Global Mass Participation Sports Study (April, 2019)
For a client in the United Kingdom, I prepared a comprehensive study of mass participation sports. It included marathons and all running categories; triathlons; obstacle racing; mountain biking and acquisitions in the industry. Current statistics on participation, market share, and demographics were compiled. The client was looking to make a €200 million investment in the mass participation sports industry either in events or services to the industry on a global basis with an emphasis on Asia, Europe and the United States .
Update: December 27, 2019
In the study for UK client, I predicted that the only possible survival of the obstacle racing industry was for consolidation. Today it was announced that “Spartan Race Looks to Acquire Tough Mudder” in a release in Obstacleracingmedia.com. Given the severe decline in participation, it makes sense. One wonders what the value of the “exclusive option” referenced in the announcement might be given there were likely few bidders for such an option.
Update: January 14, 2020
Now we are the bankruptcy court for Tough Mudder. Below we see the amounts spent on what appears to be obstacles and construction. What is the value of a used obstacle?
United States Bankruptcy Court, Delaware: Several of Tough Mudder Incorporated (TMI) creditors have filed for a Chapter 11 Involuntary Petition and Emergency Motion for Appointment of Chapter 11 Trustee.
$854,558,40 owed for “services rendered”:
Valley Builders $307,189.53
Trademarc Associates, Inc. $292, 454.93
David Watkins Homes, Inc. $256,014.75
February 20, 2020 to November 22, 2020
Spartan (the main competitor of Tough Mudder) buys TM out of bankruptcy for $700k and the assumption of up to $10 million in liabilities. Whether there is a going concern is dependent on how the industry survives the pandemic and the resolution of the assumptive liabilities. Stay tuned or not.
Wanda / Ironman IPO (July 2019)
For a private equity client in the Midwestern United States, I prepared an exhaustive analysis of the recent initial public offering from publicly available information and diligent research. The firm was determining the viability of refinancing of debt for the underlying business. My advice to client was that is was a poor choice due to the current debt structure and who maintained the lead position on the debt.
(November 26, 2019) When the IPO launched, it tanked. It actually was down 30% before it even opened. And as of today, it has dropped in half to around $3 per share. Yet, there is a firm (actually now two firms) who have filed class action lawsuits that encourages “a lead plaintiff” with over $100k losses to contact the firm. The downside risk on WSG was not terribly difficult to assess IF you did a proper analysis. To make a claim that “false or misleading statements” were made in the S-1 and prospectus is inappropriate when the publicly available information was made prior to the IPO.
2020 Olympic Games (Tokyo) Transportation Study (January 2019)
For a large global consulting firm, I prepared a transportation study for the impact of the Olympic Games on transportation, parking, mass transit, airports and highways. The central focus was to develop guidelines for communications and media on residents, incoming travelers and Olympic athletes. Research from other Olympic Games and integration with the transportation grid in Tokyo was incorporated into the solutions to the organizing committee.
Peloton IPO (August 2019)
Analysis of the upcoming Peloton IPO
I spent a generous amount of time on the Peloton S-1 in advance of a call this week. I like Peloton’s platform and software as I am able to regularly use it at our club which has 2 bikes. I can log into with no additional charge or need for a person subscription, nor am I feeling any guilt because I do not use it, because I do not own it (member guilt). It is a good workout and a good product and certainly has convenience. However, removing the emotional attachment to evaluate it at as an investment is another matter. It would be a difficult risk to take for multiple reasons. One, the current losses that seem to be likely sustainable for the near future; but two, the large quantity of available substitutes and likely obsolescence of the hardware in 2-3 years.
What is the value of a Peloton share? Peloton is calling itself a tech company but that is likely a hopeful image. Their profits are coming thus far from bike sales (hardware) but what happens in 3-5 years when they are obsolete or old technology? There are already knock-offs of the same bike and more advanced bikes (Lifetime Fitness clubs have bikes that are at least a couple of notches better and just as portable) come on the market. They also call themselves a media company, which is partly true but again a wealth of alternative bike media options. I do not put much value on the instructors and believe they are largely replaceable commodities. So, what is there long-term strategy to keep themselves ahead of the pack and in the front-running first-to-market-position? An investor would have to bet they can, with additional investment and capital, be able to do so.
