Sports Tech - Scoring Big with Young Athletes and Fresh Data
Why Market Positioning Matters, Sports Data is Helpful, and Global Rec Leagues Are on the Rise
After the summer lull, we’re back in action. We’ve got the NFL locking heads for the first games of the season, Djokovic staring down history at the U.S. Open Men’s Final, Liverpool thrashing Leeds United, and a lot of basketball fans wondering when Klay Thompson’s done with his year off. And if the SF Giants can beat the LA Dodgers, there’s hope for my NY Giants. Gettelman’s had his lot of early round picks at this point...
As the world of sports rages on, how can tech-based innovations and the influx of venture capital drive us forward? You can see below that while deal quantity is decreasing, investment dollars have been on the rise - indicating that sports tech is maturing to the growth stage.
If we include fitness tech, the pie is even larger: at-home gym Tonal raised a $250M Series E in Q1 of this year at a $1.6Bn valuation (here’s a great in-depth review of Tonal by the way -- resistance apparently adjusts according to your exertion); and Google announced its $2Bn Fitbit acquisition in Nov’2019. Many already know that teams are investing in wearables and fitness tracking. But where is sports tech investing headed over the next 10 years? After personal conversations with professional athletes across football, swimming, baseball, and rowing, I have a better sense of a few trends that venture capitalists should capitalize on:
(I) Professionalization of youth/college sports: urban sports simulation studios, sponsorship marketplaces, apparel sponsors
(II) Valuable athlete and fitness enthusiast data: selling pro data to sports betting sites, and fitness data to fitness industry players
(III) Recreational sports for casual enthusiasts: tech-based expansion of rec leagues globally
Where I’m more bearish is startups that haven’t been judicious in their market segmentation or competitor diligence. More on that in part II above. Let’s get into it.
I. The Professionalization of Youth and College Sports
The other day, I ran into my Wharton classmate and former professional minor league baseball player Nolan Becker. During his career, Nolan played for the Cincinnati Reds and Kansas City Royals. We overlapped at Stuyvesant High School in downtown Manhattan. Here’s a snippet of our conversation:
Kash: I mainly knew you as the basketball player at Stuy. It was the most visible sport at our school. You played baseball too? Didn’t know that.
Nolan: Yeah, probably because with baseball we didn't have a field "on campus" and our games were all over the city -- so classmates really didn't know much about the team or attend any of our games.
Kash: We’re lucky we had tennis close to school. How far was baseball practice from Stuy?
Nolan: We were fortunate that it was only a 20min walk up to Hudson River, so not too far. [He says “not far” but keep in mind that by comparison, many suburban schools have baseball fields on school grounds] However, some games were all over the outer boroughs and guys would regularly have 1+ hour commutes since we came from all over NYC.
Kash: Damn, not bad but annoying. I remember going to one cricket practice in Queens, over an hour from where I lived.
Nolan: I think we’re going to see emerging trends with youth sports in these urban environments, more venues that offer simulated sports taking up a fraction of the footprint -- and tech that enables these experiences both in these "sim arenas" or even in the comfort of your own home. As cities get more dense, space and other overhead related to organized sports will become more expensive and young athletes as well as adult recreational weekend warriors will look for creative solutions that can democratize access to increasingly scarce opportunities to play. I'm excited for high-performance skill development apps, AR/VR environment simulations, and multi-sport, versatile playing surfaces to continue shaping the future of urban sport.
The more I thought about Nolan’s point, the more it seemed to mesh with trends we’ve seen in the fitness industry. Consider that biking and individualized workouts, especially in urban environments, have turned into group classes like SoulCycle and Flywheel- which offer a semblance of community. More recently, Peloton and Tonal have made biking and strength training at home a convenient option that tracks your personalized fitness data (though SoulCycle records your data for future visits these days as well). If we translate this logic over to sports that involve fine “analyzable” movements (like a baseball swing or a tennis serve), we might see the emergence of data-analyzable simulated batting cages and at-home, personalized, batting simulations. These modern simulation studios, potentially powered by AR/VR, would take up less room than a physical batting cage -- that’s important in cities like New York where space is a luxury. Until that point, wearables startups that target fine movements like Zepp Labs hold strong promise.
In addition to these in-simulation analytics, there’s potential in more professional formats for triggering better performance at a neural level. I spoke to a friend on the Penn Rugby Club Clayton Coleman. Clayton swam in high school and was part of an experiment studying if athlete “mirror neurons” (which help us mimic behavior we see) could be triggered by focusing on tape showing a specific motion on replay while our other senses are blocked off (e.g. ear muffs to block sound). The concept was pioneered by V.S. Ramachandran (if you’re interested, here’s one of his talks on mirror neurons). When asked to swim after, Clayton felt he naturally mimicked the motion and improved his stroke. This needs to be conducted with a larger N, but these are the type of athletic experiments venture capitalists should fund if they’re searching for a homer.
