Raine details 3 themes driving its sports investing as it hunts for more deals

Like other private-equity firms flocking to sports, Raine’s thesis is that sports content’s value will endure despite the soaring cost of media rights pushing sports broadcasting to tech giants like Apple and Amazon, for whom media isn’t their core business.

“We’d like to be the arms merchant that supplies the content,” partner Colin Neville said. “If there’s anything that’s been clear over the last couple of years, it’s that sports is what really is the only thing left moving the needle in the traditional linear package. Content and sports content, in particular, is one of the few things in this fragmented world that brings together audiences of all gender, ethnicity, across countries. And that’s what gives us a lot of comfort that as distribution models get worked out over the next however many years, we tend to think that the leagues themselves will do well and maintain their position.”

Raine is looking to take stakes in leagues with rights they can monetize in various ways and invest in growing, founder-led companies. In addition to DraftKings, its portfolio includes the Premiere Lacrosse League and Castore, a sports apparel company.

It’s also looking at participatory sports like pickleball and youth sports, which generate money from events.

Raine has invested in RCX Sports, which puts on youth sports camps and other events, and Reigning Champs, which connects coaches and high school athletes (since sold to IMG).

As a leading M&A advisory, Raine believes it brings an added advantage to portfolio companies.

“If you use the example of DraftKings, we help them raise money, we help them create partnerships with media companies, we introduce them to sports team owners. That’s where we really try to plug in and be alongside the founders, as opposed to just capital,” said Garrett Gomes, managing director.

Raine isn’t looking to invest directly in teams, which don’t meet its high return criteria. Doing so also lets it avoid conflicts of interest with the teams it advises. Banks with private equity arms have faced criticism for competing on deals with the same investment firms they advise.

Raine sees college sports as the next big opportunity

Institutional investors have moved into seemingly every area of sports, with the exception of college athletics. Private-equity firms are increasingly eyeing college sports, particularly as they become more professional in their structure and operations. Florida State has engaged with PE firm Sixth Street on a potential investment in FSU’s athletic department as part of an effort by JPMorgan Chase to help the school bring in institutional investors, CNBC reported.

Raine says college sports still hold a big opportunity for outside investors, even if the structure of college athletics adds complexity.

In 2019, Raine helped the Pac-12 Conference explore raising private equity (which it ultimately decided against doing). Raine also helped the PGA Tour raise $3 billion this year through a for-profit entity.

“There are examples of nonprofits raising capital. So there are lots of smart lawyers around this country that will figure those problems out, no doubt,” Neville said.