Deal To Watch: Extreme Relay Racing

$14M

Key Stats: The Human Baton on NetCapital

Pre Money Valuation

$14M

Amount Raised

$504,022

Number of Investors

Not Known

Minimum Raise

$10,004

Maximum Raise

$1,069,998

Likelihood of Max Unlikely
Start Date

07/18/2019

Stop Date

10/16/2019

Days Remaining

26

Security Type

Other Security Type

Investment Minimum

$99

Deal Analytics

Click Here

Summary

The Human Baton has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com. 

Summary

Sports entertainment is a major industry with significant opportunities for participants who grab  onto some idea that catches the attention of the masses. THB Holdco Inc. is working to launch its flagship product, The Human Baton. Instead of simply organizing, capturing on film, and distributing sports content for interested parties, THB aspires to mix technology into the space.  

The objective is to create a new and interesting perspective for the audience to indulge in, by  pairing its competitors with the latest in immersive technology. The way the company intends to approach the space could open new doors for innovative experiences, though to some individuals who are not drawn to the sports industry, this may seem unexciting.  

The Problem

The nature of sports viewing is changing. According to a report by McKinsey & Company, the young Millennial generation is not watching television as  prior generations have. In all, Millennials in 2016 watched 28% fewer hours of TV than people their age did in 2010. 

In addition, the study found that 45% of Generation X respondents are considered big sports fans, compared to just 38% of Millennials who fit that description. The issue, however, seems to be mixed between two things.

First and foremost, Millennials are watching less television because they are either not having children or delaying when they have them. Millennials who did have children watched, on average, 55% more television than those who live alone, and watch it only 14% less than Generation X respondents under 49 years of age.  

The second issue  relates to how information is consumed. Regarding  sports broadcasting in particular, despite Millennials and Generation X respondents having similar digital content consumption, the former group watched an average of only 3.2 games per week versus the 3.4 games per week watched by the latter group.  They had a tendency to switch more to highlights posted on social media and to tune away from low-stakes or lopsided games.  

 

The Solution

This paradigm shift in consumption has created an issue for the sports entertainment industry.  There is little that can be done regarding the time spent on television between Millennials who have children and those who don’t.  Engagement can be intensified by an offering that brings something new, exciting, and immersive that fits with technology’s progress in recent years. This is what  the founders of THB appear to be targeting.  

Their flagship product, The Human Baton, is geared toward exposing a wider audience to a new way of sports viewing.  The company intends to air a series of different sports competitions, some of which are pictured below, and have high-performance athletes passed along as a sort of “human baton” from event to event.  

Each relevant participant will be geared with technology, from the training phase through the competition phase. That will allow the viewers, through the company’s app, to see what the athletes are experiencing. THB hopes, to establish an emotional connection between viewers and the “human baton”.  The founders’ hope, this tech-savvy approach to the market, will meet the cravings of current sports viewers including Millennials, by offering a high-adrenaline, immersive experience.

This concept offers several different streams  of revenue generation for the company and its shareholders. One of the most significant ways of generating sales may be through the syndication/licensing of content created during the program, with current television and additional networks paying to relay the race or parts of it to their viewers.  

It may be useful to touch upon one piece of the sports market, for illustrative purposes, that offers some crossover with The Human Baton: car racing.  The publicly -traded firm Speedway Motorsports reported in its 2018 annual report that 47% of its revenue generated  from broadcasting activities/rights.  That represents about $216.6 million of the firm’s $461.9 million in revenue for the year, and if management is correct, total gross annual rights fees, on average, for the industry should be about $820 million per annum over the next decade.

In addition, there are merchandising opportunities, sponsorship opportunities, and more. One interesting avenue for the company to explore is the franchising or sale of league teams. The goal, management said, is to allow up to 30 team slots for their Global Premier Event.

 

The Massive Market

If management can take advantage of  this opportunity , the upside for investors could be significant.  The market for sports in the US alone is massive in scope. According to one source, this year, the US sports market is estimated to be $73.5 billion, up from $60.5 billion in 2014.  

Sports  media rights have grown over the same period of time, from $14.6 billion to $20.6 billion, while sponsorship opportunities have expanded from $14.7 billion to $18.3 billion. Merchandising has seen considerably slower growth, but growth nonetheless, as the market there has expanded modestly from $13.5 billion to $14.5 billion.  

THB intends for The Human Baton to be a global phenomenon. If successful, they envision it being held on a different continent every year. This would open immense opportunities for the company and its shareholders. 

One source estimated that the size of the global sports market in 2018 was about $488.5 billion and by 2022 it could grow to nearly $614 billion. 

Some similarities can be drawn between what THB is attempting to achieve and what the eSports market is quickly becoming. Even though the content being viewed is undeniably different between the two spaces. Both involve the immersive experiences of being ‘in-the-game’ and both appear to focus on the future of having distinct league teams to create and drive fandom.  

The  upside alone from selling teams could be significant If THB can take off in the way that it hopes. No public pricing has been made available regarding league teams, and it’s likely that early on, the prices paid by investors for such teams will be far lower than in the coming years. eSports teams for major leagues have reportedly sold for prices of up to $20 million apiece, with some teams likely to rise to $25 million or even higher. 

