How PE/VC is Disrupting Sports: the Case of the Professional Triathletes Organisation (PTO)

Sam Renouf on PE/VC Investment in Sport, Triathlon, and the PTO

By Kathryn Robertson Arrebola (MBA2021) and Carlos Arrebola (Partner)

The sports industry has become one of the rising stars of private capital in recent years.

From an initial focus on broadcasting rights, companies and individual teams, investors have begun to set their sights on entire leagues. Notable examples include the scramble of offers for Italy’s Serie A football league in mid 2020; CVC’s recent acquisition of a stake in Six Nations Rugby; and Silver Lake’s controversial talks with New Zealand Rugby.

However, not only sports like football and rugby are receiving attention. Emerging sports, such as triathlon, have started to move off the bench and into the spotlight. A key example is the PTO – Professional Triathletes Organisation – which received a landmark investment from Sir Michael Moritz in early 2020.

To find out more, we caught up with PTO’s CEO and London Business School alumnus Sam Renouf as part of a fireside chat organised by the LBS Sports Business club.

Sam Renouf

Why is PE attracted to sports?

“PE flows to wherever there is opportunity”, explained Sam. “The addressable market for sports rights is huge, because live sports broadcasting is so valuable. It’s one of the last bastions of TV advertising that still works. If you think about it, most of the top moments of live TV in history are sports”.

Because of this ability to keep viewers engaged in live programming against the rise of Netflix and other streaming services, the value of sports broadcasting rights has been booming – with the NFL recently signing new media rights agreements reaching $110bn over the next 11 years.

A second reason lies in the fact that the sports industry hasn’t always received significant investment in expanding revenue and operational improvements. “The industry has been waking up to this, and COVID-19 has really accelerated the need for it”. With cancelled games leading to lost revenue from ticket sales (over 30% in the case of the NFL), sports teams and leagues have needed to tighten costs and innovate to find new revenue streams – requiring exactly the sort of management expertise and resources that private equity can provide.

Finally, sports can offer attractive economics. “It’s one of the few industries where a monopoly can occur and can even be regulated.” In North America, the main team sports are dominated by a single league (e.g. NBA, NFL or NHL), conferring significant strategic and economic freedoms.

What is attractive in particular about triathlon?

Major team sports such as these have attracted most of the attention from private equity so far, but triathlon’s growing popularity and industry structure also make it an interesting target for investment. “Triathlon is the new golf”, enthused Sam. “It’s exploded in popularity, attracting high-earners and type A personalities”.

But even though participation in triathlon is increasing, it is an under-commercialised sport. “Many professionals can’t make ends meet. In most professional sports, you typically see around 20-25% of the revenues flow to professionals, like in cycling. In basketball it’s 52%. In soccer, 70%. Currently in triathlon, it’s a lot lower.”

Sam was too humble to talk about himself much, but he actually has first-hand experience of this. After receiving a prestigious scholarship to train at Loughborough University, Sam competed as a professional triathlete for several years before turning his career to sports management and investment.

Why does triathlon have this problem? “One of the reasons is that the broadcasting industry for triathlon is fragmented”, Sam pointed out. There is no one consolidated league: professionals either take part in short-distance ‘sprint’ or ‘Olympic’ format races such as the World Triathlon Series, or dedicate themselves to middle or long distance races organised by brands such as Ironman or Challenge. New player SuperLeague is aiming to disrupt the market further, by mixing short-course and long-course athletes and creating new televised multi-stage events. With viewer attention scattered across these different platforms, the broadcasting opportunities for triathlon have thus far yielded little value for the athletes themselves.

Within triathlon, what do you think made the PTO a good investment?

The PTO, Professional Triathletes Organisation, is a representative body that aims to showcase professional athletes and involve them in the running of the sport. It follows the model of other professional sports bodies such as the Professional Golfers’ Association (PGA) and Association of Tennis Professionals (ATP). Sam joined as CEO in 2019.

“With the PTO, we hit on a lot of trends that are attractive to PE/VC investors”, reflected Sam. “We have a disruptive business model, direct-to-consumer strategy, and we’re all about athlete advocacy. We’re giving the athletes ownership, so there’s an alignment of capital with talent.”

The PTO’s focus on the athletes themselves also fits with how young people tend to consume sports nowadays. “They tend to follow individual athletes, rather than teams. And our athletes are already special enough”.

One star that comes to mind is Lionel Sanders, 2nd place finisher at the Ironman World Championships in 2017, record-holder at Ironman Arizona, and holder of the Canadian track cycling hour record as of just last year. Sanders has a powerful story, switching a dark past of drug use for a stellar career as a professional triathlete. With inspiring narratives like this, the PTO is simply creating a platform for its athletes to shine.

What will be the main challenges for the PTO?

The PTO may have a promising vision, but challenges lie ahead.

Given the fragmented nature of the triathlon industry, significant investment will be required in building the profiles of the professional triathletes. Yet as Sam highlighted, organisations like UFC (Ultimate Fighting Championship) have shown this is possible, catapulting a previous little-known discipline (mixed martial arts) into a global phenomenon worth $4bn in 2016. Star fighters like Conor McGregor have become household names, as viewers tune in from more than 156 countries. This success story is a role model for organisations in other niche sports like the PTO.

Another potential barrier for endurance sports organisations is that it can be hard to create “moments of jeopardy”, where there is real excitement and tension over the outcome of the event. “Endurance events are fundamentally about wearing someone down” – and viewers are not necessarily willing to watch for hours on end to find out who breaks first.

But again, lessons can be learnt from successful endurance events like the Tour de France and the innovative multi-stage Super League events, where viewers can consume content in a number of ways besides simply watching the full event. Highlights, live leaderboards, and even collaborations with sports-tech disruptors like Zwift to enable virtual participation can all help keep audience engaged.

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The case of the PTO illustrates the new types of business models that are disrupting the world of sport, and the role of private capital in boosting this disruption. As the PE/VC industry explores the untapped potential of under-commercialised sports, we can expect many more well-engineered “moments of jeopardy” delivered in formats and media not yet even imagined. We look forward to seeing the PTO flourish in this new landscape. Thanks Sam for sharing your insights with us!

Kathryn Robertson Arrebola is an MBA2021 at London Business School and future Private Equity Associate. Carlos Arrebola is a commercial disputes lawyer. Both Kathryn and Carlos compete in age-group duathlon competitions and lead triathlon activities at LBS.