Who Needs Just Endorsement Deals, When Pros Can Invest in Companies?
Escalating salaries, a plethora of private equity firms specializing in sports and the potential for strong, and sometimes fast, returns are fueling the interest.
The well-worn practice of athletes signing endorsement deals isn't going away, but increasingly savvier sports stars are investing in companies, teams and franchises to get more of a bang for their bucks.
Whether it is Tom Brady starting his own sports brand or Adidas-sponsored David Beckham taking a stake in the Adidassupported pro soccer team Inter Miami, elite athletes are increasingly opting to invest rather than just front a label. And those investments aren't limited to one or two companies, with the more entrepreneurial like LeBron James,
Dwyane Wade and Serena Williams supporting multiple entities and in some cases venture capital firms.
They also aren't limited to sportsrelated pursuits, with start-ups and tech companies being of particular interest, as well as professional teams and nonathletic businesses. James, for example, invests in Fenway Sports Group (a conglomerate that owns the Premier League's Liverpool F.C. and other entities), Spring Hill Entertainment and Blaze Pizza, among others.
Ever-higher salaries for leading pro athletes is making such financial commitments possible, thanks to their potential to amass multigenerational wealth in a matter of years. Rick Burton, David B. Falk professor of sport management at Syracuse University, explained, “There may have been a time when we paid an athlete $100,000 a year. They might burn through that rather quickly buying a car, jewelry or a house for their mom. Now you have players earning $50 million to $100 million a year and more athletes are becoming more sophisticated about what their wealth represents and how to leverage that.”
As a result, some are less inclined to spend their earnings on tangible assets that could depreciate. Instead, they are interested in VCs and start-ups that could provide strong and sometimes quick returns, Burton said. Some are also intrigued by the prospect of being known as “a titan of industry” along the lines of previous dealmakers. “If you're making
$50 million a year, you really need strong financial counseling as to how to shelter and invest that money. In some cases, they may invest in something that generates a
loss, because that is a tax benefit to them. They also want diversified portfolios.”
With player contract salaries expected to go up — not down — and because they tend to increase faster than the rate of inflation, the investment trend is expected to continue, from Burton's perspective.
And big-name athletes often attract other athletes, as was the case with the techoriented Tomorrow Golf League that Tiger Woods and Rory McIlroy started. Serena and Venus Williams purchased its first official team. TGL's investors include Steph Curry, Lewis Hamilton, Shaquille O'Neal and Kevin Durant, among other big names.
With a litany of investments, including one with Major League Soccer's Inter Miami, Beckham helped woo his fellow Adidas endorsee Lionel Messi, who now serves as the team's captain. Aside from having a lifetime investment deal with Adidas, Messi's many investments include the start-up sports investment firm Playtime Sports, the global chain of boutique hotels MiM and The Messi Store. His arrival in Miami has created a frenzy for tickets and given a major boost to the sport in the U.S.
Lesser-known names are also getting into the investment game, like former tennis pro Catherine Cartan “CiCi” Bellis, who has started her own investment firm Cartan Capital to invest in sports and health tech. Meanwhile, the NBA's Giannis Antetokounmpo took a minority stake in Major League Soccer's club Nashville SC.
The levels of investment are contingent on the sport. While players in the National Football League, the National Basketball Association, Major League Baseball and the National Hockey League command multimillion-dollar salaries, athletes in some other sports like tennis only earn top dollars if they win tournaments. Major league players like James, who have multiyear salaries, will see their annual income increase from one year to the next regardless of how their teams perform.
As equity stakeholders, pros have leverage, and a vested interest in the brands and companies they are now a part of, which provides benefits from a return-on-investment perspective and in the utilization of their time during and after their careers, according to Ben Peppi, sports commercial specialist at JMW Solicitors. “Rather than just turning up for content shoots and performing social media obligations, sports stars can add further value to the development of a portfolio of companies, whether that be in a strategic advisory capacity given their industry expertise, or by sharing a powerful contact book and network, which can be influential for growing brands and businesses,” he said.
And the range in investments can be wide, starting at $25,000 for a start-up consumer brand and capping off north of $25 million for stakes in teams or franchises, Peppi said. In the middle, some athletes are ponying up anywhere between $100,000 and $9 million for Series A/B deals. Such financial commitments can also mean not just that the athletes are inclined to invest more time in the venture, but they are also eager to see the company or team succeed, he added.
In brokering a deal between the boxer Anthony Joshua and muscle recovery company Pulseroll, JMW Solicitors lined up the investment, a brand ambassadorship and a strategic advisory role. Joshua then used his network to access major sports retailers.
“Athletes are still signing traditional endorsement deals, but the modern sports star is savvy to the fact that investing in and taking equity across brands, companies and teams offers a significant amount of upside over the long term,” Peppi said. “These stars have leverage, and as an equity stakeholder, they have a vested interest in the brands and companies they are now a part of, which provides benefits from both a return-oninvestment perspective, but also in the utilization of their time during a professional career and after they retire.”
That being what it is, some like Williams, who has a diverse investor portfolio, and Maria Sharapova, whose investments include the self-started candy company Sugarpova, have bolstered their earnings through investments. Williams' six-year-old Serena Ventures supports such companies as Chatdesk, Fiveable and Nestcoin. Naomi Osaka, Lindsey Vonn, Alex Morgan,
Allyson Felix, Sue Bird and Chloe Kim have also gone the investor route, with Osaka starting her own skin care brand, Kinlò, and Felix launching her own running shoe company, Saysh. Although female athletes have the same amount of investment opportunities that the male ones do, male team sport athletes tend to earn higher salaries because they attract larger fan bases, Burton said.
“I don't think there is a sexism that would hold female athletes back [in investments], or an inequality that would keep them from being able to invest however they wanted,” Burton said.
The rise in private equity firms and financial advisers who specialize in finding investments for athletes, and the opportunity for strong financial returns, are also driving the investment trend, according to University of San Francisco sport management professor Nola Agha. “When an athlete endorses a company, they must authentically believe in the product, and the company must find an alignment with the athlete. But there is risk on both sides. The athlete could fail to generate a following, become injured, have a poor performance or be involved in a negative scandal. Similarly, the company could experience falling revenues, poor product sales or be involved in illegal or unethical behavior,” she said.
For financial investments, the risk is almost entirely financial, in Agha's view. However, one recent exception was the fallout from endorsements of crypto currency, which is affecting the reputations of some athletes, she added. Brady and former Boston Red Sox standout David Ortiz are among the celebrities facing lawsuits from investors tied to this year's cryptocurrency drop. And Williams is among the notables named in a class action lawsuit related to the promotion of Bored Ape Yacht Club NFTs.