NewSpring brings its playbook to sports marketer Underdog

Sports marketing is "undergoing tectonic change," NewSpring Capital's Skip Maner told PE Hub. To take advantage of the opportunities inherent in the transformation, NewSpring has been building a sports marketing services platform called Underdog & Company over the last several months.

In June, NewSpring acquired an innovative sports marketing business called Underdog Venture Team out of its NewSpring Holdings II fund and changed the name to Underdog & Company. Underdog is led by co-founder Dan Mannix, who previously was the founder of LeadDog marketing group, which he sold to CSM Sports & Entertainment in 2016. Maner and Mannix met more than 30 years ago when they were students at the University of Richmond. Maner said the process to buy Underdog required about nine months, during which time, NewSpring researched the sector and developed its vision for the company.

Student stars

Maner cited many developments changing the landscape of the sports business, including the potential for PE ownership of sports teams, the rising popularity of streaming services, the growth of women's sports and new opportunities opening up for student-athletes. This last trend drove the first add-on deal for Underdog.

In the past, college athletes were considered amateurs and could not be paid for advertising of promoting a commercial product. There had been mounting pressure on the National Collegiate Athletic Association to make changes with the institution reaching $1.15 billion revenue in 2021. 

The tides turned on June 21, 2021, when the Supreme Court ruled unanimously that the NCAA can't limit education-related benefits to athletes. Though the ruling did not mention name, image, likeness (NIL), it paved the way for student-athletes to profit from their NILs. Later that month, the NCAA lifted its ban on college athletes doing brand endorsements. 

The policy change began a wave of opportunities for student-athletes over the past two years - and created the need for agencies and advisers that can connect them with brands while complying with NCAA rules.

Enter Altius, an adviser to atheltic programs at colleges and universities across the country, including the University of Texas, Duke University and the University of Arizona. Altius has worked on NIL deals with brands such as Shake Shack and Powerade. 

Earlier in November, Underdog announced the acquistion of Altius as its first add-on deal.

More add-ons are expected. "With the pipeline that Dan has with his relationships, we have some very interesting discussions that we think can create tangential synergy opportunities," said Maner, who serves as general partner and founder of the buyout strategy at NewSpring.

Playbook

NewSpring's strategy for a platform company's growth usually begins with identifying a market leader with a mission in an expanding and fragmented market. The firm looks to drive growth through M&A and talent acquisition. 

NewSpring hopes a platform investment like Underdog can grow in annual revenue like the firm has done in the past using the same formula.

Maner said NewSpring made five platform investments from its Holdings I fund: Wealthcare, QUODD, Magna5, USPack and Avantus Federal. Together they make approximately $716 million in combined annual revenue - up
from a total of $50 million when acquired.

NewSpring's strategy worked for federal cybersecurity provider Avantus, which the firm bought in 2018 and sold to QinetiQ for $590 million in
2022. During NewSpring's ownership, Avantus made nine add-on
acquisitions and grew from about 20 employees to approximately 1,200 employees. The average acquisition multiple of Avantus was approximately 6.5x EBITDA and at exit, it earned 17x EBITDA.

"One thing we say to our founders is that we don't believe in roll-ups,"
Maner said. "Roll-ups are like creating a bunch of planets orbiting a star, and we don't believe that's the way to maximize value. Integration is very key to what we do."