The New Sports Investment Yielding 5%, Jordan Gets Equity, and SPACs Galore

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Friends,

With yesterday being such a busy day in the sports business space, we’re going to do something a little different today.

I’m going to summarize the top 3 stories, digging a little deeper than your traditional headlines. Let me know what you think.

First up?

Michael Jordan.

Headline

Michael Jordan Takes Equity Stake In DraftKings, Becomes Advisor

Quote

The Details

DraftKings started the morning strong, announcing Michael Jordan as their newest equity shareholder and special advisor to the board of directors.

Through his special advisory role, Jordan “will provide DraftKings with input on company strategy, product development, diversity, equity and belonging and marketing activities, among other key initiatives.”

Equity investors liked the announcement. DraftKings stock jumped 11% pre-market and finished the day up over 8%.

Investors are bullish on the overall US sports gambling industry. Since going public via SPAC in April, DraftKings valuation has gone from $3 billion to $13 billion - all despite COVID-19 restrictions shutting down the majority of live sports within the US.

When it comes to this specific deal, I love it. DraftKings gave up a very small percentage stake, but added one of the most influential figures in sports history to their advisory group. Whether Jordan is making major decisions or not, his value can’t be understated from a business and cultural perspective. One other thing, Jordan hates to lose and it’s always good to have guys like that on your side.

From Jordan’s perspective, it’s a no-brainer. He got equity and vocal authority in a market leader, within an industry that is expected to explode - potentially being worth $5 billion to $10 billion in the 5 years.

What about the NBA?

Short answer, it shouldn’t be a problem.

Whether it was acquired directly or indirectly - Robert Kraft, Jerry Jones, and Jim Dolan also own equity in DraftKings. Furthermore, the NBA has said team owners "are permitted to (have) involvement with sports betting and fantasy sports businesses, subject to safeguards required under league rules to prevent actual or perceived conflicts of interest.”

Jordan’s equity stake is too small to trigger any “conflict of interest” restrictions.

Headline

Pistons Paying Out High Interest For Season Ticket Deposits

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The Details

Lost in the shuffle after the DraftKings announcement, the Detroit Pistons announced the launch of “Pistons IPO: Initial Piston Offering”. In simple terms, the Pistons teamed up with Flagstar Bank to pay season ticket holders a 5% annual yield through year-end. For context, the 5% annual yield being offered is more than 5x the typical checking account interest rate in the US.

Here’s an example:

The catch?

To qualify, your season tickets must have an annual value of $500 or greater and you must open an account at Flagstar Bank to receive the interest.

It’s a quirky gimmick that makes the news and potentially gets a few people that were on the fence to commit to attending games next year. But ultimately, people aren’t going to be convinced to buy $10,000 tickets based on the premise of earning $168 in interest by Christmas.

Instead, you should look at this from a customer acquisition standpoint. The Pistons and Flagstar Bank are splitting the cost of interest, which they would have spent on marketing anyways. In return, the Pistons try to lock in a few season ticket sales and Flagstar attempts to open new accounts through a lower cost of customer acquisition model.

Think of it like this - Banks historically have high customer acquisition costs, typically between $500-$1,000 and sometimes even higher. By mandating the interest be collected through a Flagstar account, they’re able to lower that cost by 90%+ in most cases.

I doubt their expecting great results, but perhaps the unique creativity will be rewarded.

Headline

Mobile gaming company Skillz is the next market deal from SPAC team that took DraftKings public

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The Details

Mobile-gaming company Skillz joined the SPAC party yesterday, announcing they plan to go public through a merger with Flying Eagle Acquisition Corporation. Oddly enough, Flying Eagle is led by the same blank check executives that saw success taking DraftKings public earlier this year.

Summary:

• Merger values Skillz at $3.5 billion

• Skillz revenue went from $100M to $400M last year

• Investors include Wellington, Fidelity, Franklin Templeton, Neuberger Berman, etc.

The rise in popularity of SPAC’s could be a newsletter all on its own, but I don’t mind Skillz going that route. My concern with SPACs is that as they grow in popularity, less-seasoned investors will inevitably get involved. Skillz, on the other hand, picked a great investor group that comes with a track record of success. The SPAC route will enable Skillz to go public faster and helps them avoid the turbulence that comes with a COVID-19 IPO.

From a business specific perspective, you should get familiar with Skillz. The mobile gaming space currently makes up around 1/3 of gaming revenue globally, a percentage that’s expected to be at 40% by year end. Skillz is a leader in the growing category, with more than 40M users and 30,000 developers on the platform.

Ultimately, it’s typically a good bet to align yourself with a growing company in a growing industry.

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