own numerous U.S. professional sports teams, the funds themselves largely have been prevented in the past from owning teams because leagues required individual controlling ownership and limited debt leverage. But these restrictions are loosening. MLB and the NBA have opened the door to allowing private capital groups to acquire minority ownership in professional teams, and Major League Soccer is considering a rules change that could allow investment funds to take minority stakes in clubs.

Despite the recent stop in play, professional sports have seen an explosion of private funds focused on acquiring minority stakes in U.S. professional teams and even controlling interest in European teams.

Outside of team ownership, private equity investors are acquiring ancillary sports and entertainment businesses, bringing with them the PE mindset—an emphasis on profitability and growth.

4. Growth of individual outdoor sports

With many gyms still closed or operating at reduced capacities, and fitness classes on pause, sports enthusiasts have rediscovered the appeal of outdoor activities that can be enjoyed while maintaining social distancing, such as running, cycling, golf, hiking, and fishing.

The growth in individual outdoor sports has only taken off in the last few months as the effects of Covid-19 have spread. Hogan Lovells expects this growth to fuel increased M&A activity resulting in further consolidation across outdoor sports.

5. Rise of niche sports

Another trend picking up steam is the migration of sports from traditional pay television to digital platforms. This can create new opportunities for non-marquee sports.

The shift to mobile devices and internet streaming (OTT) service presents a prime opportunity for emerging sports to develop audiences and attract sponsors. These include women’s soccer, rugby, professional lacrosse, and action sports such as climbing, board sports and BMX and mountain biking. Many of these niche sports have devoted fan bases that will pay for programming.

6. Growing use of technology

While American sports have made innovative uses of technology for some time, the use of technology in sports is expanding globally.

The expansion of 5G wireless technology, over-the-top media platforms, and augmented and virtual reality will affect sports media rights, marketing, and fan interaction. New technology will change the stadium experience, encouraging stadium modernization, and will be a key part to any growth in sports betting in the United States. The challenges of producing live events during a pandemic has led to new opportunities for cloud-based and autonomous production technologies for sports media. 

7. Re-thinking funding for stadium improvements

Even before the pandemic, municipalities were less likely to spend public dollars on new stadium development, and sports team owners and public officials were looking for new partnerships to generate revenue for stadium upgrades. With the financial pressures brought on by COVID-19, this trend is likely to accelerate.

These plans include funding stadium development and maintenance through real estate projects surrounding stadiums.  

Copyright © The Impact Lawyers. All rights reserved. This information or any part of it may not be copied or disseminated in any way or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of The Impact Lawyers. The opinions expressed in this article are those of the authors and do not necessarily reflect the positions or policies of The Impact Lawyers.
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