🦄 vol. 65
matt chats about disruption in sport ⛳️
can we reinvent sport? ⛳️
A lot continues to happen in this crazy world of ours. The unravelling of Sam Bankman-Fried’s FTX may pose a systemic risk to cryptocurrency, Elizabeth Homes was sentenced to 11 years in prison for her Theranos fraud and Disney bought Bob Iger back in as CEO for another ride (of a lifetime).
In other news, the long-awaited (and much storied) FIFA World Cup kicked off in Qatar this week. Much has been made of the host in the run up, largely characterised by controversy that spans from banned beer sales to human rights violations. But this isn’t the Middle East’s first foray into the world of sports.
Been there, done that… 🤑
The regions increasing engagement with, and investment in, global sport has been a theme over the last few decades:
Cities in the Arabian Gulf, like Abu Dhabi, Saudi Arabia and Bahrain, have become regular destinations in the Formula 1 Grand Prix circuit.
Sovereign wealth funds of Middle Eastern nations have acquired and propelled major European football clubs like Manchester City, Paris Saint Germain and, more recently, Newcastle United.
Even so, you’d be hard pressed to watch a sports fixture without seeing Etihad or Qatar Airways splashed across a kit, pitch-side advertising board or even a stadium’s shell.
And now they’re looking to have their fingers in more proverbial sporting pies.
Enter LIV Golf… ⛳️
Bankrolled by Saudi Arabia’s sovereign wealth fund, Public Investment Fund, LIV Golf has emerged as an unlikely disruptor in the sport. With backing to the tune of $2 billion, the nascent tour has lured a handful of the top players from the PGA Tour and aims to put a spin on the gentleman’s game.
What’s so different? 👐
🗣 Golf, but louder: A greater emphasis is placed on entertainment rather than etiquette, with live music and activities for fans. Fans can interact with players more closely during the round,
🍬 Short and sweet: Shortened to 3 rounds (instead of 4) and kicking off with shotgun start, the total time of the round and the weekend is shorter. LIV Golf is also just a 14 event-long season, as compared to the nearly 50 played in the PGA. By compressing the viewing time, they’re increasing the entertainment density and addressing the concerns of most of golf’s detractors.
🌍 Globetrotting: While there are golf tours across the different continents, the PGA Tour is largely based in the US. LIV Golf plans to host events across the US, Europe, Asia and Australasia in the upcoming year.
👬 Pick a side: Golf has long been a sport of one. Golf fans have an appetite for team formats, best illustrated in the Ryder Cup, and the introduction of franchises may help coax some new fans and drive commercial value.
You can put lipstick on golf… 💄
… but it’s still golf. Of late, a handful of sporting leagues have tried to reinvent themselves, as a means of appealing to a broader audience and keeping their loyalists engaged. Both T20 cricket and Sevens rugby were short-format versions of their forefathers, but LIV Golf hasn’t been met with quite the same enthusiasm.
While the first few events showed promise, events in the middle of their season attracted less than 50% of the viewers that tuned in initially. Even so, LIV’s final-round coverage has repeatedly struggled to reach half that of the PGA Tour’s average. Marred by claims of “sport-washing” and a controversial image, LIV has battled to secure a large pool of advertisers. But most concerning has been their inability to nail down a TV rights deal, which is the lifeblood of most sporting leagues, and is responsible for 41% of the PGA Tours total revenue.
Build it and they will come… 🧱
But to merely pass it off as a short-form version of a niche sport with big paychecks and some loud music is reductive, and glosses over LIV’s unique value proposition: teams (and their role as a driver of asset value).
The introduction of teams to golf may prompt the development of the tribalism that is so potent in the Premier League, NFL and IPL alike. And while the emotional pull of such may draw in viewers, it’s the commercial value that may come to be the lifeblood of the incipient LIV Golf.
📈 Teams are assets: Creating teams creates value beyond the individuals. Imagine the commercial value of a team of Dustin Johnson, and just how much brands would pay to be associated with their team. As an example, each NBA franchise is now worth in excess of $1 billion.
👕 Merchandising and licensing deals: Teams allow for the sale of merchandise to adoring fans, and the auctioning of rights for licensing deals. This introduces new revenue streams to the sport.
🎰Fantasy and betting layer: Many betting companies have leveraged team sports to introduced gamified versions of betting through fantasy teams. IPL’s Dream11 is the perfect example.
A word on disruption…
In a roundabout way, I actually wanted to speak to disruption that occurs in an orthogonal industry, to offer an illustration that falls out of the oft-referenced tech industry. Any progress, be it in [X] or [Y], can be viewed as a marginal improvement or one of more radical gains; in a more binary sense, they can be viewed as sustaining or disruptive innovations.
But is LIV, and other similar efforts, just a sustaining innovation or one that is truly disruptive?
Most new forms or iterations foster improved product performance of incremental nature, continuing on the past product’s performance trajectory. As is with the iPhone, the minor improvements of the camera or introduction of the dynamic island we see in the new model are sustaining innovations along a well-trodden performance trajectory.
Disruptive technologies or innovations bring a very different value proposition to the market, and may even result in worse product performance, at least in the near term. Owing to the inertia of incumbents and nature of the adoption curve, disruptive innovations are also typically embraced by the least profitable customers in the market, but they create a new performance trajectory. And if you’re in search of an example, Netflix’s The Playlist chronicles just how Spotify was a market-creating, disruptive product that targeted the least profitable users, eventually redefining a seemingly untouchable music industry.
Time will tell in deciding where exactly LIV Golf falls, but should they be able to dance around the legalese of the PGA and escape the ethical entanglements of their funders, they may just be onto something.
matt found this piece interesting, which looks at an etf that tracks the inverse performance of cathie wood’s ark (and is up 110%)
sash enjoyed listening to lex fridman’s interview with chamath palihapitiya (thanks to an intro from claude)