23 Capital: creating new ways to monetize intellectual property in sports
By Catherine Jewell, Communications Division, WIPO
Stephen Duval and Jason Traub, are co-founders of 23 Capital, a capital and solutions provider for the sports, music and entertainment sectors. In a recent interview with WIPO Magazine, these visionary entrepreneurs share their insights on how intellectual property (IP) rights are creating value in the rapidly evolving sports sector and talk about 23 Capital’s role in the creation and recent launch of OTRO, an innovative global digital fan club that offers fans the opportunity to connect with some of the world’s most famous football players.
What is 23 Capital?
Jason: 23 Capital is a capital and solutions provider for the sports, music and entertainment sectors. We are not a traditional lender. We think more like a sports or entertainment company than a bank. We provide finance to entities and individuals across these sectors and across the financial risk spectrum.
Stephen: On the financing side, we monetize IP in the sports, music and entertainment sectors in relation to very top-tier contracts or receivables. On the solutions side, we help structure and create new IP, and find new ways to monetize or exploit existing IP to generate innovative new revenue streams. Creating IP and new ways to monetize existing IP is in our DNA.
What gap are you filling in the market?
Stephen: We bring a bread-and- butter offering to a world that has struggled for decades to access basic financing. We have built 23 Capital around our expertise and understanding of how IP drives value in these sectors. For 23 Capital, IP rights can be more valuable than the tangible, physical assets (e.g. stadia) owned by sports organizations.
Jason: IP is a very difficult asset for traditional institutional markets to fund, and those who trade in or otherwise exploit IP in the sports, media and entertainment sectors have never really had access to financing in the same way as companies operating in other sectors. 23 Capital delivers to the sports, music and entertainment sectors what is a core offering in other sectors, and IP rights are central to that endeavor.
Players and athletes are far more IP savvy today, and are increasingly breaking down what was one macro bundle of IP rights into multiple strands where the sum of the parts is greater than the whole.Stephen Duval, Co-founder and Managing Director of 23 Capital
Why are these sectors so poorly financed?
Jason: There are a number of regulatory and risk-related reasons for this. First, banks favor tangible assets, on which they can easily place a market value and trade, over intangibles, which are more difficult to value and trade. For example, it is not so easy to sell a broadcast receivable from a top football club (e.g. the value of a Sky broadcasting payment to Manchester United) if there are problems in the market.
Second, issues around reputation also deter banks from engaging heavily in these sectors. For example, 10 years ago, the British bank, RBS, loaned a hefty sum to Liverpool Football Club. Then, when it all went wrong, the bank was stuck. As a deposit-taking institution, it was reliant on the members of the public, including Liverpool fans, for its day-to-day business and could not afford to be seen as the bank that closed the club down.
Third, generally, banks do not have the footprint to address the global scale of sports. In football, for example, there is no point being an expert in English football, the market is too small. You need to be an expert in Argentinian, Brazilian, English, French, German, Italian and Spanish football to build enough scale to provide a robust offering. Because of the way 23 Capital is set up, we don’t face these barriers.
Who are your main clients?
Stephen: Our clients include anyone holding an IP asset with a potential revenue stream. We could be monetizing a broadcast receivable from Sky, a 10-year stadium naming rights deal, or an adidas sponsorship deal.
Jason: In football, that means from FIFA to UEFA, from the football associations to the Premier League, through to the clubs and players. At each level, there is a world of IP rights owners, including broadcasters, sponsors and commercial partners. Our role is to bring forward and monetize a given receivable to create liquidity. This might involve making it possible for a tennis player entering a five-year sponsorship deal with a big sports brand to receive payment up front.
OTRO is an innovative global digital fan club that allows fans to connect with their soccer heroes like never before. It also offers players a new way to monetize their digital rights.
We only work with the very top-tier across sports, music and entertainment. In sports, that means the top leagues, associations, corporates and rights holders. Their status speaks to their credit quality. That is how we manage our risk. We are not mainstay retail lenders.
Stephen: But top doesn’t always mean the biggest deal. Many top deals fall under the radar of the banks. There is a world of top artists, athletes, brands and other rights holders that don’t have access to flexible and fair funding from traditional institutional lenders, which is where 23 Capital’s sector expertise comes into play.
Can you explain how your capital is used?
Jason: We help our clients build on their IP value. For example, we help football clubs bank roll their activities in the transfer market. Outside a club’s brand and the value of its stadium, the most valuable asset on its balance sheet is almost certainly its players. No traditional bank can make sense of lending against a pool of human beings, but we do. We use our capital to create value for our clients – in this instance, by lending against a pool of players with a market value.
