10 big things: PE, NFTs and investing in sports scarcity

Welcome to The Weekend Pitch. I'm Kevin Dowd, and you can reach me at weekend@pitchbook.com. Yet you won't be able to reach me there for long because, well, I have some news. After two years and just shy of 1,000 big things—yes, I counted—this will be my final week writing this wonderful newsletter.

Fear not: The Weekend Pitch will continue in new, very capable hands. But my hands are off to do their typing somewhere else. (If you're interested in where that is, I'll have more news in the weeks to come on Twitter, where I'm @KevinDowd.) It's been an honor and a whole heck of a lot of fun to write this thing every week. But now it's time for something different.

So, for a last hurrah, let's take one more look at a trend I have probably thought about more than any other over the past couple years: The growing overlap between pro sports and the private markets.

The latest developments include a private equity-backed rugby deal, an Alexis Ohanian-led investment in a sports-card trading startup, and the NBA's embrace of NFTs. The logic behind all these deals could be summed up in a single word, the same word that justifies so many different angles of investors' interest in the world of sports: scarcity. And that's one of 10 things you need to know from the past week:
 

1. Making yourself scarce

Let's start with CVC Capital Partners, a European private equity firm that has been busy in recent years pursuing investments in a wide range of professional sports. This week, it agreed to acquire a 14.3% stake in the Six Nations rugby tournament for £365 million (about $510 million). The deal concludes a pursuit that began, as my colleague Andrew Woodman writes, nearly two years ago. 

In recent years, CVC has also acquired stakes in Premiership Rugby and Pro14, two rugby leagues based in the British Isles. Last month, it struck a deal to back the launch of Volleyball World, a new commercial and media entity designed to promote the sport's growth. CVC was part of an investor group that agreed last November to pay €1.7 billion (about $2 billion) for a 10% stake in the media rights arm of Serie A, Italy's top soccer league. Earlier this century, the firm had a lucrative stint as the owner of Formula 1 racing.

Most of its activity has been in Europe. But CVC also seems to be at the forefront of private equity's push into owning stakes in professional sports teams based in the US, as investors aim to capitalize on a loosening of ownership rules across multiple leagues. The Financial Times reported last month that CVC is in talks to buy a 15% stake in the San Antonio Spurs, a move that could value the NBA franchise at some $1.3 billion.

The reasons private equity executives and other investors have flocked to pro sports in recent decades are myriad. Franchise and league values have skyrocketed, creating the prospect of tasty returns. As valuations rise, there are fewer private individuals who can cut a check to buy a team, increasing the need for minority investors. Media deals locked in for many years produce steady profits, and broadcasters' appetite for live sports has only grown as streaming services draw viewers away from traditional TV. It's also pretty cool to be able to say you own a pro sports team. 

But at the root of all those reasons is the idea that these things are valuable because there is a limited supply, and that supply won't increase in any significant way in the future. For racing fans, there's only one Formula 1. For basketball fans, there are only 30 NBA teams. Investors have previously tried and failed to create a new league from scratch. These are scarce assets. It's Econ 101, a prime example of supply and demand. 

Sports trading cards are a very different kind of asset from professional sports teams. But the same sort of logic applies to a startup called Alt, a peer-to-peer platform for trading sports cards that raised $31 million this week in a round led by Seven Seven Six, the firm headed by Reddit co-founder Alexis Ohanian. 

Sports cards are having a moment, with prices soaring to previously unimaginable highs in recent months. The market has transformed since the 1990s, when the last sports-card bubble burst. And perhaps the biggest reason for that transformation is scarcity. 

Two or three decades ago, multiple manufacturers were flooding the market with huge quantities and varieties of cards. But more recently, taking a cue from companies like Supreme, the industry has embraced the power of limited inventory. Panini, for instance, is now the exclusive seller of NBA cards. Its most valuable cards are almost all produced in small batches, sometimes even one of a kind. Just as there are only 30 NBA teams, there might only be 30 versions of, say, a certain LaMelo Ball rookie card. And those who are more optimistic than others about Ball's career prospects might be willing to pay more for one of those cards, creating a fascinating (if highly speculative) way to invest in the future of an athlete's career. 

Alt isn't the only company raising venture and angel backing during the recent craze. Goldin Auctions collected roughly $40 million in February, and StarStock brought in $1.3 million in December. 

We've gone from investing in real sports to investing in cardboard representations of sports. What about digital representations of sports with no link to the physical world at all? That brings us to NFTs, or non-fungible tokens, perhaps the purest distillation of how scarcity is driving investment in the world of sports. 