The other major trend we’re seeing is the professionalization of youth and college sports: The NCAA just recently started allowing college athletes to profit off their names, images, and likeness (NIL). Sports coaches and scouts jobs will grow at triple the rate of other jobs into 2030 (see below). Media startups focusing on youth sports have thrived. Take Overtime, started by Dan Porter and another high school classmate of mine, Zach Weiner - now making over $40m in revenue. This New Yorker article does a wonderful job shedding light on how Overtime capitalized on our social media age and short attention spans. Kids don’t want long games - they want to see snap videos of their friends at their athletic peaks and potentially buy merch. This is what Overtime provides. One of the coolest and most promising investments Overtime has made is in an elite professional basketball league for high school players, paying them $100k apiece. It’s a new venture, backed by Andreessen Horowitz, Bezos, and Kevin Durant. All of this points to a new monetizable market if startups are quick to take.
For example, with NCAA Bylaw 12 struck down, student athletes can turn into profit-making influencers. The doors to a whole new advertising market have been thrown open. Well poised to benefit is Dreamfield, a startup helping athletes navigate media appearances and strike deals. As an investor, I’d often look at “whitespace” to gauge growth opportunity. For Dreamfield, that whitespace is 500k potential student athletes. A good next step for their CEO Luis Pardillo would be to partner with a manufacturer to sell athlete-branded apparel.Players Trunk is a startup doing just that, and eager to get into the events space Dreamfield occupies. A JV between these two startups would be mutually beneficial and a great way to claim dominance in a nascent market.
II. The Value of Athlete and Fitness Data
Wearables and tech companies are flooding the market for data. Cardio data. Ball release angles. Physiological data. Why? What do we get from poring over this data and analyzing it? The companies that can figure out a reasonable monetization scheme with this data are best positioned to maximize their revenues (customers), or ultimately, exit value (via company sale).
We can break this data market up into two segments - data from pro athletes and data from everyday fitness enthusiasts. The best buyers of athlete data? Betting agencies, team owners/investors, and leagues. In one of the coolest acquisitions over the past year, Genius Sports, a betting data rights owner for major leagues, purchased NBA and EPL player tracking tech company Second Spectrum (revenue = $25m) for $200m (TEV: 8x revenue). What makes the acquisition so synergistic is that Genius can use that information to (1) inform the bidding process for bets placed on its platform, (2) sell that information at a premium to the betting industry, and (3) augment the fan experience by selling information to sportscasters. The everyday athlete doesn’t take a protractor out before shooting a basketball so you can’t sell these details to amateur athletes, but investors/betters want quantitative information before they put money to work - a very sensible buyer.
Now who can benefit from fitness data? At the simplest level, apps like Strava house information on thousands of runners - not just metrics but time series data on how they improve. This can be compiled and analyzed for insights they can share with premium users on their platform to help them improve their runs. This information can also be shared with municipal governments looking to improve bike routes. On the B2B side, Strava can share information with high end treadmill/elliptical manufacturers, home gym equipment manufacturers, etc. which has the dual purpose of informing their builds and their marketing strategy. While some sources suggest Strava is selling your data, the Strava website indicates that they don’t - this is a discrepancy the Strava PR team should probably clear up.
Sometimes, data is helpful to users in real-time. Consider home equipment startups like Tonal ($3,000 price point), Mirror ($1,500 price point), and Fiture in China ($1,400 price point - visually captures your movement and leverages AI). Part of their inherent value proposition for these seemingly exorbitant costs is that they provide convenience, analyze your workout and improve it in real-time.
Where Sports Tech Startups Go Wrong: Market Positioning and Taking on Goliath without a Slingshot
It is absolutely critical in sports tech to understand whether you’re selling:
(A) high-touch, high-margin products for avid athletes, semi/full professionals, trainers/coaches.
(B) products for the everyday casual sports or fitness enthusiast (like me).
And tailor your product and market positioning accordingly.
One argument I’ve heard: the high level of data analytics in category A will ‘trickle down’ to category B over time. After all, health foods are on the rise, and America as a whole is growing more fitness conscious with the rise of Fitbit first, and now high-powered wristbands like Garmin.
