Eric’s Top 3 SPAC Targets – Sports
by Nicholas Alan Clayton on 2020-10-23 at 9:16am

SPACInsider contributor Eric Weidemann this week compiled his three favorite potential SPAC targets in the sports industry. We look at why they are compelling and why each could be a fit for a blank-check merger.


Courtesy of Sportradar

Sportradar

SPACs have eaten around the edges of the sports industry in recent years with deals in fantasy and esports, but a new wave of sports-focused SPACs has raised the possibility of blank-check companies getting fully in the game.

Reports indicate RedBall Acquisition Corp. (NYSE:RBAC) is close to a deal for the owner of the Red Sox and Liverpool FC, while other potential deals have gone quiet.

One target that has been in the headlines multiple times as a SPAC or IPO candidate without a consummation over the past year is sports data provider, Sportradar. The Swiss firm covers over 60 sports with 7,000 data journalists, and while its core business has been in Europe and Asia, it has been steadily increasing its bandwidth in North American leagues.

It signed an exclusive betting agreement with the NFL last August, following similar deals for the NBA, NHL, and MLB. In May, it announced a partnership with online fantasy and betting platform DraftKings (NASDAQ:DKNG) to help enable it to livestream certain games via its mobile app.

So why does it appear to have been all guts, no glory for Sportradar in its recent talks with American SPACs? One explanation is concerns over the impact of the COVID-19 on sports and betting in general. DraftKings, which itself went public via SPAC combination just before the pandemic, saw trading jitters earlier this year. But, it has since stabilized as it became clear that most games were going to be played some way, somehow, and locked-down sports fans were still happy to open their wallets to contests.

Overall ratings for sports remain down in the US, however, owing to a number of factors. Some sports appear to be cannibalizing each other’s viewership with games rescheduled due to COVID-19 outbreaks playing head-to-head in prime time – a situation that would normally be avoided. An increased share in cable news viewership due to the election season is another.

Last week, some more pieces to the puzzle came into focus as Sportradar moved to secure a roughly $500 million senior secured loan from lenders. Fitch noted in its opinion that it expects about $350 million of this amount to be used on a single M&A transaction.

This proposed acquisition could have been the short-term catalyst for Sportradar’s initial SPAC talks, which the company opted instead to handle with debt. The company will likely be no less attractive to a SPAC after getting the deal done, however.

According to Fitch, its presentation to lenders also revealed the company has about a 40% market share of global sports betting data and odds. The US represented just 6% of its overall revenue in 2019, so it has plenty of white space there, while its non-US markets are expected to grow by 20%. The company also generates about $59 million in annual EBITDA, with margins of 16% to 20%, according to the rating agencies’ reports.

With an investor base that includes high-profile personalities like Mark Cuban and Michael Jordan, Sportradar seems destined to be a public company when it wants to, and SPAC teams would be wise to stay on the line.

Courtesy of One Championship

One Championship

Mixed martial arts (MMA) is arguably the growth sport in the world right now with particularly strong popularity among younger viewers and dominance on streaming platforms.

Despite this, the sport has had rocky encounters with public markets. Most recently, UFC’s parent company aborted its plans for a $7.6 billion IPO late in the process last September, but a rising challenger now beckons.

While UFC is the household name of MMA in the US, One Championship holds the belt in Asia.

One broadcasts its fights to over 2.7 billion viewers across 150 countries and has raised a total of $336 million in outside funding to date including a $166 million Series D led by Sequoia Capital in 2018, and a $70 million round in June.

UFC has built a revenue model around much-hyped bouts between star fighters on pay-per-view, while One has scaled up a massive online streaming presence. In 2019, One ranked fourth in the world in online cross-platform views among sports leagues with 5.6 billion views. This easily surpassed UFC’s 3.8 billion and nipped at the heels of the NFL’s 6 billion.

One reportedly gained a valuation of $1 billion in its 2018 Series D and has been considering an IPO ever since. If market conditions and shaky IPO stories of MMA competitors have been dissuading it, a SPAC combination could be the right fit.

Several newly-listed SPACs would likely love to get into the ring with One. Acies Acquisition Corp. (NASDAQ:ACACU) is set to begin trading today and will begin searching for a target in the “live, location-based and mobile experiential entertainment industries.” Meanwhile, Tekkorp Digital Acquisition Corp (NASDAQ:TEKKU) began trading Wednesday with a focus on the “digital media, sports, entertainment, leisure, or gaming industries.”

But, these are just the newcomers. Given One’s streaming-focused model, it is potentially also in the sights of 10 SPACs that have named “media” as a part of their hunting territory.

Courtesy of the Washington Football Team

Washington Football Team

With the prospect of a RedBall-Red Sox tie-up, it bears looking at what other sports franchises could be willing to play ball with a SPAC.

With most US sports franchises being family-owned, it generally takes a special set of circumstances for one to come available, but the NFL team representing the nation’s capital is certainly experiencing strange times.

First and most obviously, the team does not have a name.

Majority-owner Daniel Snyder gave into decades of pressure this summer to remove the Redskins name along with its long-held logo, but also opted to not scramble and replace this branding with something new before the current season. Oddly, the team is unsure if it will come up with something in time for the 2021 season.

That initial name-change was followed by a Washington Post exposé highlighting rampant sexual harassment within the organization and triggered a purge of implicated team employees.

Amid this disarray, Washington’s minority owners, who collectively own 40% of the franchise, reportedly want out and are actively pressuring Snyder to sell to make their own shares more attractive. Thus far, he has refused to budge.

Enter SPACs. A combination with a SPAC could potentially resolve several of Washington’s woes – it would provide a liquidity event for the team’s minority owners to cash out; becoming a public company would bring increased transparency and accountability to the team’s corporate governance; and it could leave Snyder as the largest shareholder if he wished.

Meanwhile, the buzz around the eventual announcement of the team’s new name and branding is practically guaranteed to drive retail investor volume, good or bad.

Washington is one of the sport’s oldest franchises with a broad fanbase, and Forbes gave Washington a valuation of $3.4 billion in 2019, which would make it the NFL’s seventh most valuable team. But, the team’s 2020 woes presumably put a dent in that, and the last sale of an NFL team came at the much lower price tag of $2.3 billion when David Tepper bought the Carolina Panthers in 2018.

One bonus to NFL franchises from an investor standpoint is that it that the league shares broadcast TV revenues evenly among teams and restricts player payroll to a narrow range. This means even perpetually underperforming teams generally rise financially with the health of the league. Such teams also face no risk of relegation as with European soccer clubs.

In addition to other aforementioned SPACs, Sports Entertainment Acquisition Corp. (NYSE:SEAH.U) could take a swing at the Washington franchise with its $400 million in trust. Yucaipa Acquisition Corp. (NYSE:YAC) could also be a contender, given its diverse expertise and it is led by President and Chairman Robert Burkle who co-owns the NHL’s Pittsburg Penguins.

 

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