For the uninitiated, here is literally everything you'd want to know about NFTs. In recent months, these blockchain-based items have merged with pro sports in the form of NBA Top Shot, a platform formed by the startup Dapper Labs where users can collect highlight clips. Highlights are sold in packs, and there's a limited quantity of each highlight, making rarer clips more valuable. There are differences, to be sure, but it's pretty close to a digital analog of the physical sports card market. NBA Top Shot reportedly had hundreds of millions of dollars in sales within six months of its launch last year. Other leagues will almost surely create similar offerings in the months to come.
 
One of the differences that can be difficult to wrap your head around is the fact that NFTs are entirely virtual—a $1 million baseball card is just a piece of cardboard, but it's at least something you can hold in your hand. And most (if not all) of the clips that people are paying six figures for on Top Shot can still be found on YouTube. Top Shot investors aren't buying exclusive rights to a highlight; they are buying exclusive rights to this one particular version of the highlight, and they're buying the guarantee that no other versions will later be created. That satisfaction of knowing you own something that no one else can own is central to the very idea of collecting. 
 
Collecting turns into investing when the value of the items you're buying is expected to appreciate. And whether you're putting your money into a sports league or a sports highlight, it's scarcity that's driving that appreciation. 

2. Roaring starts

Shares of Roblox rose more than 50% on their first day of trading after the social gaming company's long-awaited direct listing, valuing Roblox at $45.3 billion on a fully diluted basis. Following Unity Software, it's the second major video game developer to go public in the past six months. This week's other major public debut game from Coupang, a South Korean ecommerce powerhouse, which saw its fully diluted valuation climb to $88.3 billion after a significant first-day pop of its own.

3. SPACs on track

Multiple outlets reported this week that Grab, a prominent ridehailing provider in Southeast Asia, is in talks to merge with a SPAC backed by Altimeter Capital in a deal that could value the Singapore-based company at some $40 billion. Another notable blank-check merger could be in the works in the media sector: BuzzFeed is reportedly discussing a potential SPAC deal, news that came not long after BuzzFeed cut nearly 50 jobs at HuffPost, the digital media outlet it acquired in February. 

4. Crypto mega-rounds

BlockFi, a cryptocurrency lending platform, closed a $350 million Series D that came at a $3 billion valuation. NYDIG, which provides bitcoin-related services to banks and other institutions, raised a $200 million round of its own. And FalconX—which seems to have no relation to SpaceX and its Falcon rockets, despite the name—raised $50 million, valuing the provider of cryptocurrency trading and credit services at $675 million, Bloomberg reported.

5. Healthcare hauls

The crypto sector wasn't alone in hosting a series of major VC investments this week. Patient engagement specialist Cedar raised $200 million at a $3.2 billion valuation. Advise Health, which works with Medicare patients, brought in $100 million in its first funding round. That leaves Forward Health, the creator of a healthcare platform focused on forward-looking care, banked $225 million in funding from luminaries such as Founders Fund, Khosla Ventures and SoftBank.
 

​​​​6. Reshaping Apollo

In 2009, Apollo Global Management helped form Athene as a new platform for the life insurance industry. In the decade-plus since, Athene turned into a cash cow for the firm. And now, the two are set to formally combine, as Apollo agreed to acquire all the shares it doesn't already own in Athene in an $11 billion deal. As PitchBook's Adam Lewis writes, it could be a sign of what's to come for Apollo under the leadership of CEO-in-waiting Marc Rowan. 

7. Airline IPOs

It was a difficult 2020 for the aviation industry. But now, two airlines with private equity backing are on the brink of IPOs. The parent of Frontier Airlines, which has been controlled by Indigo Partners since 2013, filed to list on the Nasdaq. And Sun Country Airlines, which Apollo has owned since 2018, is preparing a Nasdaq debut of its own. 

8. CEO support

As the CEO of Snowflake, Frank Slootman shepherded the data warehousing company through one of 2020's most successful IPOs. That has made him a popular man on Wall Street. Earlier this year, Blackstone enlisted Slootman as its newest senior adviser. And this week, Instacart added the longtime executive to its board of directors. Coming so shortly after Instacart reached a new $39 billion valuation, Slootman's addition could be a sign that a public debut is in the offing. 

9. Dropbox deals

Dropbox inked an acquisition of its own this week, agreeing to pay $165 million for upstart rival DocSend, which specializes in technology allowing for the secure sharing of documents. And Dropbox was also involved in a very different kind of deal: KKR agreed to acquire the company's San Francisco headquarters for nearly $1.1 billion, the San Francisco Chronicle reported, taking the massive space over from current owner Kilroy Realty. 

10. An Ant adieu

The changes keep on coming at Ant Group after Chinese regulators put a halt last year to what would have been one of the largest IPOs of all time. First, controlling shareholder Jack Ma dropped off the grid for three months. Then, reports emerged that Ant would restructure itself as a financial holding company under the supervision of China's central bank. And this week, Ant CEO Simon Hu reportedly resigned his position, creating new uncertainty for a company that's come to dominate Chinese ecommerce.