Sports investors on the rise as brands embrace new partner models

Wednesday, June 22, 2022 8:00 a.m.

Boxer Anthony Joshua has joined the trend of sports investors by taking a stake in Dazn in a new broadcast deal with the streaming platform

When Anthony Joshua and Dazn announced a new partnership last week, one of the most eye-catching aspects of the deal was that it involved the British heavyweight boxer acquiring a stake in the sports streaming platform.

It was just the latest example of a top athlete cultivating a portfolio of activities to complement his athletic career.

From passion projects like vegan soccer player Chris Smalling’s investment in health food to Andy Murray’s backing of dozens of start-ups and the multimillion-dollar funds created by American sports stars like LeBron James and Serena Wiliams, an entrepreneurial sideline of sorts, has become almost as ubiquitous among big players as oversized headphones and flashy watches.

While some of these examples involve sportspeople investing their own money or even starting their own business, they often also involve some degree of endorsement, as in the case of Joshua and Dazn.

And in many cases, the endorsement is in exchange for shares or discounted shares, especially in start-ups or start-ups, which blurs the lines between investment and sponsorship. We don’t know if that was the case with Joshua and Dazn.

“The days of having to pay an athlete an outrageous sum to be a brand ambassador are over,” says Ben Peppi, head of sports services at law firm JMW. “Now there are new, creative ways to look at these offerings.”

In a traditional sponsorship deal, a brand pays an athlete a royalty for a range of rights including their intellectual property, likeness and voice. The agreement will usually include an opportunity to film content with the athlete, and sometimes competitions, personal appearances and an agreed number of social media posts.

The investor-ambassador model, on the other hand, has “no set rules, just negotiations,” says Ben Smith, partner at wealth management service FLM. “You expect any athlete who has invested in a start-up company where they’re supposed to be a brand ambassador to get a big discount on the stock price.”

Sports investors “win-win” for both parties

When done right, investment deals for athletes are “a big win-win” for both parties, adds Smith, who helps athletes manage their finances.

Brands love the reach provided by athletes, who are increasingly content creators in their own right. They may prove more genuine endorsers if, as in the case of golfer Rory McIlroy and Whoop, they use the product in addition to taking stock.

For athletes, financial planning with an eye to their post-game days is a key factor, but not the only one. Investing, from stocks to start-ups, is now easier than ever, while top athletes, especially in football, simply have more money to play with than ever before.

The lure of entrepreneurship itself, shaped by American stars such as LeBron and Serena as well as Shaquille O’Neal and Michael Jordan, is a major influence. For some, the same goes for social media content that purports to show how to turn their fortune into an even bigger one, Smith says.

“Athletes have the FOMO, the fear of missing out on those kinds of things, and they have the capital resources to make those decisions pretty quickly, although it’s not always recommended,” says Peppi.

Tennis superstar Serena Williams has taken the athlete investor to the next level by creating her own fund
Tennis superstar Serena Williams has taken the athlete investor to the next level by creating her own fund

A huge factor that shouldn’t be overlooked in a number of investments, however, is the positive tax implications.

Incentives such as the Business Investment Program provide a 30% tax break on investments in businesses of a certain size, typically successful start-ups that need funding for their next stage of growth. This only applies if an athlete has paid for shares, rather than receiving them as part of an endorsement, although it is possible that they will be paid by the brand and then buy shares.

“Athletes paying millions in income tax can invest up to £1m in these small businesses and get a £300,000 bribe from the government,” Smith says. Peppi adds: “The EIS program has been extremely important for any wealthy individual investing in start-ups and athletes fall into this category.”

However, there are pitfalls for athletes who invest. First, most start-ups fail, so supporting start-ups is a big bet. They are also a long term game; it’s much harder to get capital out of a small private company than, say, Apple.

And there are reputational risks on both sides: for the athlete if the company turns south and leaves customers out, and for the brand if its investor-ambassador does something on or off the field to sully them. .

Traditional endorsement deals with sportswear brands and financial organizations are far from dead, says Peppi, but the lines between endorsements and investments should continue to blur.

“I’m extremely positive about the relationship between the two, and I think founders are increasingly aware that athletes as investors add significant value,” he adds. Says Smith: “It’s definitely going to go up.”

The next frontier for athletes in the UK and Europe is for the biggest names to partner with venture capital to create their own funds, as Williams did for Serena Ventures and James with SpringHill.

“It’s much more developed in the United States,” says Peppi. “It’s a golden triangle: quality start-up company, institutional capital and athlete. When you connect all three, you create something very powerful.

About Troy McMiller

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