Alibraheem, Maisto, Townsend & Ward on How PIF is Reshaping Global Sports #FII8

Hello everyone, please take a seat so we can start our next session. We have a really exciting topic for everybody. If you could please keep the noise down as you move out of the lab that would be fantastic. So today we're talking about how the PIF is shaping the global sports world. We have a fantastic panel with leaders in sports from all around the world. I'd like to welcome Faras Sharie from the PIF, he's the senior director for sports. I'd love to invite Niccolo Maisto, co-CEO of ESL FACEIT Group. Welcome to the states Danny Townsen of search sports, the CEO. Ryan Ward the CEO of Savvy Games Group, and our special guest Mark Ganis of Sports Group, the managing partner and founder. Welcome gentlemen. Before we start, just a quick announcement. I'm the chief investment officer at Lead Sports, we invest in sports and health technology. I'm here to do a world-first announcement. We just announced a fund called Locker Room, it's by invitation only, and we've brought together some of the greatest athletes in the world. Two of them I'm allowed to announce today: Brooks Koepka and Harry Kane. So you'll be hearing more about it. But for us, let's start with you. Can you tell us a little bit more about the mandate of the PIF, why are you interested in sports, it's becoming increasingly important for the region and the PIF's work, how come this is so important to you and how are you executing the strategy?

Perfect, thank you very much for this. I'm very happy to be on this panel. I think it starts with the story of what PIF is mandated to do in the MENA region. There's a lot of movement that we're doing in the sports sector internationally, but there's also a lot of work that we're doing locally. When we're doing investments locally, a lot of what we're trying to do beyond the investment returns is actually have a large social impact. So it starts with a plan for diversification away from oil, but always ends with how do you touch the fan base, how do you touch the people and ensure that you're giving back something that means a lot to them. So what we started doing is looking at the sports landscape as a whole, identifying sports that matter to people, and then seeing where within that space can we invest. We started with investing in the four football clubs, which is exciting but also a big responsibility because we're in a massive transformation journey. We also have Danny from Surge Sports which looks at investing abroad with a localization mandate.

Absolutely. And before we go to Danny, Mark, you bring an international view from the world of sports, having worked on many different transactions globally. How do you see the current landscape of sports? How do you see the power shift into the region? We've talked about it, sports money-wise is a relatively small set, but noise-wise it gets a lot of attention. It's a fantastic popular topic that we're all very passionate about.

Absolutely. Sports has become its own asset class. It really never used to be; it used to be within media and technology or those kinds of asset classes. Now it is large enough, it is visible enough that it has its own asset class that attracts investors across the spectrum: individuals, high net worth families, institutional investors, and as we now see sovereign wealth funds as well to a meaningful degree. This has all come about because sports has become far more globalized and in the future it's going to be even more digitized. Sports has a passion: the thing about sports is that people feel an emotional connection to it, and that emotional connection can be exploited and monetized, but what it really does is it enhances quality of life, it creates a mosaic for communities that makes it something that people want to participate in. So now as you look at how PIF has gotten involved, it's been involved in its investments from Newcastle, which was very well purchased at a great price and they've done a great job in managing it, so it's worth many times multiples in just a few years. You look at other investments, whether in the golf industry, in tennis, where the idea is to take advantage of sports as it becomes a bigger industry but also localize it so that it has an important effect on the local population. We know here in Saudi Arabia 70% of the population is under 30 years old, sports is a very important part. This is happening around the world and clearly PIF has decided that it's going to participate and be an innovator in sports investments and sports operations around the world. So I expect we're really only in the first inning of this process.

Absolutely. And you said it, sophisticated players are entering the market now because the industry has become quite large and there's returns to be had. There are now sports private equity firms, larger investors out there that didn't exist 10 years ago. One of those sophisticated investors is Surge Sports. Danny, it's still a relatively new organization within the PIF umbrella. How do you see your mandate and what do you think this could be growing into?

I think Mark touched on it. Our mandate is a really interesting one and probably a little bit different to the way most institutional investors think about sports because we do have the mandate to deploy PIF capital into the sector for returns, but importantly we've got a role to play in driving the sports economy here in Saudi Arabia, and that's pretty unique. There's not many investors around the world in the sports sector that have that dual mandate, and an exciting one given the nascency of where it's at and the capacity and the conviction for the kingdom to achieve what it wants to achieve both domestically here but importantly having an impact on the global sports landscape. When we think about those types of investments, for us it's about being transformative and leaving a mark on that sport, and then taking that sport and really driving something back into the kingdom that is unique and really pushes into His Highness's Vision 2030 and achieving goals.

