The Impact of T-Mobile’s Investment Into The Drone Racing League

BY ADAM GROSSMAN

One of the most common reasons given by companies for investing in partnerships is to leverage the brand equity that leagues, teams, athletes, competitions and events have with their fans. T-Mobile’s investment into the Drone Racing League (DRL) shows that companies are increasingly interested in owning equity in the teams directly.

According to Sportico’s reporting from earlier this week, the “multiyear agreement includes an investment from the mobile telecom company into the DRL through T-Mobile’s Ventures Fund. Together, the two companies will create the first 5G racing drones that they hope will eventually be shifted into the sport.”

Leveraging sports partnership to showcase technology generally and 5G specifically is a strategy that has been used by T-Mobile’s competitors. In a previous post, for example, we highlighted how Verizon is using its NFL partnership to demonstrate the quality and scale of its 5G wireless capabilities.

What does seem novel about T-Mobile’s investment is to actually take an ownership interest in DRL. A closer examination, however, demonstrates that this brings to fruition many trends that are operating at the intersection of the sports and investment industries.

More specifically, more parties are looking to take direct ownership stakes in sports entities through investment rather than solely focusing on more traditional partnership opportunities. In past posts, we have discussed how athletes have taken ownership stakes.

We highlighted this dynamic in a recent post about Superstar Racing Experience (SRX) and its relationship with CBS. CBS does not have a standard media rights agreement with SRX where the network broadcasts competitions. Instead, they are full partners with vested interests in each other being successful through an integrated business and content approach.

T-Mobile’s investment in DRL also comes at a time when there appears to be increasing interest in corporate venture capital (CVC). PitchBook stated that CVC has remained “very active” during the pandemic because “corporates sought new avenues for growth and diversification of their products, including moving up the venture lifecycle to invest more heavily at seed and adapting their investment approach to focus less strictly on strategic investments.”

T-Mobile Ventures Fund is not the only investment vehicle to seek out sports equity investments recently. For example, Arctos Sports Partners has “passive minority stakes in professional sports franchises and provides customized liquidity and passive growth capital solutions to sports franchise control owners and governors.” Special purpose acquisition companies (SPAC), such as RedBall Acquisition Corp. backed by RedBird Capital, have been reported to potentially want to “purchase a sports franchise” in some form as well (typically a minority investment).

This post is not meant to be an exhaustive review of different investment vehicles looking to invest in sports entities. It is more to look at what the definition of partnership means in the sports context. More specifically, the term “partnership” and “sponsorship” are often used interchangeably (including by us in our posts) when describing agreements between companies and sports properties / rights holders.

While these partnerships do frequently drive significant revenue and brand benefits in ways we examine using our Corporate Asset Valuation Model (CAV), companies argue that they are not fully compensated for the value they create for sports organizations. More specifically, the enterprise value of leagues, teams, and events increases significantly through sponsorships and partners can believe they do not have a direct way of benefitting from that value creation. 

Partnerships like the one T-Mobile now has with DRL can directly address this issue. Not only should T-Mobile obtain valuable activation opportunities to showcase its 5G capabilities but it also gets to participate in the equity upside in the value the company creates for the DRL. That should make this partnership even more valuable for both parties.

Major professional organizations are (and have been) in the process of reviewing and potentially adapting their ownership rules given the increase in value of many sports properties. These reviews have been impacted by the need to provide short-term liquidity given the impact of COVID-19 on the global economy.

Therefore, it would make sense to see that more sports organizations at least consider having companies involved in potential minority ownership discussions (pending their league’s approval). Both the companies and the sports organizations can potentially benefit from this “new” form of partnership in multiple ways.