How Basketball Is Powering Africa's Sports Economy | Bloomberg Next Africa

Key Concepts

• Sports Economy Growth in Africa: The transcript highlights the significant and accelerating growth of the sports economy in Africa, with projections of substantial market value increase.
• NBA Africa's Expansion and Vision: The NBA's strategic focus on developing basketball in Africa, extending beyond player talent to encompass economic development through the entire sports ecosystem.
• Basketball Africa League (BAL): The BAL is presented as a key platform for professional basketball in Africa, demonstrating growth in job creation, GDP contribution, and viewership.
• Infrastructure Development: The critical need for arenas and facilities that meet NBA standards to unlock further growth and host major events.
• Target Markets for Expansion: Identification of specific countries with strong basketball culture, talent, and market potential for NBA Africa's growth strategies.
• Institutional Investment in African Sports: The increasing interest of institutional investors in Africa's sports and entertainment sectors, driven by demographic trends and technological advancements.
• Sports Franchising and Predictable Income: The potential of sports franchising models to provide predictable revenue streams, attracting institutional capital.
• Helios Investment Partners' Strategy: Helios' focus on investing at the intersection of demographics, urbanization, and technology in Africa, with a growing interest in sports and entertainment.
• Demographics and Technology as Drivers: The combination of a young, growing population and technological adoption as key factors making Africa ripe for investment.
• Exit Strategies for Private Equity: Helios' approach to identifying opportunities, building businesses, and exiting through public markets or strategic buyers.

NBA Africa's Growing Ambition and Economic Catalysis

The global sports economy is experiencing rapid expansion, with Africa projected to be one of the fastest-growing regions. The NBA is significantly increasing its investment in the continent, aiming to grow basketball beyond just player development. NBA Commissioner Adam Silver noted that Africa has not yet seen the same level of sports investment as other regions, but with 40% of the world's young population expected to reside in Africa in 25 years, the NBA sees a major opportunity.

NBA Africa CEO Clare Akamanzi elaborated on the league's vision, stating that the goal is to "catalyze economic development using sports and basketball in particular." This involves looking at the entire ecosystem surrounding the sport, not just the players. Akamanzi highlighted that while only a small percentage of individuals become elite players, investment in basketball creates numerous job opportunities in fields such as data analysis, marketing, technology (including AI), hospitality, restaurants, security, and transportation.

Key Figures and Data:

• In its first four years, the Basketball Africa League (BAL) has created close to 40,000 jobs.
• The BAL has contributed $250 million to GDP in its first four years, playing in four countries.
• Akamanzi envisions significantly greater impact as the league expands to 10, 12, or even 20 countries.

The first five years of the BAL are considered a "powerful proof of concept." A major hurdle identified is the lack of infrastructure, with an estimated five countries currently possessing arenas capable of hosting NBA-standard games. Building these arenas is capital-intensive and requires collaboration between investors and governments. The success stories of players like Khaman Maluach are crucial for inspiring the next generation.

Target Markets for Expansion: NBA Africa is actively working on expansion plans. While potential exists across the continent, specific momentum is observed in:

• South Africa: Strong media market and purchasing power make it attractive for entertainment consumption.
• Senegal: Possesses good talent and an arena.
• Nigeria: High talent potential, but the absence of an arena is a significant barrier; the day an arena is built, it will "be a whole different game story."
• Angola: The only sub-Saharan African country to win a BAL championship, with existing arenas, a strong basketball culture, and consistent semi-final appearances.
• North Africa: Egypt (two-time BAL champion) and Libya (recent champion) are strong markets. Tunisia is also noted.
• East Africa: Rwanda and Kenya are emerging. Rwanda has invested heavily in its sports city, developing talent from a low base to achieve a third-place finish in the BAL, a remarkable feat. Kenya also shows significant potential with teams receiving investment.

Implementation and Growth Metrics: NBA Africa is already implementing expansion plans. Nairobi, Kenya, had its first team join the BAL last year, a significant development. The BAL is still considered a "startup" but has shown substantial growth.

• YouTube Viewership: Nearly 4 million people watched BAL games on YouTube last year, with significant viewership from the U.S.
• Arena Attendance: Despite limited arena availability (four currently), attendance has grown from 45,000 in year one to 140,000 in less than four years.

Institutional Investors and the African Sports Market

The business of sports in Africa is gaining momentum, driven by rising audiences, global partnerships, and major events. According to Oliver Wyman, Africa's sports market is currently valued at over $2 billion and is projected to exceed $20 billion by 2035. This growth is expected to accelerate with events like AFCON and the Cricket World Cup.