Fantastic. And hopefully you can squeeze out a little bit more information on where we think this is going in my follow-up question a little bit later. But Brian, thank you for joining us. Running Savvy Games Group has been an interesting task. You have built a large portfolio of relevant well-known players in the industry, Niccolo's company ESL FACEIT Group being one of them. You're rising to esports leadership globally given your size of the portfolio. Can you tell us a little bit about it? Are you building a monopoly here?

No. We have about a 40% market share worldwide in esports, covering live events, broadcast production of those live events, and online tournament play, thanks to the best acquisition we ever made in FACEIT. But no, our thesis coming into it was it was a very fragmented space. We knew there would be consolidation. There were a lot of small players, nobody was profitable, and we thought if we could deploy capital with a long-term time horizon, thanks to the very patient capital nature of the PIF's mandate, we could make different strategic decisions than shorter-term players and that we could improve the economics of the industry overall in esports. I think we've started to prove that already. Players on both sides of the equation see more stability in the sector. Publishers see that there's more stability and therefore they're able to grant longer-term licenses for their IP, and on the other side advertisers and sponsors are granting longer-term agreements at better economics. So it is already starting to improve. And then the mega events such as the Esports World Cup are contributing to greater profile overall for the sector.

Yeah, the Esports World Cup was a great success here in the Kingdom over multiple weeks with a global audience. It was really nice to see one of the first mega events in the industry that is coming out of the startup phase and becoming a mature industry. And Nick, you've been at that forefront very early on even when ESL FACEIT Group was not part of the Savvy Games and PIF umbrella. But since you became part of this portfolio, how has this changed your job for you and how has it changed the mandate and the trajectory for ESL FACEIT?

Understood, so you're basically building infrastructure not just for Savvy Games and ESL FACEIT, but something that can uplift the industry as a whole, so to speak, which makes everybody better and allows you to grow. Quick personal question: you are passionate about sports, do you like any sports to watch or play any sports yourself?

Fantastic. Yeah, but it's obviously a great global sport and who knows what we will see here in the region in the future. But to that point, the value chain in sports is a quite complex one. You have different stakeholders with different interests. You talk about fan engagement, technology, you talk about interest in investment in sports IP which Danny is focused on, esports and gaming sports franchises what Mark is focused on a lot. So how do you make sense of that? What particular interests you within that value chain?

Okay. Part of what we try to do is first of all we take the macro view of the sports sector starting from the sports strategy that's been put in place by the Ministry of Sports, where they've identified not only priority sports for them and for the nation, but also the sports that would make sense for us to look at from a participation perspective, but also the sports that could get converted into participating at a competitive level, get converted into media eyeballs like my colleagues have said, that can then be investable. So if you look at that entire value chain and you start looking at the infrastructure and the software that you need to bring into that infrastructure, you'll find that there are specific sports that are just beautiful opportunities waiting for you to either consolidate at the global level and then work with our partners at Surge to bring to Saudi, or investments that can happen in Saudi that just needed that uplift and that PIF powerhouse behind it.

Absolutely. There's a whole infrastructure, there's a mass participation element to it as well. You were talking about the young population here that wants to be active and play basketball and football and all the other sports. But Mark, let's talk about the fun topics on top of that: the big names, the headlines. You have Neymar, you have Ronaldo joining the SPL, you have the likes of Bryson DeChambeau and Brooks Koepka joining the LIV Golf league, and so on. All this star power that's coming, grabbing the headlines, everybody's talking. How do you see this? Is this enough to build a sustainable ecosystem? What do you think needs to be done in order to build something that is still growing 10, 20 years from now?

It's not enough to build a sustainable ecosystem. Recognize that a lot of the sports industry is actually leasing the content rather than owning the content. You really want to be on the ownership side of the content where you can be intellectual property: teams, logos, trademarks, broadcast rights, things of that nature. Those are all part of what goes into a successful sports ecosystem in a place like here in Saudi Arabia. You also need to build infrastructure: the stadiums, the training facilities. Those all need to be part of the process. That's the same around the world. You're in a city that has a great stadium, 20 years later it needs another one or a major renovation, so you have to try and stay ahead of the curve. Technology has really upped the game for everybody. Some of these stadiums these days are spectacular buildings, and fans come to expect it. Don't forget here in Saudi Arabia in 2034 the World Cup will be held here. I expect the facilities that will be built will wow everybody, but they're going to be built in such a manner that they can sustain a sport, the football league, and other events thereafter. That all has to be thought through in advance, otherwise it becomes a lot of wasted money, as people who hosted the Olympics have learned. So all of these things need intelligent capital. Capital is only one aspect to the sports industry; you have to have capital intelligence, you have to know what's going to happen, not just what has happened. The stars bring attention, but that's temporary for the individual stars; they always rotate. That's where ownership really comes into play.

