The youth sports market is booming!
It’s attracting significant investor interest, and more talented founders are entering the space daily.
We go deep in today’s Profluence briefing 👇
With insights from:
- CEO of IMG Academy
- Founder of Balltime (acquired by Hudl)
Here’s what Dan had to say about Profluence Sports: (click to watch)
Youth Sports Attracting Private Equity
Youth sports have silently grown over the last 20 years (and are only getting bigger):
- Worth $37.5B in 2022, it is estimated to hit $69.4B by 2030.
- More than 60 million kids participate annually in the United States.
- The average U.S. parent spends over $1,400 per kid on amateur athletics.
- Over $1B worth of construction on new and renovated youth sports facilities in the US will be finished this year.
- Youth sports tourism generated a reported $39.7B in direct spending in 2021, with a total economic impact of $91.8B.
The space operates in waves, and we seem to be in a big one with professional interest really heating up.
Here are the key players:
About ~500 startups are building in the youth sports ecosystem, but thousands of small businesses exist within it.
There are two varying views about private equity in the space…
- It’s sucking the life out of the middle class, one activity after another.
- All of this monetization is possible because of the existence of excess capital and asymmetrical payoffs across the socioeconomic layers.
Whatever you feel is true, how did we get here?
The Recent Wave in Amateur Athletics
Over the last few years, we’ve seen more interest in the youth sports market.
It all began in…
2018
When Bain Capital acquired Varsity Brands, a maker of cheerleader uniforms and school spirit items, for roughly $2.5 billion.
2019
Juggernaut Capital invested a large sum into youth sports operator 3STEP Sports. 3STEP has since gone through an acquisition frenzy, scooping up club and AAU operators nationwide.
2021
Waud Capital Partners bought a majority stake in the youth sports management platform TeamSnap for an estimated $150M.
Just like 3 STEP did with club operators, TeamSnap has been doing the same by acquiring complementary software companies (nearing $70m in revenue).
2023
Endeavor agreed to sell its IMG Academy sports education business to the private equity firm BPEA EQT in a deal valued at $1.25 billion.
2024
Cooperstown All-Star Village — a youth baseball tournament and resort in New York, sold for $116m to Unrivaled Sports (who has scooped up many additional assets since).
What’s Driving the Growth?
Where there is demand — supply will be met.
And that is the case with the massive growth of club/travel/AAU sports over the last decade.
Most of this stems from a few things:
1. Rising College Tuition Costs
The value of an athletic scholarship increases every single year.
Many families now believe their kid’s only path to college is through sports.
And the tradeoff can seem reasonable…
- Pay $10,000 for your kid to play on an AAU team.
- The kid earns an athletic scholarship worth $50,000/year.
- 2,000% ROI
2. Specialization
Kids specialize earlier (despite studies showing that’s not optimal).
88% of the 2024 first-round NFL Draft Picks played multiple sports in high school.
3. College Recruiting
College coaches prefer to recruit at travel tournaments compared to high school games. That’s just the truth.
Why?
Easier to assess talent on a level playing field compared to high school.
Amateur club basketball already has a tier system:
- Shoe Leagues (Nike, Adidas, New Balance, Under Armour)
- Mid-Major Circuits (Hoop Group, Big Shots)
- Low-Tier Events (local tourneys)
Just like the NCAA has talent tiers (D1, D2, D3) — so does AAU and even high school basketball.
It’s interesting to see how America approaches youth sports differently from Europe.
And this has led to a new development…
The Rise of Prep Schools
Prep schools, short for preparatory schools, are private institutions that provide specialized education, preparing students/athletes for higher education and future careers.
In the US, prep schools are elite institutions with very selective admission criteria and high tuition fees, catering to students in the 13-18 age range.
History of Prep Schools
Private education in the colonies came before public education (before the Civil War).
As public education took hold, private schools sprang up to fill a need not provided for in the public sector—parents who wanted more for their children had options even in the nation’s early days.
