MLP Wins The Battle For Talent

Diving Right In…

Please forward this along to any other pickleball addicts you meet and we’ll be eternally grateful!

In lieu of our normal newsletter, today is going to be an expansion on some thoughts around the latest MLP vs. PPA fight.

MLP Wins The Battle For Talent

A lot has happened in the professional pickleball world over the past 7 days. It appears at this point that MLP has moved into the leadership position after a massive landgrab of talent, especially after its latest significant blow today getting JW Johnson, Dylan Frazier, Jorja Johnson, Gabe Tardio, and Milan Rane off the fence and into their camp.

While a lot of details remain behind closed doors, it’s hard not to see it as MLP’s game to lose at this point with the aggressive business move resulting in a lot of the cards falling in their favor. We wanted to provide our thoughts on MLP’s current position through the lens of a few questions:

1. Why does MLP need to exist?

2. What gives MLP its current edge in the market?

3. What will they need to execute in order to succeed?

Why does MLP need to exist?

Without getting into all the reasons why pickleball is experiencing explosive growth, its rise in popularity continues to bring in newcomers and experience high retention among existing players. For many, it’s a hobby that keeps them active and social. However, to move the sport past a recreational pastime relegated to your local park, there needs to be a professional outlet that represents the highest caliber of talent. This provides something to aspire to if you’re a young player, something to relate to & admire if you’re a current player, and something to pursue if you have that belief in yourself.

Both MLP’s and PPA’s core product offering provides this outlet for the professional game to grow and talent to compete at the highest level. The existence of MLP pro teams also creates opportunities for more professional pickleball infrastructure to emerge, including private coaching, academies, recruiting agencies, data analytics providers, better paddles, collegiate sports & scholarships, sanctioned tournament play, and others. This helps spur greater investment and innovation into the sport writ large, which provides downstream benefits for your everyday player.

Lastly, the existence of both major organizations provides reciprocal benefits to each other in the form of competition mandating innovation and execution. In the current world, both organizations have competing visions for what the professional product should look like for fans and players. While competition often leads to compressed margins, higher quality products for end-users, and extreme management focus, it provides a necessary fire to force both to innovate or die.

In the abstract, there can be the existence of both a Tour and a League, but the practical considerations of aggregating talent, viewers, sponsors, premier locations, and broadcasting rights will force the two to compete for these finite resources. The history of many competing sports leagues often ends in either one gaining the upper hand, or the combination of the two:

AFL<>NFL merger in 1966. ABA<>NBA merger in 1976. NHL merger with World Hockey Association in 1979. Federal League dissolution in 1916 after competing with the MLB for 3 years.

With the merger of equals all but collapsed for now, and likely no shot at coming back in the near term, both groups now exist to force each other to build and execute the highest quality product offering for fans, players, and investors. Competition is a good thing in our view, as it sharpens the product for users and missions of management teams. Those who are unable to deliver a product that needs to exist in the market will, and should, fail.

So, what gives MLP its current edge to come out on top?

Deep Roster of Talent
MLP has won the battle for talent and arguably has a multi-year runway to prove itself if players remain under the rumored contracts.

Every professional sports league needs to be attentive to the experience of its athletes in order to deliver a high-quality product for its fans. MLP is off on the right foot by accumulating a bench of high-quality talent paired with depth and relative parity among players. This allows for closer competition and more variability in game outcomes. While many fans enjoy rooting for the underdog, the greater the dispersion between the top player(s) and the rest of the field, the more repetitive the outcome tends to be, as fans can often crown the winner before the game starts.

Lastly, we believe it’s worth noting that there’s some social signal provided by the cascade of players to MLP, effectively voting with their feet towards the organization that they believe will enhance their careers most through some combination of competition, financial incentives, treatment, and format experience.

With that said, it’s worth noting that attracting and retaining the highest quality talent will undoubtedly come at a high price tag, especially when it’s rumored that some contracts may have crossed into the 7-figure mark. Runaway talent acquisition costs have led to previous competing professional sports leagues’ insolvency and collapse in prior decades. So, MLP will be in a delicate position to manage that burn relative to the potential revenue they’ll be able to generate from future broadcast/streaming deals and sponsorships now that they have the critical mass of talent.

Compelling Formats
Pickleball is in a unique position to experiment with different game formats, as it lacks decades of precedent, culture, and legacy resisting change.