Yeah, makes sense. And you touched on some of the infrastructure in the stadiums that are being built. For those of you that haven't seen it, some of those renderings have now been publicized, and I encourage you to go check that out because some of those stadiums look so futuristic and advanced they might be out of a video game, but they will become reality and really uplift the fan experience. But along with that obviously comes IP. A lot of events are coming here, they're being leveraged. We see MMA fights with the PFL that you have invested in, we have seen boxing fights, we have seen Formula One races, International golf tournaments, and so on. So as an investor, Danny, you obviously want to participate in this, you want to derive an ROI about it. How do you think about this from a Surge perspective? Are you operating like a fund or how do you do this?

For us, aligning with the Ministry of Sports strategy, we look at sports that have really strong foundational strengths, that have rich histories, that are serving the biggest economies in the world because that builds addressable market that they're going to leverage the economics of the sport. But typically what we look for are sports that are a little bit fragmented in their product offering, they've maybe through governance reasons or otherwise not really moved with the times, but they are sitting on a foundationally strong sport. If we can use our capital to take what is foundationally strong sports and help them transform from a linear and analog history to a direct-to-consumer digital environment, then we'll have deployed our capital successfully because growth will come with that transformation. If we then on the flip side can capitalize on bringing components of that global sport to Saudi Arabia and instead of renting rights, to Mark's point, we own those rights and we can build a sustainable economy around those rights over decades rather than days. I think it's natural for any emerging country to need to rent rights because that creates inspiration, gets people moving, and really engaging in sports. The Ministry of Sport and the General Entertainment Authority have done a fantastic job doing that, bringing major events here. But in time you want to build sustainability and that takes investment, and that's our role. We work with that ecosystem to ensure we're making great investments but achieving some pretty important goals for the country.

Exactly. And we'll hear more about this as you are, I think, busy working on a few things that will be announced time over time. But Brian, you were the founding CEO of Savvy Games Group, have been here for over three years now. You come from a background of video game royalty, so to speak, the Activision Blizzards of the world, the EA Sports of the world. Do you play any video games yourself still?

Do I play? That's a great question. I was a wicked Space Invaders player back in the 80s, and then I was pretty good at Doom 3, Need for Speed, and a few others. But my favorite game on my phone for just relaxation and turning off is still Tri Peaks Solitaire, so very boring I'm afraid.

Excellent. And I'm sure some of you have spent time playing that. Excellent. But following up with another question for you, Brian, as a leader in the industry, how do you think about the next five years and Savvy's role in this? Looking ahead, where's the esports industry going? Obviously tremendous growth, is that accelerating? What is happening?

I think it is. I think we're at a certain inflection point in esports. Some of the mega events, Gamers8, Esports World Cup, have helped bring a sustained and renewed focus on the sector. There is more stability in the sector as we mentioned before. The inaugural Olympic Esports will be held next year ostensibly, and that will be yet another huge milestone for esports to be an official addition to their events calendar since the Winter Olympics were added in 1924. So a pretty big opportunity. The economics of the sector continue to improve. If we continue to broaden the appeal of esports beyond very niche gamers and esports enthusiasts, we'll begin to see monetization begin to match the levels of engagement, which approach those of traditional sports in many metrics. Then we'll see a really long-term bright future for the sector.

Excellent. Yeah, and Nick, you travel quite a bit as part of your role to all the esports hubs in the world where you're building that infrastructure you're talking about. Do you have time to follow or play any sports yourself?

Exactly, no fantastic. I'll go back to work now for you. You were talking about building an infrastructure, the picks and shovels of your business. What most of the fans that are consuming it over streaming or media channels don't necessarily see but it's absolutely crucial in order to scale what you do. Can you talk a little bit more detail about that? What could that mean going ahead? What is the technology? Specifically, what infrastructure excites you and makes a difference in the way we consume sports?

Given that that infrastructure was really on a world showcase at the Esports World Cup most recently, what was the feedback you've heard as part of that event?

Fantastic. So for us, let's look ahead from a general standpoint for the PIF. We're talking about patient capital, Brian mentioned it, Danny mentioned it, that you're bringing to the table to really have a long-term vision to build into the sports sector. What does long-term success for you look like? What are you looking for? How do you measure it?

I'm going to take it from a very humanistic approach. If I think about my kids today and the job opportunities that they're going to have in the future, job opportunities in a space that didn't exist when I was growing up. The only way I could have interacted with sport was either watching it as a consumer or playing it in my backyard. Today what we're trying to do is do it sustainably, like everyone said here, and introducing all of the different levers in place to make sure that there is enough space for people to actually professionalize in sport, whether it is anywhere on the value chain: medicine, events, or even as athletes.

