Sports Betting Gets New Meaning as Startup Invests in Athletes

(Bloomberg) -- The “Moneyball” era has revolutionized sports, letting teams capitalize on huge troves of data to fine-tune their rosters and win championships.

Now an upstart investment firm wants to take the idea a step further. Home Court Capital -- backed by the son of a National Basketball Association deputy commissioner and a former chief investment officer of Israel’s largest bank -- will crunch data to assess pro athletes and then bet on their earnings potential.

Home Court has raised $150 million that it will put toward early-career athletes in the NBA, National Football League and Major League Baseball. The idea is to pinpoint individuals after their rookie years and give them millions of dollars upfront in exchange for a slice of their future salary and other revenue, say, from endorsement deals.

The approach isn’t entirely new: It’s common for young golfers to accept investments in exchange for a piece of future earnings, and the model has also been tried in minor-league baseball. But this would bring the strategy to top athletes in the highest-profile sports, giving those players a new way to manage their finances.

“We’re laser-focused on providing financial security and flexibility to our clients,” said Home Court Capital President Peter Gourdine, who grew up around pro sports. His late father, Simon, became the highest-ranking black executive in sports when he was named the NBA’s No. 2 official in 1974 and subsequently guided the union.

Unearthing Gems

Here’s how it works: Backed by a team of quants armed with big-data analytics and what the firm calls machine-learning techniques, Home Court will seek to identify second-year players in the NBA and NFL -- and early-career major leaguers -- who they speculate will outperform peers as their careers advance. In other words, the players who are poised to get fatter contracts and lucrative endorsements.

The firm cites two NBA players as examples: Oklahoma City’s Steven Adams and New Orleans’s Jrue Holiday, neither of whose rookie statistics would’ve suggested stardom. Both players have excelled -- and cashed in -- since then. Adams signed a $100 million extension in 2016, while Holiday is getting paid more than $25 million this season.

‘Secret Sauce’

Of course, there’s still no foolproof way to predict sports. Even great athletes get injured and lose games. Others get stuck on underperforming teams or fail to land endorsement deals. But Gourdine and his partner, Guy Fischer, who previously worked as deputy head of the capital markets division at Bank Leumi, have faith in their predictive-modeling “secret sauce.” They also plan to target a wide array of athletes, hedging their bets.

“This enables us to create a diversified portfolio of investments across the three leagues, player positions, and other important variables, to mitigate concentration risk,” said Fischer, who oversaw investments of more than $23 billion at Bank Leumi.

Once Home Court homes in on a prospective target, the firm will offer that athlete an upfront cash payment -- in some cases, amounting to millions of dollars -- in exchange for something in the 8 percent to 10 percent range of future earnings. If the athletes don’t end up generating the expected income, the money doesn’t need to be repaid. But they’ll have to share the wealth if their career blossoms.

This kind of arrangement doesn’t make sense for superstars like LeBron James, because they’re typically flush from the start. James joined the NBA straight from high school with such fanfare that Nike Inc. awarded him a record-breaking rookie shoe contract.

Home Court’s backers didn’t want to be identified. Gourdine says they include a privately held investment company, a closely held tech company and some high net-worth individuals.

©2018 Bloomberg L.P.