Their flagship team-based product offering is an exciting format that showcases a higher-energy atmosphere between players and fans and creates more variability in outcome given the inability of a single individual or pairing of players to dictate the entire match result. Not to mention, this variability in outcome presents unique opportunities for MLP to ink its own partnerships with betting markets, opening up a new revenue opportunity and a chance to bring a new set of consumers into the ecosystem.

Over the long run, this format creates the opportunity for passionate pickleball fans to become attached to their favorite team, and not simply their favorite players. This provides each team a real opportunity to activate their fanbase in their local community and nationally, bringing in greater awareness to MLP, ancillary revenue streams per team, and importantly new TV and in-person viewers to the sport - generating better and larger broadcast / streaming deals.

Furthermore, MLP does not have to exclusively hold its players to a team-based system, as they can spin up their own tour format. This helps manage the athlete experience, as there are players who love the chance to compete with either their team partners (or players on other teams) in head-to-head matchups against the best competition in the League. In our view, it is significantly harder to replicate the delicate conditions needed to support a team-based league than it is to create the conditions for a Tour. The stakeholders in Tour formats are largely independent players and fans who self-select to compete and watch during an organized period of time. Team-based leagues require a new angle of attracting engaged owners who are willing to invest large sums of time and money to build out a true, professional organization to draft and manage talent, as well as grow their fanbase and figure out how to monetize their own assets.

Owner Incentive and Alignment
The prospect of this peaceful merger for almost the past year may have created complacency among some team owners/investors that everything would work itself out, move along under Steve’s vision, and keep growing in value as more investors fight to get a slice of a scarce asset class. This move and the collapse of the merger provided a necessary shot in the arm to the entire organization and owners who now need to lean in, professionalize their teams, and figure out the right way to monetize their fanbase to pay for players and potentially new facilities in their home markets. We believe there’s a talented group of investors in these teams who have been sitting on the sidelines and now have the proper incentives to get involved since it has become apparent what was true all along, that this is and will become an increasingly competitive market vying for a finite supply of viewers and talent.

Unique Suite of Additional Assets
While all the discussion in recent days has largely centered around Major League Pickleball’s professional pickleball product offering, we’d be remiss to not mention their two other core assets under the MLP banner - DUPR and Minor League Pickleball.

Starting with DUPR. They have built one of the most robust databases of player rankings, as nearly every amateur player signs up during tournaments in order to try to improve their DUPR score through winning over time. Until DUPR is used as a gating item in the future (e.g. college recruiting, qualifying for tournaments, entry into leagues), it’s truly gamification at its finest the way a diehard Peloton rider wants to rise on their leaderboard. However, creating habitual behavior and a base of amateur players who care about their scores (even if they can’t pinpoint why they care about their scores other than pride) puts DUPR in a unique position to monetize in the future. We could see a world where DUPR becomes a broader platform subscription that manages your digital pickleball footprint, from online coaching, to match results, to replay footage, to data analytics. Aggregating nearly all ‘serious’ pickleball players gives them multiple lanes to swim in.

Next, Minor League Pickleball has a very compelling format to capitalize on a massive population of amateur pickleball players facing various forms of tournament fatigue. It can be a pretty lackluster experience to spend $150+ on a tournament weekend to drive 30+ minutes to a location where you wait hours to play a match, and then are sent home after playing a cumulative 30 minutes of points between your first round loss and back draw loss. Minor League Pickleball brings a unique approach, giving amateur players multiple games per matchup, as each team plays men’s / women’s doubles + mixed doubles + a potential dreambreaker singles format tie-breaker, as well as multiple matches throughout the day as you compete against different teams in your pool. There’s an appetite among amateur players to try a new format that brings a team-based element to play with their friends, as well as getting more play time when dedicating your weekend to a tournament.

So if the table is set for them to start with a lead, what do they need to execute in order to succeed?

It appears that through MLP’s series of recent strategic moves and the unique format + assets they’ve built out over the past years under the grand vision of its founder, Steve Kuhn, the organization is in the position to be the leading horse out the gate. They now have a series of key priorities we believe they need to execute, and, frankly, they haven’t knocked any of these cleanly out of the park in the past two years, creating a degree of execution risk.

Broadcasting / Streaming Rights
Like almost every sports league in the U.S., MLP’s most lucrative revenue opportunities will likely come from winning bigger deals to broadcast / stream MLP events across the country. These deals will come on the back of increased viewership, which to date, has been far from anything to write home about. Somehow, despite the fervent passion that amateur players feel for the sport - waiting hours to play games, spending $200+ on paddles, traveling for rec tournaments, becoming people’s main source of physical activity & social interaction - MLP has been unable to materially convert the millions of players to live viewers. If it’s a distribution and awareness problem, those feel manageable through new ideas, however, if it’s something more core to what gets an individual excited to follow the sport and tune in to watch, then MLP is going to have its work cut out for them. The talent acquisition piggy bank won’t stay solvent forever, and broadcasting / streaming is presumably a key piece to keep the ship moving. Failure to get a deal going would force the League to radically reposition how it makes money and affords its mounting costs to deliver a high quality player and fan experience.

