For leagues like MLB, venture capital strategy goes far beyond immediate returns

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When Major League Baseball took over Los Angeles for its recent All-Star festivities, its vast activation footprint was infused with youth-focused sports tech startups across the city. Swing Tracking Company Diamond kinetics batting cages equipped with bats equipped with sensors, training company for young people EL1 Sports offered educational programming and a league management platform League Apps provided back-end data services and operated a playground for young people.

All three of these companies have partnerships with MLB, which the league leverages to increase youth participation in baseball. But those startups also count the league as an investor, a critical part of MLB’s long-term business strategy.

“When we find something we like, we want to make a statement by making a cash investment or taking a stake in a business,” said Chris Marina, director of MLB operations and strategy. “Baseball takes a partnership approach with them. And by creating this alignment with their business, they could divert resources from other projects to baseball. We think it’s a really useful tool, especially when there are so many of these start-ups looking to get into the sport.

MLB has historically done about half a dozen transactions a year, including cash investments and broader partnerships through which the league has taken equity stakes. In its cash deals, MLB has invested between $1 million or less for early stage startups and investments in the range of $20-30 million for more mature companies. The league was part of a $15 million Series B round for LeagueApps last year, along with Fanatics‘ $1.5 billion funding round in March.

Play Ball Park at last month’s MLB All-Star Game in Los Angeles hosted many activations related to the startups the league has partnered with.Images: getty

The financial return on these investments, while important, is not the guiding principle. “We’re not doing this to try to be a hedge fund. We have cash available that we could invest in third-party financial resources outside of baseball and generate a return. It’s not exclusively what we’re looking to do,” Marinak said. “We seek to leverage investment capital and growth capital to improve our fan experience, create a better baseball experience and a better baseball product.” MLB has typically assumed small passive positions — say, 5% to 10% of a company’s equity — with no fixed roadmap for exiting its investments.

Beyond the dozens of deals completed over the past decade, MLB is also a partner in the Global Sports Venture Studioa joint venture between R/GA Ventures and Elysian Park Venturesand is a sponsor of Sports Sapphirea division of Sapphire companies.

MLB is far from alone in deploying its resources. In fact, professional leagues, teams, and other sports properties have increasingly invested in startups to bolster their own growth potential.

Earlier this year, the NBA launched NBA Equitya new division managing direct start-up investments, and in recent weeks the league has taken stakes in
QuintEvents and 15 seconds of fame. The NBA now has more than a dozen such partners, and its recent deals follow the announcement in January of the five companies participating in its new Launchpad initiative, which aims to support startups with potential solutions around the injury prevention and youth performance, among other areas.

“The NBA is constantly looking for innovative ways to improve our gaming, business and fan experiences,” said David HaberNBA chief financial officer, in a statement to SBJ.

The PGA of America recently partnered with Elysian on a new fund, EP Golf Ventureswhich has already taken stakes in two startups, mobile golf simulator Dryvebox and motion capture app developer AI Sportsbox, although he declined to comment on specifics. “To be able to invest in companies capable of making [our members’] lives better and improves the game of golf, it will improve our association as a whole,” said kris hartSenior Director of Growth and Business for the PGA.

Comcast takes $25,000 equity stakes in each startup selected to participate in its SportsTech accelerator program, which is soon entering its third year. “We become part of the cap table, part of the ongoing investors and advisers. We often say that once we sign that stock purchase agreement, you become part of the team,” said Jenna Kurat, Comcast’s vice president for startup partnerships. The accelerator program has also facilitated dozens of relationships between startups and major properties like NASCAR, the PGA Tour, US Ski & Snowboard and WWE. According Craig NeebNASCAR’s director of development, racing series involvement led to deals with trolley keyless ignition company XiQ and start of contactless payment tap.

For startup founders and stalwarts of sports venture capital, these significant league-level engagements have been a welcome development. “They have so much experience, and they have so many connections and contacts,” said wayne kimmelmanaging partner of a sports venture capital firm Seventy-six Capital. “They know what the sponsors want. They know what the clubs themselves want. They understand the priorities of the league. These are things that, as a foreigner, you guess or hope to read.

Even if an economic downturn dampens vast venture capital investments, the leagues are expected to continue to put more skin in the game with an eye to the future. For MLB, it was a lesson learned the hard way, but now expected to drive long-term value for the league and its partners.

“In the beginning, sometimes we just took stocks or warrants in a partnership and treated them as a sort of rollover,” MLB’s Marinak said. “[But] without a real link between the companies, we were not taking full advantage of the opportunity. The agreements that have been the most successful are those where it is a multi-faceted relationship; it is we who bring value and resources to the company, and the company does the same in return.

Chris Smith writes a monthly column on financial news and trends. He can be reached at [email protected] or on Twitter @ChrisSmith813.

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