For leagues like MLB, venture capital strategy is about much more than immediate returns

When Major League Baseball took over Los Angeles for its recent All-Star festivities, its expansive activation footprint was suffused with youth-focused sports tech startups across the city. Swing-tracking firm Diamond Kinetics outfitted batting cages with sensor-enabled bats, youth training company EL1 Sports offered instructional programming and league management platform LeagueApps provided back-end data services and operated a youth playing field.

All three of those companies have partnerships with MLB, which the league is leveraging to grow baseball’s youth participation. But those startups also count the league as an investor, a critical component of MLB’s long-term business strategy.

“When we find something we like, we want to make a statement by making a cash investment or taking equity in a business,” said Chris Marinak, MLB’s chief operations and strategy officer. “Baseball is taking a partnership approach with them. And by creating that alignment with their business, they might divert resources from other projects to baseball. We feel that’s a tool that’s really helpful, particularly when there are so many of these early-stage companies looking to get a foothold in sports.”

MLB has historically completed roughly a half-dozen transactions annually, including both cash investments and broader partnerships through which the league has taken equity stakes. In its cash deals, MLB has invested anywhere from $1 million or less for early-stage startups to investments in the range of $20 million to $30 million for more mature businesses. The league was part of a $15 million Series B for LeagueApps last year, as well as Fanatics’ $1.5 billion funding round in March.

Play Ball Park at last month’s MLB All-Star Game in Los Angeles housed many activations related to startups the league has partnered with.getty images

Financial return on those investments, while important, is not the guiding principle. “We’re not doing this to go out and try to be a hedge fund. We have spare cash we could invest in third-party financial resources outside of baseball and generate a return. That’s not exclusively what we’re looking to do,” said Marinak. “We’re looking to leverage investment capital and growth capital to make our fan experience better, to create a better baseball experience and a better baseball product.” MLB has typically assumed small, passive positions — say, 5% to 10% of a company’s equity — with no fixed road map toward exiting its investments.

Beyond the dozens of deals it has completed across the last decade, MLB is also a partner in the Global Sports Venture Studio, a joint venture between R/GA Ventures and Elysian Park Ventures, and is a limited partner in Sapphire Sport, a division of Sapphire Ventures.

MLB is far from alone in deploying its resources. In fact, pro leagues, teams and other sports properties have increasingly invested in startups as a way to strengthen their own growth potential.

Earlier this year the NBA launched NBA Equity, a new division managing direct startup investments, and in recent weeks the league took stakes in
QuintEvents and 15 Seconds of Fame. The NBA now has over a dozen such partners, and its recent deals follow the January announcement of the five companies participating in its new Launchpad initiative, which aims to support startups offering potential solutions around injury prevention and youth performance, among other areas.

“The NBA is constantly searching for innovative ways to improve our game, business and fan experiences,” said David Haber, the NBA’s chief financial officer, in a statement to SBJ. 

The PGA of America recently partnered with Elysian on a new fund, EP Golf Ventures, that has already taken stakes in two startups, mobile golf simulator Dryvebox and motion capture app developer Sportsbox AI, though it declined to comment on specifics. “Being able to invest in companies able to make [our members’] lives better and make the game of golf better, that’s going to improve our association as a whole,” said Kris Hart, the PGA’s senior director of growth and ventures.

Comcast takes $25,000 equity stakes in every startup selected for participation in its SportsTech accelerator program, which is soon entering its third year. “We become part of the cap table, part of the ongoing investors and advisers. We often say once we sign that stock purchase agreement, you’re part of the team,” said Jenna Kurath, Comcast vice president of startup partnerships. The accelerator program has also facilitated dozens of relationships between startups and major properties like NASCAR, the PGA Tour, U.S. Ski & Snowboard and WWE. According to Craig Neeb, NASCAR’s chief development officer, the race series’ involvement led to deals with cart keyless ignition company XiQ and touchless payment startup tiptap.

For startup founders and sports VC stalwarts, those significant league-level commitments have been a welcome development. “They have so much experience, and they have so many relationships and contacts,” said Wayne Kimmel, managing partner of sports VC firm SeventySix Capital. “They know what the sponsors want. They know what the clubs themselves want. They understand the league priorities. Those are things that, as an outsider, you just guess at or hope to read about.”

Even as an economic slowdown puts the brakes on broad VC investing, there’s an industrywide expectation that leagues will continue to put more skin in the game with an eye on the future. For MLB, it was a lesson learned the hard way, but one now expected to generate long-term value for the league and its partners.

“In the beginning, sometimes we would just take equity or warrants as part of a partnership and treat them as sort of a throw-in,” said MLB’s Marinak. “[But] without a real linkage between the businesses, we weren’t fully capitalizing on the opportunity. The deals that have been the most successful are the ones where it’s a multifaceted relationship; it’s us providing value and resources to the company, and the company doing the same in return.”

Chris Smith writes a monthly column on finance news and trends. He can be reached at crsmith@sportsbusinessjournal.com or on Twitter @ChrisSmith813.