“Connected Fitness Subscriber Lifetime Value” is certainly a creative metric and something similar to what I have seen with health/fitness clubs to attempt to value subscribers. They are seeing the value at $3,593 in the most recent fiscal year, essentially believing that once you buy the bike, you will remain a member for around 8 years. That seems too high, but expected if your hardware is less than a few years old. So they continue to acquire subscribers and sell bikes. That is the strategy and maybe you buy another piece of equipment. When a new model of hardware comes out, is Peloton going to make you an offer for the newest and greatest bike they are offering to new subscribers? Will it be like a smartphone where they give you the new one for a long term subscription. Will have to wait and see. And, again what will the available substitutes be at that time. There is a huge risk of a new player with a better product (similar to what happened with Blackberry). And what beyond the bike? A treadmill. I think that is far less attractive. What direction will they go to increase the demands of shareholders and Wall St. to be profitable for longer term? They point to 67 million households (TAM in their terminology) who are potential targets. Doubtful considering their target buyer/subscriber is millennial with income under $75k. It reminds me of cable channels citing how many households could have watched their platform. A great product, but hard pressed to see it as an investment vehicle. When I see companies like Peloton who have a similar track record, I always ask IF they do not go public, what is their business plan going forward? Remain private? Another round of investors? I would want to get my money out if I was a large investor while they are still the market leader. A disciple may see something I do not, or I missed in their presentation or in the observation of the industry.
One more point—super voting shares (20 votes per share) for Peloton. So the founder can retain control while selling down his shares and monetizing his work, and also to combat one of the “negatives” of being public. Public shareholders can be proactive while private shareholders tend to invest in you and leave you be (not purely accurate, but tends to be the case). When these super voting B shares get sold they become common A shares and lose that power. This is a simplification but basically the founder could technically own just one share more than 4.76% of the outstanding stock and still control a majority of voting and decisions (20x4.76 >= 1x95.24) which means that he can sell down to that level and take the money without giving up absolute control, and he could sell through that and only need to convince a minority of shareholders to side with him if he wanted to sell even more. These super voting shares are a significant shareholder rights debate right now. It is all carefully disclosed in the first few pages of the S-1, including whether the shares are primary (i.e. dilutive, is new) or secondary (prior people cashing out existing shares that were previously private). This offering looks to be totally primary.
And finally, a recent competitor announcement: https://www.endurancebusiness.com/2019/industry-news/indoor-cycling-market-keeps-shifting-as-wahoo-kickr-bike-unveiled/
**Note from the author—Peloton (PTON) was originally to be a $30 share IPO. It opened under $28 per share and as of 90 day from going public has declined over 30%.
Expert Witness Testimony. August 21, 2019 to January 22, 2021. Major Lacrosse case.
August 2019. Dr. Caress agreed to serve as an expert and placed on retainer for one of the most important lacrosse cases in the history of the sport. It involves one of the largest national producers of lacrosse tournaments and showcases. The safety requirements placed by the plaintiff by U.S. Lacrosse and the admonitions and depositions of the plaintiff could change the sport and its liability toward spectators, players, and venues.
The case involves a female defendant who was hit in the face by a lacrosse ball that was shot by a player in the tournament.
January 22, 2021. The case is settled exactly two months before the trial was to begin. In the words of the defendant counsel, “I greatly enjoyed working with you. You are a consummate gentleman and a font of knowledge. I now know more about lacrosse than I ever wanted to know. I always enjoy working with a true professional.”
Eventbrite (December 2019)
For a investment management firm on the east coast, prepared an analysis of the available platforms in the participation event industry and the conference planning and execution space. As part of the analysis, it included a comparison with the available and relevant platforms. It included a forward reaching research proposal on demand generation perspectives and event creator functionalities. The client is looking to a more robust view into their investment into the industry and whether to increase or decrease their position.
Cvent, Eventbrite, and major/minor players into the online hospitality, Application, and conference platforms (February 2020)
For a single blind investment client, prepared research and consult on this ever-changing technology driven industry. Client is interested in an investment in the space and wanted a current assessment of the landscape, trends, and future expectations. A highly competitive area with convergence and several new entries into the marketplace.
Event Cancellations, Chargebacks, Refunds and the future of the Ticketing Business during the Coronavirus (March 2020)
For a Boston based Private Equity firm, prepared research for consultation of the effect on major players in the industry and their policies. This included Race Roster, Active Network, RunSignUp, RaceRegistration, Stack Sports, EnMotive, and other players. A buyers market continues with the systemic problem of the industry in that virtually all revenues are event dependent. With events being canceled or at a minimum, postponed, how and will those selling tickets/registrations survive and for how long.