Yeah fantastic. And then from a global view again, Mark, how do you see this developing with the ambitions of the PIF? This is a sector that for the longest time hasn't seen much innovation. A golf tournament was a golf tournament, a tennis tournament was a tennis tournament, the way a fight happened was the way a fight happened. Now we're seeing all those changes. How do traditional sports in the US embrace this? Some of them are here on the ground. How is this industry developing as a whole as a symbiotic partnership?

Two main things: capital and innovation. What we know about sports is people want to be a part of it, whether it's esports, football, American football, basketball. They want to affiliate with it, have an emotional connection with it, and they're willing to spend money and time to be a part of it. What we have to do as an industry, and this is part of where PIF is going to be looking in the future, is to be part of not where people are today but where they're going to be a year, five years, eight years, ten years from now. A large part of that is how people consume sports. A few years ago people could not have imagined that people would watch full-length movies on their phone, but they are. What we are seeing is sports being consumed to a great degree on phones, in snippets rather than entire sporting events, in highlights, tied in with social media to a very significant degree. Sports is actually the flywheel, the hub of the flywheel where all of these different industries, all of these different businesses can thrive. From our discussions with PIF, we see that's where the future will be to a significant degree here in the Kingdom, but also getting involved globally, being a leader on a global basis with investment, innovation, patience, and nurturing. So this is a very exciting time in our industry and an exciting time at PIF with this focus.

And do you see that this is becoming a power center of sports here now compared to what we've seen in Europe and North America?

Great question. Global sports, the center of gravity at the beginning of the 20th century was in Europe. After World War II it shifted to North America, the United States. We saw in the beginning of the 21st century the center of gravity moved to Asia. And now what we're seeing is the center of gravity of global sports is moving to the Middle East. All the pieces are in place. Infrastructure is needed, tourism industries want to be built up, you want to have the people happy and healthy, especially the younger people, and have them engaged. Capital is available, leadership is available. So what we are seeing is a shift in the center of gravity of global sports to the Middle East, whether it is esports, the World Cup, the Winter Asian Games will be here shortly, and all of the Formula 1 races that take place here in the Middle East. That is a megatrend that we're all paying attention to in the United States and Europe wherever it might be. It's a megatrend that is going to change to a significant degree sports in this entire region.

And we agree at Lead by the way, and we're making a lot of investments in the space as well. The next 10 years for sure, more likely next 20 to 30 years, are going to follow a megatrend in the world of sports. But with just a few minutes left, Danny, you are now the new player in the ecosystem, you're deploying capital. You've been very vocal about that you understand valuation and value, so you're not going to overpay for some assets that are being put forward. But how do you look at it? How do you show up in negotiations and really represent where you find the value play? Do you see significant upside for companies like Surge?

Yeah, I talked to our thesis around taking foundationally strong sports that may need a helping hand in pushing them down that innovation path that Mark touched on. The sports industry as a whole has relied on linear analog revenues for a long time to drive returns. That's changing. The tier one sports in the world will continue to garner significant rights fees for major broadcasters, but that's going to change for tier two sports, and they're going to need to innovate, understand their customer better than ever before, connect directly with them through digital means and understanding data and all those things. That sort of transformation takes time, sophistication, and money. Unfortunately the sports industry doesn't often have one of those three things, let alone all three. I think institutional capital coming to sport is not because the institutions have woken up and said sport is a great asset class; it's sport understanding the need to change, the need to raise capital and deploy it effectively to ensure that they are serving today's and future consumers that they may have had to not worry too much about before. Therefore, if our capital can be deployed to bridge that gap from analog to digital and have a successful impact on the future of that sport, then I think that's a pretty exciting place to be right now.

100%. Yeah, and again, you're ready to look at a few deals and we'll get those announcements as they come. Quick one for you, Brian. Obviously esports is the sector a lot of people talk about, but you also play within the greater ecosystem of just gaming. For those of you who don't know, the gaming industry is larger than the music, television, and movie industry combined. So it's a major industry as well, very mature. Do you still see upside outside of esports which is highly scaling, just in the gaming industry as well?

No, totally. We've been talking about this now for more than 30 years, and the compound annual growth rate has been astonishing. When I started, we used to dream about being bigger than the music guys; now we're about seven times bigger than the music guys. The truth is there are 3.4 billion gamers on the planet who play games every week, and about 200 million of them own consoles, the rest are on their mobile phones. The smartphone has been largely responsible for a tremendous amount of growth, especially in the casual game segment. There's no reason to assume that people are going to stop wanting entertainment, and the predominant form of entertainment is interactive entertainment.

Excellent. And the benefit of having a German moderator is that we finish right on time. Time is obviously very important. But no, thank you to our panelists today. I think we got a great glimpse into what's happening in the world of sports here in the Kingdom and beyond, and the role that PIF is taking. There will be more news, more panels happening. We see a full room here and hopefully for those listening at home. So thank you gentlemen, and enjoy looking forward to what's next.