How Formula 1 Helps This Sports Investor Turbocharge His Business

Key Concepts

• Apex: A sports investment manager founded 5 years ago, with a unique model involving athlete investors.
• Athlete Investors (LPs): Athletes who actively contribute to investments beyond capital, bringing networks and industry insights.
• Venture Capital (VC): Focuses on early-stage sports tech and innovation.
• Growth & Private Equity (PE): Focuses on established sports properties like teams, leagues, and commercial rights.
• European Roots: Apex's origin in Europe differentiates it from predominantly US-based sports investors.
• Sports Industry Genesis: Apex was founded specifically for sports investment, not as a diversification from other sectors.
• Ecosystem Approach: The synergy between Apex's VC and PE arms, where VC can bring innovation to PE investments and PE can provide clients to VC businesses.
• 10-Year Fund Horizon: Apex's investment strategy across both VC and PE funds emphasizes long-term growth, acknowledging that sports require time to mature.
• Strategic Minorities: In PE, Apex targets minority stakes (20-45%) with governance rights to add value without day-to-day management.
• Athlete as Investor: Apex positions athletes not just as capital providers but as active investors who can leverage their industry knowledge and networks.
• Formula 1 (F1) Investment: Apex has a significant presence in F1, investing in teams and attracting F1 drivers as LPs.
• Red Bull Investment Arm: Apex partnered with Red Bull's corporate venture arm, validating their strategic value in sports tech.
• Women's Sports: Apex is bullish on women's sports, particularly leagues and commercial rights.
• Emerging Leagues & IP: Apex seeks disruptive concepts and new media products in traditional sports.
• Tennis: Apex sees potential investment opportunities in tennis, similar to the recent growth in golf.

Apex's Investment Strategy and Genesis

Apex, founded five years ago, operates as a sports investment manager with a distinctive strategy centered around a unique athlete community. The company has over 100 athletes invested and has made investments in various sports properties, including the Alpine F1 team, Venezia FC, Bay City Golf Club, Tomorrow Sports, and Baller League.

Antonio Kakarino, CEO and co-founder of Apex, explains that the company's origin lies in building a community of athletes who could collectively invest in sports. While Apex functions as a sports investment manager, its DNA is shaped by several differentiating factors:

• Athlete Involvement: Athletes are active Limited Partners (LPs) who contribute beyond their capital, offering their networks and industry insights. This broad community provides a unique perspective for diligencing opportunities and adding value post-investment.
• European Roots: Unlike many US-based sports investors, Apex is rooted in Europe, offering a distinct perspective, particularly when investing in Europe and looking at the US market.
• Sports Industry Genesis: Apex was specifically created to deploy capital in sports, distinguishing it from investment firms that diversified into sports from other sectors.

Venture Capital vs. Private Equity Arms

Apex operates on both venture and private equity sides, with a clear delineation in their strategies:

• Venture Capital (VC):

  • Origin: Apex began with a venture focus, initially working with athletes as investors.
  • Investment Size: Smaller ticket sizes, typically $1 to $2 million, targeting early-stage opportunities (seed and Series A).
  • Ownership Target: Aiming for 5% to 10% ownership in businesses.
  • Focus: Sports tech and innovation, which are fundamental for the efficient operation of sports properties.
  • Timing: Benefited from the rise of the private equity movement in sports and the increasing need for technological advancements in sports properties.

• Growth & Private Equity (PE):

  • Evolution: Developed as Apex grew its investor base and capital under management.
  • Investment Size: Larger ticket sizes, ranging from $10 million to $50 million.
  • Focus: Teams, leagues, intellectual property (IP), and commercial rights.
  • Ownership Target: Primarily strategic minority stakes, typically 20% to 45%.
  • Value Add: Aims for governance rights to add value commercially, in business operations, and potentially in media, without managing day-to-day operations.

Synergy between VC and PE: The coexistence of both arms creates a strong ecosystem. Apex's robust sports VC arm enhances its PE investments by bringing technology and innovation. Conversely, the PE side can introduce larger clients and opportunities to Apex's sports tech businesses. This interconnectedness allows Apex to leverage its network effectively, especially when investing in founders with promising ideas and products.

Investment Size, Timelines, and Returns

Apex maintains a consistent 10-year horizon for both its venture and private equity funds, recognizing that sports investments require time to mature. This approach contrasts with the pressure for earlier exits often seen in other sectors.

• Venture Fund:

  • Ticket Size: $1 to $2 million.
  • Stage: Seed and Series A.
  • Ownership: 5% to 10%.