Featured Panelist on Mass Participation World (MPW) Webinar Series on “The New Normal - What Insurance Considerations Do You Need” Moderated by Chris Robb. Featuring panelists: Francis Hernandez, Entertainment Manager, Overseas General Insurance at Chubb and Chris Nash, Managing Director, Sportscover, from Melbourne. (june 2020).
Discussion of the next steps in bringing back the Mass Participation event. While there was not a great deal of optimism, I offered what I believe are some potential solutions. The systemic problems are twofold. One, permits. Over the past several years we have witnessed a marked increase of both the number of permits required and the cost of those permits. Every entity has their hand out. A plausible solution is using private property that does not require permitting agency permissions of government agencies, or if it does they are substantially decreased. Options include race tracks (cars or horses), large estates or plantations, and vacant rural property in the desert or mountains. Essentially a destination event that can be controlled. Easy it is not, but doable. I do not see most urban environments granting permits for events in 2020 for over 200 people. However, there will be select suburban cities who will look for the economic impact of an event and make themselves attractive to an event.
Two, the Covid19 virus has created a profound reason for potential competitors to NOT enter an event in 2020. (Note: there have been some immediately successful “virtual” events. While I congratulate the operators of these events for the ability to produce some short-term cash flow, I do not see this as sustainable on a large scale. Why would some run a virtual event more than once? As I quipped to a colleague, every time someone uses Strava or Zwift, is that not a virtual event? That said, there are some concepts and creativity that can make sense including the hybrid event that combines an in-person element with a virtual one. An opportunity). Back to 2020. Only zealots will likely compete in 2020 and most recreational athletes will choose not to do so.
How does the industry survive. I see a difficult environment which eliminate and consolidate competition in the industry. Only those with the capitalization to survive or with very minimal overhead. Those in the middle, will be in severe trouble to meet cash flow requirements.
One slightly humorous note during the webinar was the discussion on the need for insurance for virtual events. How would a participant generate a lawsuit from a virtual event? As I pointed out to the international audience on the webinar, the U.S. is a very litigious country and if some participant fell on a treadmill while running a virtual event, I have zero doubt a douchebag attorney could be found to file a suit. Waivers required. A day after the webinar, I was notified that some of the industry insurers are now offering virtual event insurance at $150 per event, although I did not scrutinize the coverage on those policies.
June 2020. Consultation on vendors in the event registration, ticketing and platforms in the sports, mass participation, and conference space.
With a London based private equity firm looking to lend into the space and likely a bolt-on acquisition of an available platform. There are systemic problems with events that will not easily be overcome. Event registration is wholly dependent on the underlying event occurrence. Virtual events are minimal band-aids and will not work for spectator events. For participation events, they may work for a short period at a significant reduction in non-sustainable revenues.
The events will eventually return, likely no earlier that 2021 other than small (under 300 participants) or some held on public property. Many participants will wait until there is a vaccine and stay behind the learning curve. After all, one can run, ride, or swim at any time without the necessity of paying an entry fee. Strava and Peloton will thrive in this environment.
Hence, the platforms in the ticketing and event registration space are available for investment or acquisition at a discounted price. Identified at least 3 platforms for the client to review for further study and potential transaction.
November 2020. Consultation on current outlook for Eventbrite and its competition. Discussion on virtual, hybrid, and in-person events and the related revenue streams.
Virtual events are essentially all that is occurring presently with the Coronavirus. All mass-participation, conferences, and spectator events have come to a halt other than very small (under 100) and importantly, few people have the desire to attend one. That will change with vaccines (in my opinion) that appear to be available by as soon as December and early 2021. However, will demand return? Slowly, I believe it will, but it could take until 2022 before folks are confident enough to have a material effect. Ticketing firms, like Eventbrite, are entirely dependent on the underlying event taking place and providing services and their platform to said event. Eventbrite is one of the few publicly traded firms in this space and, for now, is well capitalized. Their stock remains investment valued while bleeding heavy amounts of cash. Reason? The underlying platform is solid and Eventbrite may be one of the survivors in a market dominated by small firms that may not survive the pandemic. Their recent acquisition of ToneDen positions them well for enhancing consumer demand—a deficient area in the past for EB. Live events will return however, are now permanently changed. Most all will now be at a minimum of a hybrid (combining virtual and in-person) events going forward. Eventbrite appears to be well-positioned for that future model but the risk profile is significant.