As capital flows into the sector, investors are exploring new models, including sports franchising. Ibrahim Sagna, Executive Chairman of Silverbacks Holdings, discussed the opportunities and challenges for investors. Silverbacks Holdings focuses on technology, sports, entertainment, and fashion, seeking businesses that can capture foreign-based revenues.

Examples of Foreign Revenue Capture:

• Fintech: Businesses capture income from remittances.
• Entertainment: Nigerian films produced locally are sold to platforms like Netflix, generating dollar proceeds.
• Fashion: African designers sell to overseas retailers, collecting foreign income.
• Sports: The NBA's arrival and the BAL's dollar-denominated participation fees have allowed Silverbacks Holdings to invest in a South African basketball team and boxing leagues in Nigeria, where content is consumed internationally.

Benefits of NBA's Model for African Sports: Sagna views the NBA's approach as beneficial for the African sports ecosystem because it provides a platform for recurring income. He draws parallels to major American leagues like the NBA, NFL, and NHL, which operate as "families" providing predictable, agreed-upon revenue streams from media rights and salary caps over 7-10 year periods. This predictability is highly attractive to institutional capital. The NBA's proposed changes in Africa are expected to enhance revenue predictability for sports properties, attracting more institutional investment.

Silverbacks Holdings' Investment Portfolio and Returns: Silverbacks Holdings' portfolio is predominantly in technology (80%), with a focus on fintech.

• Technology Returns: Investments in technology have yielded an average of eight times cash after nine exits, with an Internal Rate of Return (IRR) of 60%.
• Largest Investment: Their single largest investment is in the fintech company Moove, exceeding $30 million.
• Sports Investment: In sports, they have invested less than $2 million in any single company. Sagna acknowledges that "the days of getting returns from sport properties, we're still in very early days." However, they are investing small amounts, anticipating that the NBA's proposed changes will expand the market and attract more institutional capital.

Helios Investment Partners: Demographics, Technology, and Investment Landscape

Helios Investment Partners, an Africa-focused private equity firm with over two decades of experience, is making significant investments on the continent. Founder and Managing Partner Tope Lawani discussed the firm's investment strategy and the evolving African investment landscape.

Masai Ujiri, former Toronto Raptors president and co-founder of Giants of Africa, advocates for greater attention to sports in Africa, viewing creative industries as a means to create opportunities and jobs for youth. Ujiri has partnered with Helios to form Zaria Group, which focuses on building sports and entertainment infrastructure. Helios established its sports and entertainment group in 2021 and has invested in NBA Africa and PFL Africa.

Drivers of Investor Interest in Africa: Lawani identifies two primary sources for increasing interest in Africa:

1. Push Factors (Global Context):

   • The era of significant outperformance in U.S. and European private equity, driven by falling interest rates and declining discount rates, is largely over.
   • Investors are now seeking markets uncorrelated to the U.S. and Western Europe with stronger underlying growth rates. Africa is a prime example.
   • As the relationship between India and the U.S. evolves, more interest is being diverted towards the African market.

2. Pull Factors (African Market Attractiveness):

   • Demographics: Extremely interesting and exciting demographics provide a strong base for underlying growth.
   • Urbanization: This trend drives productivity increases.
   • Technology: The overlay of technology on demographic and urbanization trends is having a profound impact across many industries. It lowers the cost of doing business, expands addressable markets, and dramatically increases the investable universe for private equity.

Helios' Investment Thesis: Helios invests at the intersection of demographics and urbanization trends on one hand, and technology and innovation on the other. This overlapping space presents significant opportunities.

Development of Secondary Markets and Exit Strategies: Lawani views the development of secondary markets as a sign of a maturing market, but not necessarily a healthy one. Helios' role in private equity in Africa is to identify opportunities, create strong, well-governed, growing, cash-generative businesses, and then hand them over to public markets or strategic investors.

• Exit History: Over the last 20 years, approximately 50% of Helios' exits have been to strategic buyers (global multinationals), and 40% have been through public markets (listing on exchanges in Nigeria, Kenya, and Egypt, as well as the London Stock Exchange for larger, diversified companies).

Near-Term Exits and Future Investments: Helios recently signed an agreement to sell a large business in Nigeria in the energy transition and gas infrastructure space. While they continue to believe in this sector, they have strategically opted not to invest further. This investment created a "champion" with scope for expansion across West Africa.

Helios has a strong pipeline of investment opportunities, with Nigeria being a significant focus. They have also made recent investments in Egypt, including in the data center space and acquiring the largest exporter of frozen strawberries globally. Egypt is the world's largest exporter of frozen strawberries, and this company is a leading player. Helios sees this business as having strong comparative advantage, especially in a world concerned about tariffs and trade barriers. Other active markets for Helios include Morocco and Kenya.