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

Sapphire Sports says it attracted a fresh $181 million from a who’s who of investors — making $300 million total — to fuel startups that are disrupting sports entertainment and culture.

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

Sapphire Sports — whose parent firm, Sapphire Ventures, has over $10 billion in assets under management — has committed $300 million to paying for the innovation revolution to disrupt fitness and sports entertainment and culture through startups like those. The funding includes a fresh $181 million, announced Wednesday, provided by a who’s who of the sports investment community.

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

“Entrepreneurs are getting much more rational about valuation expectations at every stage,” Higgins told Forbes. “If companies still think they’re worth prices like they were two or three years ago, then we can be patient.”

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

Sapphire brought back a number of investors who’d chipped in for its first sports investment fund in 2018. Among them are names familiar to people who follow the business, including Stephen Pagliuca, the 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; Intersect Ventures, which owns the Indiana Pacers; owner of the NHL’s Tampa Bay Lightning Jeff Vinik; Adidas; Sinclair Broadcast Group
SBGI
; and Anschutz Entertainment Group. New investors include Madison Square Garden
MSG
Sports and Major League Soccer franchise owner Stephen Kaplan. Sapphire didn’t disclose the terms of the investments.

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

“We think AR/VR is just starting,” Higgins said. “If you think of what Apple
AAPL
is doing, what Meta is doing — we’re looking for those killer apps that take AR/VR to kind of, ‘Hey, this is kind of interesting,’ to ‘I can’t live without this.’”

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

Studies from research company Morning Consult show Gen-Z is watching live sports less than previous generations. That can threaten the future of a global sports rights ecosystem that’s projected to eclipse $60 billion annually by 2024. Sapphire Sport suggests it can help solve that problem and use 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 current challenge is to maintain and expand the value of media rights in an unfriendly landscape.

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

Sapphire Sports makes investments in startups for up to ten years. Spirito said the firm will look to invest about $5 million in 20 companies for the second fund. Sapphire Sports already made one investment in a lottery platform called Jackpot.com. The company wants to digitize state lotteries throughout the U.S. Jackpot.com started operating in its first market, Texas, this month.

Bo Han, Buzzer’s founder, said he signed on with Sapphire Sports after he learned that Spirito doesn’t have a Twitter account. “I found that very real,” Han said.

So far, Sapphire Sports has exited only two companies. In 2020, it sold a stake in gaming studio Phoenix Labs to a Singapore-based internet firm, Sea Limited, valued at $150 million, according to PitchBook. Sapphire also sold its position in streaming platform MyCujoo for an undisclosed amount.

Those deals aside, Spirito and Higgins caution limited partners to take the long-term view.

“You’re going to be locked up and in illiquid assets for maybe ten years,” Spirito said. “I think what athletes and team owners learn is that venture capital can be very sexy and exciting when you’re meeting new entrepreneurs with ideas. But at the same time, it’s a long-term commitment.”