The investment firm, Silverbacks Holdings, majorly focuses on acquiring minority stakes in professional sports franchises, tech companies, media and entertainment investments as well as investing in fashion and luxury brands:
Why are you optimistic about these industries in Africa?
Whenever a consumer engages positively with a product there are three levels of interaction. Firstly, people enter into a relationship with a product because they like it. If you do not like it, you simply don’t interact. The definition of liking is being attracted to the attributes of that product, including the utility functions.
A level up from this is love. That is when you are willing to tolerate the limitations of the defects of the product. For example, many Apple consumers are willing to tolerate the limitations of some features, for example, the quality of an iPhone camera in relation to that of a Samsung phone, because they love the overall experience of the product.
There is a level above liking and loving where these industries that you’ve mentioned, operate. And that is the level of adoration. That is what you fundamentally have with a company like Apple, but also what you eminently have in religion (which, in truth, are actually the most powerful and respected brands in the world), and that is what you have with sports and luxury goods.
You achieve adoration when consumers are no longer concerned with the utility function and features but only care about the lifestyle and what it says about them. Take a young man in a village in Ghana, for example, who is a super fan of Manchester United. He has never traveled to the UK, but he is completely enthralled by eleven strangers, chasing a ball on a pitch and is willing to get into a physical argument in a bar for them.
One should also note that there is a timelessness and level of immortality that comes at this third level of adoration for brands. Most baseball brands in the US are 100 to 120 years old, the US’ National Basketball Association (NBA) franchises have been around for sixty years on average, and while some Premier League football clubs may be relegated, they rarely die.
Silverbacks Holdings has been pursuing a data driven approach in this particular asset class. The numbers are compelling. They provide an interesting balance of high growth while demonstrating some level of defensiveness. We believe that there is a way that some African companies could engineer this timelessness in their approach to products or cultivate a rich narrative as it is done in the sports and entertainment space. In short, in these industries, if you pick the right assets, you can command an unmatched level of customer stickiness and basically have the option to purchase an asset which carries a certain level of immortality. This is a mitigant against the reality of the tech sector where the mortality rate is famously high – 95% of technology companies die within 10 years of being created.
You’ve invested in the Cape Town Tigers Basketball Club, the current South African champions and Road to BAL (Basketball Africa League) winners. How do you choose your investments; how do you know which assets and brands can achieve the timelessness you talk about?
The first criteria for investment in sports teams is belonging to a global league that commands recurring media income. At the end of the day, sport is fundamentally a media play. It’s like Broadway on TV, a live event that is looped and played on demand. When you are part of a recognised and popular league, you can tap into a high concentration of media revenue in a predictable manner, whether that is the Premier League, the NBA, or the Indian Premier League for cricket.
In the case of the Cape Town Tigers, the link to the NBA supports you in getting that anchor revenue.
On top of that base, you need to layer other streams that allow you to capture revenue from your fan base: for that you must create and generate impressive and captivating content that can hold attention. You then develop a retail business with merchandising, and other publicity-related aspects, around your fan base.
Furthermore investing in a global league’s affiliated team provides you essentially an exclusive legal monopoly to operate in a dedicated geographic region. You can build an infrastructure business and real estate around it. A stadium, for example, adds predictable ticket sales to your income, and can be used to organise other events such as concerts.
In addition, you get a foot in the door into the private education sector. We are starting an academy linked to the Cape Town Tigers, which means that we will get a share of the private education market in South Africa, and even further. A bonus is that we would be able to expand the academy to any other country that we pick.
Once you have your IP established, you can also expand further into the entertainment industry. We are already looking into a docuseries about the team. This will further diversify our revenue sources.
What other opportunities, apart from investing in the franchise or club itself, can be found in the sports sector?
What people need to recognise is that the NBA has come to Africa to stay. While it previously entered the Indian market and the Chinese market, Africa is the only geography (other than the US) where it has established a league. And that is a decision that is not accidental and is unlikely to change.
What the NBA has realised is that a growing base of its talent comes from Africa. In effect, bringing the league here helps them cut down on the cost of acquiring talent. Once a talented player has left Africa and made a name in Europe, the contract cost and agency fees skyrocket. If they recruit from a league team based in Africa, they only have to pay a capped amount.
Setting up a base in Africa means that the skills will be developed here, the camps will happen here, and the talent agencies will originate here. It will allow local businesses to develop around the teams and their fans. The NFL has now followed suit and is expanding its activities in Africa.
Another important opportunity is locked up in the value of live events in a world where AI is encroaching on what is real and what is not. Live events will command a higher value and can be priced at a higher point.
You’ve invested in Armando Cabral, a luxury fashion brand built around the famous model. With so many fashion brands on the continent, how did you decide on this one?
Authenticity has always been valued at a premium by humans. It links to the comment about AI in the previous answer. So, in the case of fashion, we are looking for authentic companies, with founders that enable us to craft timeless stories anchored in Africa.
With Armando Cabral, you can see that. There is the founder, born in Guinea-Bissau, who moved to Portugal and carved an international modeling career for himself; launching a luxury footwear brand. Armando Cabral currently has only one store worldwide in Rockefeller Centre in New York. It is an intriguing, interesting story.
The story alone is not enough, however; the quality of his shoes is impeccable. Many celebrities including Burna Boy are already wearing his work. Our thesis is: when you build quality and espouse this commitment to timelessness, your geography of origin does not matter.
Rome was not built in a day and the excitement that you now feel, palpably, around African sport for example, is just the beginning – Ibrahim Sagna
What about investments in the entertainment and media industry?
We are proud to announce that we have invested in a company called Forever 7 Entertainment, founded by Hamisha Daryani Ahuja in Lagos, Nigeria. It is a production company that does movies and films, focusing on love stories tailored for Indian and Nigerian audiences.
She has sold her first movie, ‘Namaste Wahala’, a Nigerian-Indian cross-cultural romantic comedy to Netflix, and the second one should come out before the end of the year. For us, as an investment company, it met quickly our investment thesis and was really a no-brainer. Even if you only catch 1% of the roughly two billion consumers that are targeted, it is a highly successful venture and stands a high chance at being another timeless film.
What lessons have you learnt from investing in the sport, luxury fashion and entertainment sectors?
In a word: patience. Rome was not built in a day and the excitement that you now feel, palpably, around African sport for example, is just the beginning.
I’ve always believed that there are only three main sectors – one built around natural resources, another around infrastructure and the last, consumerism.
You can only get to the best part of the last one, once the first two have taken place. Africa’s story has been one of natural resources, including agriculture, moving towards infrastructure. Now we are advancing to the next chapter.
For a very long time, all the investment that has found its way to the continent has either been institutional or from the government. This is changing. A large majority of our investors in Cape Town Tigers, for example, are former athletes, entertainment or media or tech or finance moguls, and family offices. It is a new set of investors that are looking for fulfilling ways to invest their money, and sports opportunities on the continent are an unprecedented way for them to contribute to shaping Africa’s narrative while making good returns.
By Elijah Christopher