• Growth & Private Equity Fund:

  • Ticket Size: $10 to $50 million.
  • Ownership: Strategic minorities (20% to 45%).
  • Focus: Teams, leagues, IP, commercial rights.

While specific return targets are not detailed, the strategy implies seeking significant appreciation through long-term growth and value creation within the sports industry.

The Athlete Investor: Apex's Unique Value Proposition

Apex has successfully cultivated a large community of athlete investors, differentiating itself from traditional wealth management services. The company's value proposition to athletes is built on several key pillars:

• Active GP/LP Model: Apex positions itself as a General Partner (GP) and athletes as Limited Partners (LPs), emphasizing a collaborative, "in this together" approach.
• Investment in Their Domain: Apex encourages athletes to invest in sports, an industry they understand deeply, allowing them to add value through their network and industry insights from day one. This contrasts with simply preserving wealth through financial advisors.
• Beyond Financial Advice: Apex is not a wealth manager or financial advisor. It offers athletes an opportunity to become active investors in a sector they know intimately.
• Leveraging Athlete Networks: Athletes' involvement attracts companies to Apex, and their close proximity allows for immediate access to industry insights and opinions on new sports or opportunities.
• Appreciation of Knowledge: Apex values athletes' knowledge beyond their athletic prowess or commercial brand value. This recognition is a key differentiator and is highly appreciated by athletes.
• First Mover Advantage: Being an early mover in attracting athletes to this investment model, particularly from Europe, has been crucial to Apex's success.

Strategic Value of Athlete Investors

The extensive network of athletes provides Apex with a significant market advantage, opening doors and creating unique opportunities:

• Access and Attraction: The presence of athletes as LPs attracts numerous companies to Apex.
• Industry Insights: Apex maintains close relationships with its athletes, enabling them to solicit industry insights and opinions on potential investments, new sports, or market trends. This transfer of knowledge is highly valued by Apex.
• Validation: Athletes' willingness to invest and contribute their expertise validates Apex's investment thesis and approach.

Formula 1 (F1) Driver Gravitation to Apex

Apex has a strong connection with Formula 1 drivers, with a significant portion of the grid having invested in their funds. This success is attributed to:

• Foundational Relationships: Two of Apex's early athlete partners were Formula E drivers, providing an initial connection to the racing world.
• Small Racing World: The racing community is interconnected, allowing Apex to leverage existing relationships.
• Personal Connections: Apex founders have personal ties to the racing world.
• F1 Growth Trajectory: Recognizing F1 as a sport on a significant growth trajectory, Apex strategically targeted F1 drivers early on.
• Exclusivity: The small number of F1 drivers (20) makes it a focused and impactful group to engage with.

Partnership with Red Bull's Investment Arm

Apex's collaboration with Red Bull's investment arm is a significant strategic move:

• Deal Genesis: The partnership arose from being within the same sports investment ecosystem.
• Scaling Capital: Apex recognized the need to move beyond athletes to scale capital, targeting family offices, high-net-worth individuals, and strategic entities within sports.
• Strategic Validation: Red Bull's involvement validates Apex's strategic value, as Red Bull, a major player in sports, can assess Apex's capabilities more effectively than a general fund of funds.
• Red Bull's Venture Arm: Red Bull established a $200 million corporate venture arm to integrate technology and innovation into its ecosystem.
• Apex as Expert: Red Bull identified Apex as their expert in sports venture investing, a space Red Bull had not previously entered but recognized as crucial for their growth. This partnership is a significant honor for Apex.

The Sports Investment Landscape: Valuations and Growth

The sports industry is experiencing unprecedented growth, with major leagues like the NFL, NBA, NHL, and MLB collectively valued at over $450 billion. Forbes data shows an average team value increase of 1,800% over 27 years.

• Sustained Growth: While the extreme growth rates seen in the past for established leagues like the "big four" may not be replicated, continued growth is expected due to positive macro trends like increased sports consumption and participation.
• Reduced Risk: As sports franchises mature, the risk associated with them decreases, making them more attractive to traditional private equity investors.
• Shift in Perception: Sports are increasingly viewed as stable, less volatile assets, moving from growth equity to a more traditional private equity profile.
• Institutional Capital: The influx of private equity and institutional capital into sports, particularly in North America, signifies a validation of the sector.
• Beyond Sports: Institutional investors recognize that investing in sports franchises is also investing in IP, entertainment, health, wellness, and community, all of which contribute to investor stickiness.
• Uncorrelated Asset Class: Sports are largely uncorrelated to public markets, offering diversification benefits, especially during periods of geopolitical instability.