But I don’t think so. While it’s possible that the occasional casual fitness enthusiast will migrate to A, casual gym-rats only have so many hours in a day. My friends who lift and run on a regular basis (probably in the category “B+” camp - more than casual enthusiasts) purchased the WHOOP wristband a couple years ago and now no longer use it. It is tough to follow over a long period of time. I fall under category B and I am primarily concerned with how far and how long I can run on a treadmill - not the details. It ultimately boils down to how much time people have in a day to spend on fine-tuning their physiology and how seriously they take it. People have jobs, kids, meals, errands. If Garmin or wearables startups are looking to penetrate the high volume, low-touch casual fitness market, they are better off building ‘wearable-lite’ competitors, not high end products that cater to A and A- customers.
Which brings me to the second mistake startups make: attacking large consumer niches where corporate players like Garmin and Apple are already winning and investing. I spoke to Thomas Dethlefs, an Olympic rower on the U.S. National Team, about the Garmin wristband. I believe that tools providing actionable insights, not just reams of data, are poised to deliver the most value. Garmin does this by suggesting workout regimens based on your most recent workouts and heart rate. The band can tell you if your anaerobic respiration is kicking in too soon, so you can downwards adjust your speed next time. Garmin’s a public company making $4Bn a year....they’re doing a good job. Misfit Wearables, another startup, lets you customize the color of your wristband (I get it, the products in pic above look homogenous) but it doesn’t add much incrementally. Does it really deserve the $63m it secured from Thiel’s Founders Fund? I’m skeptical.
III. Tech-Based Global Recreational Leagues
Above, you see some of the global sports leagues out there and their penetration. The apparent success of Zog (the company makes $10m in the U.S.) bodes well for other leagues globally. Australia is clearly an active market - with Urban Rec swelling to 14k members in far less time than Zog. Australia’s population is also less than a tenth of the U.S. population. What’s going on in India though, which is a proxy for more developing countries? Is the country just not as active? This is possible - but what’s more likely, based on my experience playing sports on the roadside at my grandma’s home in South India as a kid, is that sports is just far less organized and more casual. A friend of mine at Wharton from Bombay who plays striker very well in our Wharton rec soccer league just grew up playing soccer on the roadside.
However, I think there is an appeal to competitive, league based sports that will permeate these developing countries over time. As more competitive countries feature successful foreign nationals like NFL kicker Younghoe Koo and NBA star Yao Ming, there will be an increasing thirst for athletic competition in home countries like Korea and China. Publicity around Sania Mirza in India could draw participation in youth tennis leagues that market well. The organization of these rec leagues around tech-based apps and individual motivation holds promise as an alternative to antiquated models of corralling players together around schools or neighborhood networks. The bet here is on a cultural shift towards independent, individually inspired league participation. This is just a hypothesis about the behavior of these countries, tough to test.
One proxy I considered for being intrinsically interested in exploring a rec league (vs. extrinsically motivated by school or work) is Google Trends data for “recreational sports” over the past five years in the U.S. and India. With the U.S. you see a consistent interest; but in India, the search peaks become increasingly frequent over time. It’s not a robust approach, but it’s interesting data that suggests increasing individual motivation.
A Concluding Insight on Mental Health
There was one thing that struck me in my conversations with professional athletes: their entire life in professional sports revolves around a level of mental competition and pressure that you would not otherwise appreciate. One described the harrowing experience of sharing a hotel room with another player on the circuit, knowing full well that only one of them was probably going to move forward and nab coveted spots in the pyramid structure of the sport. Another talked about competing hand in hand with players for the U.S. Olympic bid, but knowing that not all 30 would garner a spot on the final team. Yet another talked about how it was difficult retiring from professional sports and adjusting to a life outside of that.
This is not easy to discuss in a public forum, but mentally, athletes are collectively putting themselves through an immense degree of competitive pressure. Probably moreso than in other professions. Companies that are providing mental well-being apps for them such as Calm (valued most recently at $2Bn) are well poised for success - the key is marketing to their team managers and bringing this issue to light with surveys. Venture capitalists invested in the mental health space that are able to provide these team manager/owner introductions and directly serve athletes do more for their portfolio companies than they do trimming up a cap table; the natural advertising synergies would follow.
From the casual sports enthusiast to athletes at the highest level, innovation and capital can move us forward in performance. But let’s not forget the importance of strong mental well-being. It’s a topic we’ll discuss further in a later chapter of Pins and Needles.
In our next post, however, we’ll take a break from venture capital and broach the notable trend of increasing sports team ownership in private equity. We’ll look at the drivers in sports private equity. Stay tuned.
Special thanks to Nolan Becker, Landon Baker, Sam Young, Cohen Harris, Tom Dethlefs, and Jay Yadav for their contributions and insights.