Fresh off another year of SuperReturn International, the world’s largest private equity and venture capital event, it’s clear that sustainable investing is now a greater focus for capital providers, investors, and portfolio companies than ever before.
The buyout industry has trailed others with respect to including ESG – environmental, social and corporate governance – alongside traditional financial criteria when making investment decisions. This lag, however, is giving way and 91 per cent of private equity firms (GPs) and co-investors (LPs) have adopted or are developing responsible investment policies, while 72 per cent are developing KPIs to track, measure and report their policy’s progress.
As a focus area for investors seeking higher returns than are available in public markets, the sports economy is not immune to this trend, or its impact on commercial strategy and value appraisal. Private equity principals, for example, own more than 25 per cent of all NBA franchises. Sustainability is also a requirement for many lucrative public-private partnerships on projects such as stadium builds and common space redevelopments.
But despite its popularity, sustainable investing lacks an institutionalized framework clearly defining what ESG is. To incorporate ESG factors into sports economy decision-making, there’s a need to identify and adopt new metrics against which buyers and sellers can determine how ESG-compliant their assets and products are.
While the most tangible ESG applications are environmental, such as carbon emission restrictions; harvesting solar energy; and eco-friendly disposal policies, many areas of the sports economy have low raw material consumption and minimal waste output to begin with. Instead, their search for relevant ESG criteria should focus on social and governance factors.
The owners of sports- and media-affiliated properties (teams, infrastructure, merchandise, broadcasting, etc.) that proactively consider ESG – and successfully communicate this to stakeholders – will outperform. Failure to do so may harm asset value, compromise brand interest, inhibit talent retention, or damage consumer trust.
Protecting Proprietary Content
The digitization of sports operations, including broadcasting, ticketing and marketing, creates a steady stream of high-value data. As digital infrastructure adoption scales, it introduces a critical need to safeguard information that might be exploited for sabotage or monetary gain.
This logic also applies to intellectual property, media distribution rights and brand collateral. Theft of consumer data or IP can negatively impact a company’s reputation, competitive advantages, and profitability. Take Verizon’s acquisition of Yahoo’s internet business, including Yahoo Sports, in July 2016. Originally valued at $4.83bn (€4.2bn), new findings on the scope of Yahoo’s previously disclosed data breaches incited a retroactive price cut of $350m on the deal.
This case study underscores the need to demonstrate cybersecurity consciousness. One might enlist an accredited third-party to audit the organization’s security posture, introduce new policies on using personal computers in the workplace, or train employees to detect phishing and social engineering attacks. Preemptive insurance policies guaranteeing coverage of key professionals, assets and/or data in the event of personnel loss, breaches or information leakage should also be considered.
The importance of content production in sports and media also introduces heightened key-man risk – a reliance on industry-specific leaders or unique professionals with extraordinary physical (athletes), technical (producers) and social skills (broadcasters), who are tremendously difficult to replace. In this context, ‘protection’ might entail measuring employees’ quality of life and applying measures to mitigate risks of stress, poor work/life balance or limited advancement opportunities. There should also be consideration for succession planning and proactively training professionals in critical areas where recruitment might be challenging.
Without a comprehensive strategy for securing its assets, an organization will struggle to monetize brand interest, retain superior talent, or maintain market share.