In 2024, roughly 90% of American K-12 children will be educated in the public system, with the other 10% at private schools.
Today, prep schools serve two main groups:
- Athletes
- High academic students
Whether you want another year to develop and earn an athletic scholarship or a chance to increase your ACT scores (prep schools serve the need).
And IMG’s success leads to an influx of new private prep schools.
Case Study: IMG Academy
IMG Academy (in Bradenton, Florida) began as the Nick Bollettieri Tennis Academy in 1978 — it produced many of the game’s top stars, including Andre Agassi, Jim Courier, Monica Seles, and Maria Sharapova.
Since then, the academy has expanded its sports programs to include golf, soccer, baseball, basketball, football, lacrosse, track & field, and volleyball.
Some facts:
- 600-acre campus
- represents 40 countries
- 1,400 full-time student-athletes
- 15,000 participants at its camps
In 2014, Endeavor purchased IMG; this past year, it shifted its hands to BPEA EQT for a whopping $1.25 billion.
IMG Academy gives scholarships to its 4 and 5-star players. But everyone else on their roster is paying between $50,000-$100,000/year.
I’m bullish on layer one solutions, like youth academies/prep schools, that combine sports and education.
- Everyone needs some form of education — hence why it’s set to be a $3.1 trillion market size in the United States by 2030.
- NIL legislation has killed amateur sports, allowing athletes to make money at all ages (in most states).
But that’s what makes it interesting…
With sports becoming more commercialized (for good, bad, or indifferent), mixing education with athletics is an appealing opportunity.
Final Insights
Youth sports are on the path to complete commercialization…
The interest in American grassroots sports is stronger than ever (and we’re still in the early innings).
A big shift is seeing Josh Harris and David Blitzer (owners of the 76ers, NJ Devils, and Commanders) recently enter the youth sports space through Unrivaled.
There are some significant challenges to growing a scale business in youth sports that companies need to be positioned well to overcome with brand, IP, and an execution strategy.
The challenges are:
1. Extreme Fragmentation: Youth sports fracture into school leagues, community leagues, club leagues, and travel teams, followed by sport, season, region, sex, etc.
2. Target Demographics: Ultimately, all youth sports companies are targeting a consumer to monetize directly or data to monetize from the consumer. Consumers (read parents) don’t like to spend money on apps because technology is free (thanks to Google and Facebook). Or targeting an athlete (who has no money) for data to resell. Or a program operator (not a businessperson) who is usually involved in sports because it’s a passion. It’s a longer sale cycle to sell them on the efficiency of operations.
3. The cost to acquire (CAC) athletes is high: The fragmentation leads to large spending on digital marketing, labor-intensive gorilla marketing efforts, or freemium (all the calories of having a paying customer without revenue). Usually, companies hyper-focus on a single segment, but that naturally leads to a cap on reach and size. Investment has to be constant to reload the funnel with users.
4. The lifetime values (LTV) are low and limited: An athlete will play youth sports from 11 to 18 in the best-case scenario. The time horizon to monetize a “captured” athlete is 7 years.
5. Monetization options are limited, and most tech is a commodity for youth sports. There are multiple solutions for every aspect of youth sports: registration, payments, merchandise, compliance, data collection, video streaming, management platforms (league, tournament, club, or team), performance platforms, or content. In almost all cases, the monetization is a percentage of the payments, digital advertising dollars, a small fee per athlete, or selling the data. A company getting locked into a particular fragment (see above) caps its ability to scale revenue.
These challenges have littered youth sports with failed companies (out of business or soon to be), zombie companies (a couple million in revenue, a couple $100K in EBITDA, no exit options) and mediocre outcomes for investors.
While a nuanced space to operate in – there are a ton of opportunities to capture here as the market size is increasing exponentially, from the tech plays to the roll-up growth equity plays.
And the potential extends far beyond the United States.
Now is a great time to build in youth sports (or expand your current offering into).
