Breaking the trend: Investing in non-traditional asset classes

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Breaking the trend: Investing in non-traditional asset classes

Diversifying into Mixed Martial Arts and the music and entertainment industries can represent tremendous upside and protection against global market conditions, writes Simon Calton.

In today’s economy, most in the financial sector are rightfully discussing the volatility stemming from tweets, trade wars, and Brexit – all of which have rapidly shifted our focus on stocks vs. bonds, real estate, and other traditional asset classes. However, those who stop searching there do so at their peril.

There are lesser-known asset classes providing exposure to some established, and some new industries that shouldn’t be overlooked. For example, look no further than both Mixed Martial Arts (MMA) and the music and entertainment industries, the former being relatively new and the latter quite established. Diversifying into both of these sectors can represent tremendous upside (after careful due diligence, of course) and protection against global market conditions.

MMA       

As the fastest growing sport on the planet, MMA has not always been perceived as an ethical sport and is often categorized as dangerous. However, over the past decade, it has gained global notoriety with the likes of One Championship, Bellator and the most popular, the Ultimate Fighting Championship (UFC).

In 2016, the UFC made history in sports with one of the highest value deals to date, being sold for more than $4 billion. Prior to that in 2002, UFC was purchased for just $2 million, showing tremendous growth between transactions. Just a year ago, the UFC saw its stock jump drastically with a TV deal with ESPN worth $1.5 billion. This along with an additional $700 million in revenue values the sport at $7 billion.

An investor needs to ask the same questions as they would of a technology stock! What makes MMA stand apart from other popular sports including Cricket, baseball, and the number one sport globally football? This question is met with a swift answer – growing equality within the sport — as superstars who have paved the way for the women’s division to headline Pay Per View (PPV) cards include Ronda Rousey, Amanda Nunes, and now China’s first-ever Champion – Zhang Weili.

Currently, investing in the sport sounds easier said than done, however, although UFC’s parent company, William Morris Endeavor, is working towards providing its fans and investors with more accessibility by filing to go public. Which will catapult the sport into mainstream investment.

MMA has become a staple in the sports world shaping culture, no matter the country, by providing various opportunities for other organisations and schools to open their doors and flourish. We’ve seen experienced year-over-year growth but have not seen MMA hit its full potential which in turn makes investing in it highly profitable. Although a little way off from achieving the popularity and profitable success of sports such as boxing and motorsports, MMA’s growth globally should allow it to survive an economic correction.

To that end, how can we act on the opportunity to invest in such a unique and growing asset class?

Investors must separate real industry players from the opportunists. And despite an abundance of the former, there’s plenty more of the latter. It is easy to believe someone who says they are an MMA expert, but the reality is that they may just be great at marketing or have deep media and operational experience. The industry is growing but potholes remain – careful due diligence and evaluation of those who not only understand the business but the sport itself can provide to be a fruitful reward.

Music and Entertainment

In addition to MMA, investors who are seeking alternatives to traditional asset classes should seriously consider the music and entertainment industry. Similar to MMA, music and entertainment represent hobbies, art and culture – but more broadly a way for people to relax, have fun, and get their mind off the daily stresses of life and work.

It was only a few years ago that the music industry was considered “dead” or certainly on the decline as the internet seemingly made every song attainable, for free. But as usual, creative and innovative minds adapted, and now the industry is back on the upswing. Earlier this year, RIAA released its semiannual compilation of recorded music revenues. The growth we’ve seen since 2016 suggests that the industry will continue down that path. Overall growth was 13% over last year to $9.8 billion—off slightly from 2017’s 17% growth over 2016 but healthy, nonetheless.

Entertainment is everywhere, and despite an abundance of statistics and market reports covering the sector, this industry is just too broad to pin a number on. The next time you’re in public, be it the train, public park, concert or sporting event…take a look around. The majority of people in the room are using their cell phone, most likely to spend hours a day watching videos, scrolling through social media, listening to music, etc. Entertainment in the form of games, streaming videos/shows, sports, and other forms of entertainment are at your fingertips, and savvy investors understand this upside.

As with many asset classes, opportunities abound via direct investment, in or participating in a fund that invests in either MMA or music and entertainment. However, as always, I do warn to pay close attention to the details and the people you are trusting. It is critical to do your own research in order to make an educated decision.

Simon Calton is the CEO of the Carlton James Group.

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