There’s An Innovation Revolution Going On In Sports, And VC Firm Sapphire Is Helping Pay For It

Sapphire Sport said it attracted a fresh $181 million from any investors – making a total of $300 million – to fuel startups that are disrupting sports entertainment and culture.


Tthis is overtime, which pays six-figure deals to high school athletes who promise to stream their games. There’s Buzzer, which aims to be a mobile version of the NFL’s RedZone for all sports. And there’s Tonal, which makes smart home gyms.

Sapphire Sport – whose parent firm, Sapphire Ventures, has more than $10 billion in assets under management – has committed $300 million to pay for the innovation revolution to disrupt fitness and sports entertainment and culture through such startups. The funding includes a fresh $181 million, announced Wednesday, provided by anyone in the sports investment community.

It’s a strange time for startups, with higher interest rates and inflation driving many of them down in value, Sapphire Sport managing partners Doug Higgins and Michael Spirito said. Forbes they want to capitalize on the current climate.

“Employers are becoming more rational about their valuation expectations at each stage,” Higgins told Forbes. “If the company still thinks the price is the same as two or three years ago, then we can be patient.”

Sapphire Sport is among a handful of firms that have raised money from limited partners to buy equity in startups. Courtside Ventures said it raised $100 million for its third sports fund and attracted investors such as Basketball Hall of Famer Shaquille O’Neal. Chicago-based KB Partners said it closed on a $127 million increase by the end of 2022.

Sapphire brings back a number of investors looking to take part in its first sports investment fund of 2018, including City Football Group, which led the round. New names familiar to those who follow the business who also joined include Stephen Pagliuca, co-chairman of Bain Capital and co-owner of the NBA’s Boston Celtics; Blackstone Group
BX
executive and Philadelphia 76ers co-owner David Blitzer. Other investors include Madison Square Garden
MSG
Sports and Major League Soccer has franchise Stephen Kaplan. Back LP includes owner of Indiana Pacers; owner of the NHL’s Tampa Bay Lightning Jeff Vinik; Adidas; Sinclair Broadcasting Group
BGI
, and the Anschutz Entertainment Group. Sapphire did not disclose investment terms.

In the coming years, investors expect significant developments in augmented reality, virtual reality, blockchain and Web3. That digital innovation can assist team owners in unlocking a new wave of media rights. The NBA is arguably at the forefront of integrating tech. On Monday, the league renewed its agreement with Meta to stream 52 games on the company’s Oculus Quest VR device from a courtside angle. Part of the deal includes five exclusive immersive games produced by Meta. Sapphire Sport is looking for a startup that will enhance the futuristic type of experience.

“We think AR/VR is just getting started,” Higgins said. “If you think about what Apple is
AAPL
to do, what Meta does – we’re looking for those killer apps that take AR/VR to the type, ‘Hey, this is kind of interesting,’ to ‘I can’t live without this.'”

“The genie is out of the bottle,” Spirito said. “Young people do things differently, right? So, the only way to get ahead is to invest in advance.”

Steaching from research firm Morning Consult suggests Gen-Z watch less live sports than previous generations. That could threaten the future of the global sports rights ecosystem that is expected to eclipse $60 billion annually by 2024. Sapphire Sport is showing that it can help with that problem and is using companies like Buzzer to increase rights fees.

Higgins, 50, co-founder of Sapphire Ventures, said the firm uses Spirito’s media savvy, cultivated during a stint at the New York Yankees’ YES Network, to find the next sports tech gems. Spirito, 46, said the challenge now is to preserve and expand the value of media rights in an inhospitable landscape.

“How can you make them more valuable in an era where young people spend their time differently?” Spirito said. “The attention span of Gen-Z is at an all-time low. And the value of media and content at an all-time high? How do you make it higher? That’s what we’re trying to answer.

Sapphire Sport makes investments in startups up to ten years. Spirito said the firm will look to invest at least $5 million in 20 companies for the second fund. Sapphire Sport has made an investment in a lottery platform called Jackpot.com. The company wants to digitize state lotteries across the US Jackpot.com started operating in its first market, Texas, this month.

Bo Han, Buzzer’s founder, said he signed up for Sapphire Sport after he found out Spirito didn’t have a Twitter account. “I found it very real,” Han said.

So far, the Sapphire Sport has been released by only two companies. In 2020, it sold a stake in game studio Phoenix Labs to Singapore-based internet firm Sea Limited for $150 million, according to PitchBook. Sapphire also sold its position in streaming platform MyCujoo for an undisclosed sum.

That offer, Spirito and Higgins caution limited partners to take a long-term view.

“You’re going to be locked in and in an illiquid asset for ten years,” Spirito said. “I think what athletes and team owners have learned is that venture capital can be sexy and fun when you meet new entrepreneurs with ideas. But at the same time, it’s a long-term commitment.

This story has been updated to reflect limited partner Sapphire Sport.

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