May 2, 2024

Unlocking Opportunities: Venture Capital in the Sportstech Boom

Michael Sable

echnology is changing the world and that includes matters as thoroughly physical and emotional as competitive sports. Since sports is such a huge industry, this has attracted the interest of entrepreneurs and venture capitalists seeking large returns on investment. Sports is now as technology-driven as any other segment of the economy and technology-driven innovation is what venture capitalists love to see. It is such an omnipresent part of our lives that many don’t truly understand how deeply sportstech has already penetrated the industry and what those investment opportunities are. Let’s explore!

What is SportsTech?

Sportstech involves the integration of technology into the sports industry including the development of advanced products and services as well as the enhancement of athlete safety, fan experience, sports management, and increasingly activities such as sports betting. The global sports technology market was valued at $14.7 billion in 2023 and is projected to grow to $55 billion by 2030 with a compound annual growth rate (CAGR) of 20.8% between 2023 and 2030. Growth in the US market will be slightly less but is still robust at 20.5%:

2022 was a prominent year for sportstech, with over $90 billion in deal value across more than 1,000 deals which was a record. A common factor both globally and domestically is the maturation of important technologies such as artificial intelligence, big data, analytics, sensors, the internet of things, net materials and our understanding of biomechanics. 

For example, in the United States where the most popular sport is American football, our understanding of concussions and how to construct helmets that can help soften the blow of physical contact is changing the technologies deployed in football equipment. Likewise, the ubiquitousness of the mobile phone, has changed how people watch games. It’s now possible to attend a game in person while enjoying the same closeup viewing experience leveraging a mobile phone or tablet simultaneously. 

Artificial intelligence, big data and analytics have radically altered how decisions are made by sports managers in how they assemble teams; athletes in how they train; and fans in how they interact with athletes as both admirers of their talent and as self-interested financial actors who may have made a bet on how that athlete will perform on the field.

Technology plays a role in all of this. However, what is still forbidden is the use of technology such as performance-enhancing drugs to warp athletic outcomes. Just as with cybersecurity, in sportstech, technology plays a role in both athletic fraud and in the ongoing effort to detect athletic fraud.

While the United States leads in sportstech investment with more than any of the other regions combined, the growth in the Asia-Pacific market has been dramatic. The North American sports tech market grew by 161% between 2020 and 2021 to $6.5 billion but APAC grew 370% between 2020 and 2021 to $3.2 billion:

Surprisingly, the city that attracted the most sportstech investment is Asia with Mumbai having a significant lead over American cities in 2021:

While New York did not attract as much investment as other locales in 2021, it is still arguably the most important city in the sportstech ecosystem because it is the home of Wall Street, has a strong venture capital community, and is the headquarters of many sports leagues such as the National Football League and National Basketball Association. As such, New York is where finance and the strategic sports decision-making that are key drivers of sportstech intersect.

A major driver in the sportstech industry is the growing significance of sports as a commercial enterprise. Sports is now one of the largest businesses in the world with over 50 teams that are worth in excess of $1 billion dollars:

As sports franchises have evolved into immensely valuable enterprises with global fan bases and major revenue streams from merchandising and the Internet as well as ticket sales and TV, it has become imperative to use the latest technology tools to maximize operations at every level beginning with what happens on the field but also extending to training, fan engagement, and marketing with a particular emphasis on customization and personalization so that all activities are precisely targeted for maximum impact. This has produced vast commercial opportunities for innovative startups and the venture capitalists that finance them.

Current Trends in SportsTech

There are a number of different investment opportunities in the sportstech industry. On the one hand, while sports is evolving, it has always been data-driven. 714 home runs. 19-0 in an NFL season. A .400 batting average. Sports has always been about numbers and those numbers increasingly inform how we define the value of our sports heroes as much as their demonstrated character in the clutch. 

Now those simple numbers are being replaced by more sophisticated metrics such as player efficiency rating, wins above replacement, defensive runs saved and many others. Baseball, a sport defined largely by failure—if you fail to get a hit only 70% of the time you are a successful player—has been at the forefront of this movement due to the imperative of identifying who is really having a salient impact in the midst of all this failure as well as the sheer amount of data available to analyze over the course of its century plus as a dominant American sport. 