A specific example is the work we do for Portugal’s Benfica, one of the world’s largest clubs. Benfica is very active in the transfer market. We help them manage their balance sheet by providing them with financing to reduce their debt. For example, we purchase from them some of their IP-related receivables, such as broadcasting rights (which they will exploit over the next five years) and with that money they can reduce the debt on their stadium and thereby improve their balance sheet. As a listed company, Benfica holds very valuable IP. Our capital allows them to use their IP rights strategically to improve their balance sheet.
We also help football clubs with liquidity by lending against their players. Similarly, in the music sector, we work with artists to enable them to leverage the value of their catalogues.
Recently, we played a pivotal role in providing the finance to acquire very valuable IP from the likes of David Beckham, Lionel Messi, Neymar Jr., Zinedine Zidane and others to create OTRO, the digital fan club that Stephen put together.
Can you tell us more about OTRO?
Stephen: OTRO is a global digital fan club. It presents exclusively created content from many of the world’s most famous football players. It creates a community where members and players can engage directly, and where fans can connect with their soccer heroes like never before. Membership gives fans access to a range of benefits, including masterclasses and opportunities to meet the players. OTRO also allows players to monetize their digital rights outside of deals with clubs and sponsors in a new way.
I came up with the idea when watching a Champions League just over three years ago. I started thinking about the old fan clubs where you paid USD 2 a month to get coaching tips and other interesting snippets. I extrapolated that out and came up with a new way for players to monetize their digital rights. I wrote the business plan on the plane home after the match and set about making it happen.
We did a soft launch in December 2018. It attracted 370 million unique visitors, and in under a week following its launch in March 2019, we clocked up 80,000 downloads.
How does it generate value?
Stephen: OTRO generates value through a monthly subscription model. The 17 huge names in football – with a collective social media following of close to a billion fans – and the anticipated organic growth of social media means the opportunity for OTRO’s development is huge. The platform will continue to grow as new players join. And there are so many different elements that flow from that IP which can be monetized. For example, you can sell footage to other broadcast partners outside of an exclusive window or you can get commissions from e-commerce. There are also multiple micro-payment opportunities within the platform, where fans can pay a small sum to access different benefits. There are so many ways to monetize it.
What were the difficulties you faced in getting OTRO off the ground?
Stephen: The biggest hurdle was convincing people that it was possible to bring these players together in one place, but we did it. It would be almost impossible to replicate this level of aggregation of players. It took close to three years and we faced multiple challenges, but with patience, creativity, skill, dynamism and determination we succeeded.
The sports landscape is changing significantly. Many technology companies with very deep pockets are now entering the sports space and are offering players new and different ways to exploit their IP.Stephen Duval, Co-founder and Managing Director of 23 Capital
Are athletes today more switched on to IP rights?
Jason: Yes, definitely. Players and athletes are starting to negotiate better positions with teams to hold on to their IP rights. In the past, they didn’t understand the value of their IP and there wasn’t really any way for them to exploit it outside a club or a sponsor. But now there are exciting new ways for them to do that. Players and athletes are far more IP savvy today, and are increasingly breaking down what was one macro bundle of IP rights into multiple strands where the sum of the parts is greater than the whole.
OTRO generates value through a monthly subscription model and offers many different opportunities for IP monetization.
What impact will that have on the sports landscape?
Stephen: That’s a great question, but one that is difficult to answer. At a very high level, the sports landscape is changing significantly. Many technology companies with very deep pockets are now entering the sports space and are offering players new and different ways to exploit their IP.
Digital means more people can watch sports telecasts from anywhere in the world via their mobile phone. They don’t need a television set, they just need a signal. Today, digital rights are pushing more content out to more consumers and as more of them consume that content, digital rights will rise in value.
Millennials are watching less and less live sports and the only way broadcasters can get them to tune in is to offer them footage away from live sports, such as interviews, that allows them to get to know their favorite players better. The only people with the money to buy that footage are the technology companies. So, players will earn ever greater sums of money from their IP. And that dynamic will force change in the broadcasting landscape as technology companies, like DAZN, the live and on-demand sports streaming service, buy up streaming rights. There will be huge changes in the sports broadcasting landscape over the next decade.
What are the next steps for 23 Capital?
Jason: We continue to build up our capital base. Our aim is to deploy USD 15 to USD 20 billion over the next five years. Our vision is to be the preeminent capital and solutions company for the sports, music and entertainment sectors.
Stephen: 23 Capital is always looking at new ways to deploy capital, create innovative ways to monetize IP, and to drive value for our clients. New opportunities abound and we are excited about the potential the eSports industry presents, with the competitive gaming industry predicted to break the USD 1 billion mark for the first time. Our team is also ramping up our presence in the United States, having recently opened offices in New York and Los Angeles, so the future looks bright.
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