Sponsor Acquisition
From a revenue model perspective, bringing in the volume and caliber of talent that MLP has to their matches should improve the value of sponsorships that they can access. However, sponsors aren’t shelling out money to say they have “X” pro on their roster or are the Gold sponsor of “Y” event for fun. They’re doing it for the same reason as the broadcasters / streamers above - it drives the eyeballs watching the sport to convert and buy their products. Sponsor acquisition will likely be a more straightforward sell in the near-term while there’s tremendous hype around the roster MLP has put together, however, they will similarly be keeping a close eye on how MLP is able to bring in new waves of pickleball enthusiasts to their events online, on TV, or in-person.

Celebrity Activation
One of the more frustrating observations around the buzz of all the celebrity owners piling into pickleball teams is the press-post-to-silence pipeline (save for a few like Drew Brees). If you didn’t know any better you’d wonder if they were embarrassed to be seen around their multi-million dollar asset with how little these ‘big-name’ celebrities are involved after the deal closes. It feels like a throwaway line in any consumer-based investment to say “we’ll get the celebrities involved to bring in fans/consumers”, when it’s unclear if you need the celebrities to bring in the fans, or if you need strong fan engagement to convince these celebrities that an appearance is a good use of their day. As we all know, time is our most scarce resource, so it’s unclear how exactly every team will activate their celebrity owners to get more involved. With that said, whichever team can figure out the playbook for this and share it with the other 23 team owners, it would be a huge unlock that could potentially drive more viewers through their influence on culture.

Player <> Fan Activation
One of the more immediate ways for each team to bring value to their organization is by developing community outreach events that bring fans or corporates + pro players of a given team together. This is more actionable in the near term and largely accrues value to individual teams, unless it is managed at the MLP HoldCo level with profit sharing for all teams. It’s a unique, albeit untested, method for teams to start building loyalty among fans for the players & team for the first time.

Activating Millions of Passionate Amateur Pickleball Players
Alongside the aforementioned need to bring amateur pickleball players into the pro game as viewers, MLP needs to make inroads with these passionate players through Minor League Pickleball and DUPR. Having the right products in Minor League and DUPR is a key advantage for their business, but executing on bringing awareness to these products isn’t as straightforward as it appears. Even in Austin, TX, among a highly active pickleball crowd, we were surprised how few knew about Minor League tournaments, and very few could articulate what the purpose of DUPR was other than to ‘give them a rating’, which, while objectively true, seems to suggest that DUPR’s longer-term vision isn’t being articulated to consumers at this point in time.

A quick note on some idiosyncratic risks:
MLP potentially faces a few risks specific to their organization and format that are worth quickly highlighting.

1. Litigation overhang distracting the team
   Our guess is that this will end up in court based on how many failed M&A transactions result in some form of litigation. The biggest question for us is how burdensome this potential process will be on management, consequently impacting their ability to execute on the priorities laid out above.

2. Lack of consensus among owners creates disparate experiences for players
   MLP may have signed a majority of the talent, but many of these players will end up on teams with owners who all have their own motivations for why they own their team. In our optimistic case, the recent dynamics will be a forcing function for teams to further professionalize, with one of their priorities being player wellbeing. However, the risk remains that some owners could unintentionally create such poor experiences for their players that they choose to only play on a potential Tour-like product at best, or defect from MLP upon contract expiry at worst.

Final Thoughts

We’re quite optimistic about the opportunity that MLP has in front of itself, with numerous material tailwinds setting it up to take market share from PPA and become the preeminent pro tour for players and fans. Nevertheless, they have a tall order of tasks that will require differing degrees of financial and time investment by the MLP team. Like any business charging into hypergrowth mode, MLP will have a clear priority to plan and execute on developing a profitable business model that keeps the business solvent as it takes on a greater role in the professional and amateur pickleball game. We’re excited to follow along.

As always, we’d love to hear where you agree with us, but more importantly, where you disagree with us. Debating and sharing ideas is of paramount importance to us.

You can reply to this email, or set up a time to talk here.

- Ryan & Braxton