An Eye On Management

The current management team listed by THB is 21 members in size (including 7 advisors). This is a large team for a start-up of any kind, but that’s not necessarily bad.  Each member brings some significant amount of experience. One prime example is Stev Stephens, one of THB’s two founders.  

He served as Executive Producer and Director of Business Development for ATS Filmworks,this was after working on the production of over 800 television episodes and winning 3 Image Awards with PBS of America. Stev was also instrumental in the international expansion of the American Ninja Warrior franchise.  Co-founder, Phillip Carrington, served 8 years in the Royal Marines and has extensive experience with extreme sports, ranging from commercial diving to professional rope access climbing, and more. 

Stephens and Carrington are the primary brains behind this business, but there are other members who deserve attention.  Christopher Darnell, is the company’s CEO. A global executive with experience overseeing $1.5 billion in investments across emerging markets, through start-ups, and high-growth companies, Darnell has extensive business and technology credentials.  His experience also includes 10 years at Microsoft on the teams that launched Microsoft Cloud and the Xbox entertainment platform. Jeff Romeo, THB’s CMO, has over 20 years of marketing experience and served as a Senior Director at Edelman as well as serving as the founder and CEO of his own marketing firm, VJR Consulting.  He specializes in global marketing for sports, entertainment, and technology clients.  

Terms of the Deal

THB is working to raise $5.356 million in funding (up to $4.29 million through Regulation D), pricing units at $7.10 apiece and labeled as Class A common units. The pre-money valuation implied by its raise is $12.496 million, while the post-money valuation, if the round gets fully subscribed, is predicted  to be $17.852 million.  

The company has easily surpassed its minimum target of $10,000 in funding, having just over $500,000 pledged to its cause as of the time of this writing.  None of the shares issued in this offering will permit voting rights to the investors, only the Class B common units will carry voting rights. For some investors, this is a deal-breaker, but for small investors, it probably won’t matter.

The minimum amount of capital an individual investor can allocate is $99.40, but there are incentives for shareholders to allocate more. The biggest reason to do so (besides more upside in dollar terms if the firm is successful) relates to Special Rights being offered by the business.  Management intends to pay out a special distribution to larger shareholders once cash on hand is 10 times more than what is being raised through its Regulation D offering and assuming that such an amount held on hand occurs between years 2 and 10 following the raise. 

Any investor who acquires 7,043 units, for instance, will be entitled to 1.15 times their payout in the form of cash (while allowing them to retain their ownership), while anybody who owns 70,423 units will be entitled to 1.50 times. It is entirely possible that these terms might not be met, in which case the Special Rights will expire worthless.  

The Rating: Deal To Watch

The Human Baton is a Deal To Watch. After investigating the information provided by management and analyzing the industry, this transaction has been rated as a Deal To Watch.  Even though the space is highly-competitive, management’s extensive experience, combined with their innovative approach in capturing the market’s attention using immersive technology, comes across as highly appealing.  

Leadership from an industry veteran is one major benefit that this company has on its side.   Stev Stephens, the company’s Managing Director and one of its two founders, was instrumental in taking the American Ninja Warrior franchise international.  The initial incarnation of the Ninja Warrior series, in which athletes compete in different obstacle courses in various cities for a shot at prize money, has been wildly-successful, with seasons 4 through 10 (the 11th season’s data is not yet available) averaging nightly viewership of between 5 million and just over 6.5 million.  Although the number of 18 to 49 year-olds viewing the show has declined from 1.9 million to 1.1 million over the last four seasons, few programs can boast more than a decade running, which only supports the bullish stance for The Human Baton.

The economic interest in the form of ownership percentage being provided to shareholders in this offering (a full 30%) is significant in size and provides plenty of upside, if things go right, even though shares are non-voting.  Potentially there’s enough upside even if subsequent raises are required and shareholders are diluted. However, a significant amount of additional capital still needs to be raised to enable the company to take next steps.  

There are other important risks to be cognizant of.  While the franchise league model is attractive and serves to create significant fandom, selling teams can be challenging, perhaps even impossible, for a first-time player in the space, even with such an extraordinary line-up of management and other support partners.  It is possible that until (or if) the brand is proven successful, there could be little to no interest on this front which, in turn, might hinder the size and scale of the event the company wants to launch. Although the American Ninja Warrior show could be considered a successful archetype of what The Human Baton aspires to be, there is no guarantee that an audience of sufficient size will exist and be exposed to this program to allow it to truly take off.

Though these are real risks that investors need to be wary of, any scenario where these negative aspects do not come to fruition should result in positive prospects for the company and its shareholders. The firm could very well change the way that entertainment in this large and growing segment is absorbed through the launch of a tech-oriented, consumer experience-driven sports and media business, and being at the helm of that paradigm shift could be very rewarding.  These risks, particularly the tremendous amount of capital required by the business in order to succeed, are the only thing that’s stopping this concept from being considered a Top Deal.

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About: Chris lustrino

A Boston College Eagle for life, on a mission to democratize startup investing for all people at KingsCrowd, with a passion for Fintech, investing, social impact, doing well and doing good, and an avid runner, cyclist and writer.

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