Capital Solutions: In Conversation with 23 Capital

01 Oct 2019

By: Sport Industry Group

As a new Official Partner of the Sport Industry Awards, 23 Capital are continue to expand within the sport sector. Already an established player, lending to some of sport's biggest organisations, the company is at the forefront of capital solutions in the market and has a unique inisight on the rapidly changing and high stakes world of sport financing. 

To mark the new partnership, CEO and Co-Founder Jason Traub spoke to Sport Industry Group about the company’s aspirations, aims and insights, and the way it reads the future of money in sport…

Introduce us to 23 Capital…

23 Capital is a capital and solutions provider focused exclusively on the sport, music and entertainment sectors. We lend across multiple asset classes including highly visible and predictable IP cash flows, including broadcasting rights, music royalties, licensing agreements and sponsorships, as well as traditional cash flow and project financings for sport, music and entertainment clients globally.

How did the company start and why did you decide to focus on sport and entertainment?

We launched 23 Capital in 2014, at the cusp of a new financial era in the sport, music and entertainment sectors. A time where industry and technological advances, such as digital streaming and competition for broadcasting rights, were providing organisations, brands and individuals new and lucrative opportunities to capitalise on their talent and IP. But whilst these sectors were well positioned to leverage their talent, many lacked the access to institutional markets and the traditional financing needed to fund these commercial endeavours. And those willing to provide finance lacked the sector expertise to keep up with the fast-changing landscape and complex financial demands required to meet their client’s needs. 23 Capital has successfully filled this gap by providing finance and capital solutions which meet the needs of these industries

How quickly have you grown since those beginnings?

I founded 23 Capital in 2014 with my partner Stephen Duval, and since then 23 Capital has deployed and advised on over $3bn of transactions. We have committed and partnership capital of over $2bn to invest across the sport, music and entertainment sectors and have over 50 staff across offices in Los Angeles, New York, Barcelona and our HQ is in London.

What trends are you seeing within the capital solutions space in sport? Football financing has been a hot topic recently, at either end of the spectrum (Bury/Bolton at one end, PSG/Man City FFP at the other).

Looking at where football financing is now in 2019 to where we were, say, ten years ago - maybe even five years ago - there is a world of difference. The success and interest in the top leagues in Europe globally, access to the market and the emergence and growth of broadcast rights, IP and streaming is likely to attract further investment and generate additional value. However, for those entering the market, they need specialist sector knowledge so they can manage their risk appropriately.  Football investment has traditionally been seen as a vanity investment bringing kudos and hopefully financial return, yet 23 Capital’s financing within the sport sector is based on a stringent risk profile which sees us working only with the Premier League and equivalent top tier clubs across Europe. This ensures we work with clubs who have a strong management team with a club who has sound financial performance.

Increasing levels of revenue generated from broadcasting rights and sponsorship fees have definitely contributed to the influx of liquidity in the sport industry. As these values have risen over the last 10 years, so has the level of financial sophistication within the industry as to how intangible assets can be leveraged to realise their full value. Understanding how these commercial rights are structured allows these assets to be harnessed to their full effect. Through our knowledge and experience of working in the sports sector, 23 Capital can unlock a client’s liquidity to enhance commercial success.

23 Capital believes in ‘Unleashing Greatness’. What does that mean in real terms?

We offer professional sport teams and organisations, athletes, artists and entertainers the freedom to create, inspire and compete, supported by finance that is flexible and most importantly fair. This in turn facilitates our clients’ ability to unleash their own greatness and achieve commercial success.

What are some examples of the issues that sport organisations face where 23 Capital can help – are there any examples where sport organisations have suffered without solutions like those that you offer?

Many of the sporting organisations we work with face similar challenges around unlocking the value of their assets, which are tied up in physical assets such as stadiums and training grounds and in intangible assets, including players and sponsorship and broadcasting income. 23 Capital provides liquidity to sporting clubs and organisations, aligned to their well-being and continued strength, allowing them to deliver on their respective strategies; whether it be player acquisition, balance sheet strengthening or stadium improvements.

We have worked with many top tier sporting clubs across Europe. Our work and ongoing relationship with SL Benfica is a great example of where our ability to provide liquidity delivered significant commercial gains for the club. We partnered with SL Benfica to provide a circa €100 million, non-recourse structured facility over five years around broadcast rights monetisation in order to drive greater balance sheet efficiency.

What impact does FFP and other regulation have on your business?

FFP and other financial regulation has certainly had a positive impact on our business. It has encouraged clubs to live within their means and reduce their losses. This in turn reduces their chances of facing financial difficulty and on defaulting on payments to other clubs, which has been of huge benefit to the sector resulting in enhanced confidence amongst the banking and investment world.

Do you think that, given increased regulation, there will be a move away from the lavish investments in football we currently see - with more value to be found in smaller/emerging sport?

With broadcast deals across European leagues increasing and ever more lucrative sponsorship deals being brokered, football clubs have never been richer or more attractive to investors. The sizeable investments made by clubs in recent years is largely relative to the reality they now operate in, and this has taken place within the confines of increased regulation.

Through an increase in consumption channels and formats, coupled with a better appreciation of rights architecture and the value of intangible assets, emerging sport such as esports are well placed to create additional value for the sector, rather than detracting value from more established sport.

How difficult can it be to successfully market your brand when much of the work you do is confidential and/or behind-the-scenes?

We are very clear about how we differentiate ourselves, which is seen through our deep expertise of the sport, music and entertainment sectors, but as you say, we are often limited in the scope of what we can talk about.  But our brand purpose of focusing on ‘unleashing greatness’, along with living our values, has enabled us to create a team who demonstrate thought leadership and creativity in finding solutions for our clients, and that’s a marketing tool in itself. 

We continue to build awareness of the 23 Capital brand by telling the story of our growth and our sector expertise, demonstrating our thought leadership credentials and via strategic partnerships, including becoming an Official Partner of the Sport Industry Awards. However, it is when you meet our team and experience their empathy, focus and humble confidence in solving our clients’ challenges that the power of word of mouth and the value of our brand really comes to the fore.

What does the future look like for 23 Capital and this space as a whole?

Our focus will remain in the sport, music and entertainment sectors. Having recently opened a dedicated sport office in Barcelona, 23 Capital will leverage its position as one of the world’s leading cross-border European lenders to the football industry to create value across other sporting sectors including tennis, cricket, rugby, F1, Formula E, MotoGP and basketball.

The sport industry will be challenged by the macro-economic environment, but I still anticipate investment within the sport sector will continue to grow. Even during the biggest financial crisis of our time, sports, music and entertainment rights continued to grow, but as the consumption habits of younger fans change in line with technology, the transition away from traditional broadcasting rights that this change brings will impact on the established rights architecture and the value they deliver.