Other sports are joining in due to the success of sabermetrics as popularized in the book and movie Moneyball as well as the fact that the new owners of these sports franchises increasingly come from the technology and finance worlds where AI is widely in use: Ted Leonsis, owner of the Washington Capitals and Washington Wizards made his money at AOL; Joe Lacob, the majority owner of the Golden State Warriors is a Silicon Valley venture capitalist; John Henry, owner of the Red Sox is a successful hedge fund manager; Steve Ballmer, owner of the Clippers is from Microsoft and the list goes on and on. 

These owners and their management staffs are embracing Big Data to the extent that 97% of Major League Baseball teams use data analytics professionals, 80% of NBA teams use them, 56% of NFL teams also use them and even almost a quarter (23%) of NHL teams harness Big Data professionals to assist in their operations. 

This along with rising demand from athletes seeking to improve their performance and fans who use analytics technologies as part of their fantasy sports and gambling activities are the reason why sports analytics exploded from a $125 million market in 2014 to a $4.7 billion market in 2021. This technology-driven niche has gone mainstream which is why technology loving entrepreneurs and venture capitalists are so interested in the market.

The adoption of artificial intelligence in an industry is normally an iterative and incremental process. In sports, analytics and AI had an epoch-defining event: Oakland A’s GM Billy Beane’s success in using sabermetrics as demonstrated in the book and movie Moneyball. In 2002, Beane guided the Oakland Athletics, a baseball team with a payroll of only $40 million—a third of what large market teams like the Yankees spent—to the playoffs despite its financial disadvantage. 

While Moneyball got the ball rolling in terms of applying analytics, big data and AI to sports, the Internet of Things is taking it to a whole new level. Through the deployment of on-the-field sensors, cameras and wearable technology, we now have the ability to gather vastly greater and more varied types of data about athletes than ever before. 

This networked data can increasingly be processed and analyzed in real time to provide salient insights into the dynamics of a sporting event that are rapidly distributed to officials, coaches, players and fans. The NBA has begun to gather more data about its athletes using SportVu, a service comprised of six GPS-enabled cameras installed in catwalks that capture the movement of every player and ball on the court at a rate of 25 times per second such that it is possible to measure not only where on the court a player is most and least successful in shooting from but also which defenses work best against that player and which teammate combinations perform the best. 

However, the NBA has limits to the data that it can gather because placing wearables on basketball players would quite obviously be intrusive. Rather, it is football, the most popular sport in the United States, that has been at the forefront of using data gathered from a combination of wearables and sensors to inform improvements in player health and safety, coaching strategy and fan experience.

This data along with contextualized and personalized information about things like a specific kicker’s success rate in a stadium or under certain weather conditions is being made available to head coaches and coordinators in real time through Surface Tablets so as to make decisions about punting, kicking field goals and two-point conversions far more involved and entertaining than before. The reason that Bill Belichick goes for it so much on fourth down isn’t just that he may be a risk taker but rather that he may have data to indicate that it might just be a better decision than seems obvious.

As augmented and virtual reality begin to become larger parts of the gaming and training marketplace, all of this data along with new features will likely also be used to foster the creation of more immersive sports and entertainment experiences that in turn will become revenue sources. In addition, it is a short journey from placing an RFID chip in a shoulder pad to placing one in a helmet where decisions about whether or not a player has sustained a concussion can become less subjective and more a function of measurements transmitted to a doctor in real time. By keeping a log of hits to the head over time, it may become possible to mitigate against diseases such as chronic traumatic encephalopathy (CTE) that are suspected of being associated with football. 

AI is also creating new revenue streams for sports media organizations. There is now revenue to be generated by debating which numbers are most important in assessing a player’s value and by engaging with readers on insights about how best to measure and predict outcomes in sports. Established in 2008 by the statistician and journalist Nate Silver and acquired by ESPN in 2013, the increasingly popular FiveThirtyEight website does exactly that.

 Its popularity is indicative of the fact that interest in how artificial intelligence applies to sports is not just high amongst geeks but has gone mainstream. In that sense, data is being used as a hook to draw fans to the ESPN website but retaining their interest—and generating additional revenue-- by showing its relevance to other issues. 

The revolution in sportstech is also being led by the fans who seek advantages in fantasy sports leagues and gambling venues—the two of which often overlap.  The power of AI in sports gambling was evidenced in the 2014 World Cup when Google used analytics to predict the winner of 14 out of 16 matches while Microsoft was able to accurately predict 15 of 16 match outcomes.

