Barça Media Could Spawn Trend of Teams Spinning Out Non-Core Business Lines
Barça Media Could Spawn Trend of Teams Spinning Out Non-Core Business Lines
Barça Media, a collective of audiovisual, gaming, and digital content creation businesses spun out of FC Barcelona, entered into a business combination with Mountain & Co. I Acquisition Corp., a publicly traded special purpose acquisition vehicle (NASDAQ: MCAA) back in August. The transaction valued the combined company at a proforma enterprise value of ~$1 billion.
The deal enabled FC Barcelona to unload the responsibilities associated with several non-core endeavors (while retaining its position as the controlling equity shareholder in them), and to bring in the capital it needs to pursue a multi-pronged growth strategy through a publicly listed stock offering.
Speculation exists FC Barcelona’s strategic decision to spin out Barça Media will result in other global clubs with digital content arms following suit.
“Sports teams [with carve out] structures maintain full upside, offer investors attractive participation in the brand and its global media distribution, while ‘outsourcing’ time-intensive management and funding needs,” one FC Barcelona insider said. “Therefore, we expect that other clubs will follow this example.”
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Mountain & Co. I Acquisition Corp. IPO’d after the SPAC craze subsided (November 5, 2021). But with a focus on European-based tech, consumer internet, and media companies (they’re often cheaper than their American counterparts), and paths to the European capital markets underdeveloped (at least when compared to the U.S.), a SPAC remained a viable vehicle to take a company public.
“If you’re a U.S. based tech unicorn, you don’t necessarily need a SPAC to go public and gain access to significant capital,” Alexander Hornung (CFO, Mountain & Co. I Acquisition Corp.) said. “But in Europe, there are so few IPOs in that space. We figured we have this robust network, why not do a SPAC, list on the NASDAQ –which is the goal of most European companies anyway– and then find the right target.”
European tech companies want to be on the NASDAQ as it is more liquid, and has access to deeper pocketed investors, than their respective domestic exchanges.
Mountain & Co. heard in Q4 ’22 that FC Barcelona was considering spinning off several ancillary revenue streams (think: VR, fan tokens, AI, NFTs) into separate entities, and looking for partners who could help to accelerate each of them individually. There was talk of the club selling shares in each business line to generate some short-term income.
“But that isn’t the smartest way to develop an increasingly lucrative media content business,” Hornung said. “Together, with FC Barcelona’s management, we determined that it [would be] more value accretive to the club in the long run, and sustainable, if it is all run as one entity.”
The two sides spent much of the next year working to formulate the business model for Barça Media. The standalone entity will be supported by three revenue-generating pillars at the outset.
The first is content production focused and will include “plenary digital media rights for all FC Barcelona content outside of live game,” Hornung said. “Any Instagram photo, short TikTok clip, Netflix documentary, podcast, animated kid series, matchday highlights, or behind the scenes footage [falls under the umbrella].”
The high margin business, which is widely believed to be under monetized, is already cash-flow positive.
The second pillar includes the various web3 and next-gen technology businesses referenced four paras above. While the mere mention of NFTs may cause readers to roll their eyes, some of those lines can bring in real revenue.
“There are plans for Barça Media that will deliver [seven figure annual revenues] over the coming years,” Hornung said. For example, the company is preparing to produce “concerts with the biggest performers [in the world] in a virtual Camp Nou Stadium.”
The third contains the club’s esports and gaming endeavors. While this pillar currently generates the least revenue today, Hornung remains enamored with the potential to engage and develop fans in Asia.
“This is an incredible opportunity and no sports team in Europe has gotten it down properly,” he said.
Barça Media also holds the right to launch a branded venture capital fund.
“Being VCs and PE investors by nature, we see [a] huge opportunity to partner with up-and-coming companies [down the line],” Hornung said.
There are no perfect comps for Barça Media. The company’s cost and revenue basis are vastly different from a publicly traded team, and it’s not a pure content creator or streaming platform, either.
But Mountain & Co. (and its advisors) were able to get comfortable with the combined valuation by projecting annual EBITDA, applying multiples triangulated from those three comp sets, and then applying a discount to that figure.
“If we can convert 1% of the club’s 420+ million social media followers into paying customers at a $20 per year per customer, that gets us north of $80 million in EBITDA for one year,” Hornung said.
Its not clear how realistic doing that will be. Converting fans into paying customers will require the club to know who they are.
Public market investors have barely reacted to news of the business combination. But that’s likely reflective of the fact the SPAC has yet to file financial statements.
Historically speaking, sports teams have not made for strong public companies. However, Hornung reminds that public shareholders and SPAC investors are not investing in the club with Barça Media.
It’s an opportunity “to buy into an incredible brand and participate in the upside of digital content creation and distribution without having to pay for player salaries or stadium operating costs,” he said.
FC Barcelona had little choice but to spin off its digital assets.
The club “is an institution representing Catalonian culture, tradition, and values across the globe,” Hornung said. “Its board and fans won’t want to take on a sovereign fund or other investor at the club level.”
So, to compete in a world where other teams have those resources at their disposal, it needs access to more capital. It must also do a better job than the competition of monetizing new and emerging digital income streams.
Mountain & Co. was not the first SPAC to approach FC Barcelona. But the club rejected the prior inquiries.
Deep industry know-how and the reputation of Mountain’s management team and board differentiated this group. The collective could also to add value to the partnership through its relevant global media and investor networks.
Chief strategy officer Dr. Thomas Middlehoff previously served as CEO of Bertelsmann (the largest media co. in the world at the time) and former AOL Time Warner chief strategist Miles Gilburne is also on the team.
Mountain & Co. has already delivered bringing in a pair of strategic investors. They invested 120 million Euros directly into the club.
The money was “in exchange for the shares that will be listed in the public vehicle,” Hornung said.
The SPAC raised $130 million (after redemptions) separately, and is now engaged in discussion with the club about how large of a pipe to add. The goal is to close the entire transaction in Q1 ‘24.
Barça Media intends to use the capital to grow organically and to fund one or two key acquisitions.
“There are streaming service providers and other tech companies we can integrate and consolidate,” Hornung said. “You can even [imagine], in the future, that [the company] will produce white label content for smaller teams [with fewer resources].”
In the interim, Mountain & Co. and Barça Media will look to find strategic partners in each of the three key geographic areas the club has deemed important outside Europe (see: LATAM, North America and Asia). While they’ll add capital, the expectation is they’ll also be able to help grow the content business in those regions.
If Barça Media is successful as public company, other sports properties with global followings will certainly look to follow FC Barcelona’s lead.
“This is the future. Media and digital rights and distributing content to fans around the globe is one of the most important mechanisms for a club to ensure future revenues, connect to the fan directly, and learn more about their customers,” Hornung said. “At the same time, the club can consolidate the equity of the listed company on its balance sheet.”
In fact, the business/stock might not even have to enjoy any success before others follow suit.
Other European soccer teams are said to already be discussing similar transactions.
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