Formula 1 Valuations and Business Model Evolution

Formula 1 has seen a dramatic increase in team valuations, with the average F1 team valued at $1.88 billion in 2023, a 276% increase from $500 million in 2019.

• Drivers of Growth:

  • Investor Demand: Increased investor interest in F1 teams.
  • Scarcity: Limited number of F1 teams creates a scarcity element.
  • Business Model Evolution: Revenues are steadily increasing, though not at the same pace as valuations.
  • Profitability: Major teams report revenues around $1 billion with 10-20% profitability.

• Future Valuation Outlook:

  • Hype Reduction: The initial hype surrounding F1 team acquisitions may subside.
  • Investor Realization: Some investors may realize the complexity of investing in and adding value to F1 teams, requiring specific sports knowledge.
  • Revenue-Driven Growth: Valuations are expected to continue increasing due to growing revenue streams and consistent profitability.

• Revenue Streams in F1:

  • Media Rights: A significant driver, though the future of media consumption (streaming, pay TV, traditional routes) remains a key question for all major sports.
  • Sponsorship: Consistently increasing and a strong area of focus for Apex.
  • New Revenue Streams: Opportunities exist in engaging with audiences beyond track attendance, with Apex's venture fund exploring innovative fan monetization strategies.

Formula 1 Calendar and Business Model

The addition of the Las Vegas race highlights the evolving nature of F1 as an entertainment business.

• Calendar Challenges: Calendar changes are complex, involving media rights, driver logistics, and travel.
• Liberty Media's Role: Liberty Media's willingness to take promoter risk, as seen with the Vegas race, has been crucial.
• F1 as Entertainment: The integration of F1 into entertainment hubs like Las Vegas signifies its shift towards an entertainment-focused business model.
• Fan Experience vs. Racing Product: The question of whether F1's appeal lies primarily in the racing or the surrounding entertainment is central to its growth strategy.

Apex's Investment in the Alpine F1 Team

Apex's investment in the Alpine F1 team was driven by several factors:

• Continued Growth Potential: Apex believed there was still significant growth potential in F1 valuations.
• Motorsport Heritage: Apex's origins in motorsports provided expertise and the ability to drive value into an F1 team.
• Strategic Partnership: Apex aimed to be a strategic partner, assisting with various elements, including politics and operations.
• Confidence in Valuation Increase: Apex was confident that F1 team valuations would continue to rise.
• Deal Structure: The deal was structured with an American investment fund spin-off of Redbird, creating a favorable arrangement for both Renault and investors.
• Athlete DNA: The inclusion of prominent athletes like Anthony Joshua, Rory McIlroy, and Trent Alexander-Arnold brought Apex's "athlete DNA" to the deal.

Alpine's Position in the Grid: Apex views Alpine as a Tier 2 team with significant heritage and infrastructure, capable of competing with teams like Aston Martin. While currently not in the top tier due to performance struggles, its history and IP position it well for future growth. Valuations are considered to be in the middle of the pack.

Valuation Bubbles and Exit Strategies

The question of whether sports valuations are in a bubble is complex. Apex, focusing on small to mid-cap investments, is not directly involved in large-cap asset valuations like NFL teams.

• Focus on Small/Mid-Cap: Apex prefers to invest in smaller to mid-sized businesses where they believe there are better opportunities and where they have deeper expertise.
• Revenue-Driven Valuations: For larger assets, continued revenue growth is a key indicator for sustained valuation increases.
• Exit Strategy: Apex's exit strategy involves buying into businesses, helping them grow into large-cap entities, and then selling them to investors with capital ready to acquire cash-flow positive, large-cap businesses.

Future Growth of F1 and Fan Monetization

Apex believes F1 has done a commendable job in unlocking new fans across diverse demographics and geographies.

• Fan Monetization: The focus is shifting from acquiring new fans to better monetizing the existing and growing fan base.
• Enhanced Experience: Liberty Media and F1 are prioritizing ways to provide a better fan experience, which in turn can lead to increased spending.
• Global Business: F1 has successfully established itself as a truly global business.

Apex's Bullish Sports Outlook

Apex is optimistic about several areas within the sports industry:

• Women's Sports: Highly bullish on women's sports, particularly leagues and their commercial rights, recognizing the growing interest from brands.
• Emerging Leagues and IP: Keen on investing in disruptive concepts and new media products within traditional sports, citing examples like Tomorrow Sports (golf) and Baller League.
• Tennis: Sees tennis as an exciting area with potential investment opportunities, similar to the recent growth observed in golf.

Antonio Kakarino concludes by thanking Justin Bernbam for the insightful discussion.