Still, sports is both a game of skill and a game of chance as there are variables that demonstrate who is likely to win but no single quantifiable variable that can demonstrate who will win since intangibles such as human resolve, coaching, character, toughness, response to adverse weather conditions and lucky breaks—i.e. the Immaculate Reception—will always matter. The economic activity in fantasy sports and sports gambling is immense.

The fantasy sports market is projected to reach $89 billion with a CAGR of 14% by 2031 while NBA Commissioner Adam Silver believes that $400 billion is bet illegally on sports with a much smaller fraction—about a fifth or $95 billion—bet legally on amateur and professional football alone. As noted earlier, data is the driving force behind all financial transactions. But the declining cost of computing has brought fantasy sports to the masses and sports business has been quick to realize its utility as a tool for fostering improved engagement with fans.

It is a great way to harness fan passion while getting them to spend even more money on sports—especially if that is money that they have been spending off the books anyway. The NFL and SAP have partnered to launch and enhanced fantasy football analytics platform that allow fans to do things like compare players and forecast their statistics for regular season games so that they can better manage their fantasy sports teams. By providing fans with artificial intelligence tools, a number of new organizations are also gaining access to fantasy sports and sports gambling revenue.

STATS, the leading sports data and technology company in the world with 25 million users, has developed STATS Fan Advantage which is an app that provides fantasy football players with the same data that professional teams utilize when harnessing the data of STATS. In this way, data is being used to bridge the increasingly short gap between real sports and fantasy sports. An even more direct linkage between sports gambling and AI is provided by Sportradar, a company that has attracted $44 million in investment from Ted Leonsis and Michael Jordan.

As the official data provider of the NFL, NHL and NASCAR as well the International Tennis Federation, Sportradar bridges the gap between sports and gambling by using the data that it collects to create a suite of tools and mathematical models used by bookmakers in 40 sports including pre-match and in-game odds suggestions, results, and trading services. 

For example, the company’s algorithms can continuously recalculate the odds of outcomes by using the live data that it collects or acquires via license. It also provides market monitoring tools that enable bookmakers to compare their odds with those of the overall market and adjust accordingly. The ongoing legalization of sports gambling has also been catalyzed with the emergence of daily fantasy sports markets such as FanDuel and DraftKings that appeal to millions of users and provide cash payouts to successful participants. This market segment is enormously lucrative and has great appeal to entrepreneurs and venture capitalists.

SportsTech Venture Capital in Asia vs North America

An interesting aspect of sportstech is its rising attractiveness for venture capital investment both in North America and Asia. According to Tracxn, there were over 1,272 startups in Asia which is about a third of the over 3,320 in North America:

India dominates the sportstech startup scene in Asia with 822 sportstech startups while there are an additional 235 startups in Southeast Asia and 144 startups in China. In North America, there are approximately 2,957 sportstech startups in the US and 363 in Canada. But importantly, the value of Asia’s sportstech market exceeds that of North America by more than $2 billion. In addition, Asia has a lot of unicorn (companies valued in excess of $1 billion) sportstech startups:

The Asian unicorns typically have the backing of top venture capital investors such as Sequoia, Tencent, and Softbank. A critical factor driving venture capital investment in Asian sportstech is the high rate of mobile phone penetration along with the development of the 5G infrastructure required to take full advantage of the latest technological advancements in the field. In addition, populations are becoming increasingly middle class and have the disposable income required to spend in increased leisure activity. For example, the Beijing Winter Olympics in 2022 has motivated Chinese consumers to purchase the very latest technologies in skiing technology and winter apparel.

There are few things as intrinsic to the human condition as the desire to compete and engage in physical activity. This physical and emotional reality is part of why sports is such a universally popular activity and a huge business. Increasingly, the maturation of myriad technologies is broadening the scope of sports by making it possible for fans to interact with the sports they love on a much deeper level whether it be through a better viewing experience, fantasy sports or gambling.

Technology is also enhancing the performance and safety of the athletes and the efficiency and decisionmaking prowess of sports organizations. This is a great sandbox for technological innovation that is simultaneously producing immense market opportunities for both entrepreneurs and venture capitalists.

Interested in the full research paper?

Click here to sign up below for free access to the full research library report.
Download the Full Research Report!
Interested in learning more?
Join to receive Venture Capital research, guides, models, career tips, and many other great insights delivered straight to your inbox.