Cybersecurity: The New Playbook for Private Equity Due Diligence in Sport

03/02/2025|TIAKI

Introduction

The world of sports is undergoing a dramatic transformation, fuelled by the explosive growth of data, the rise of artificial intelligence (AI), and the ever-present threat of cyberattacks. This confluence of factors has significantly impacted how Private Equity (PE) firms approach deal diligence in the global sports industry. Gone are the days of merely assessing financial statements; cybersecurity has emerged as a critical factor, influencing valuations, deal structures, and long-term investment strategies.

This article will delve into the evolving role of cybersecurity in PE sports investments, exploring five key use cases that demonstrate the power of data, AI, and cybersecurity in driving value and mitigating risks. We will also outline a practical four-step framework for PE firms to effectively integrate cybersecurity into their portfolio management processes.

The Rise of Cybersecurity in Sports Deal Diligence

Historically, many PE firms delegated cybersecurity responsibilities to their portfolio companies, treating it as a separate operational concern. However, the escalating sophistication of AI-augmented cyber threats, the increasing volume and value of sports data, and the severe consequences of data breaches have compelled a shift in this approach.
Leading PE firms are now recognizing the strategic importance of cybersecurity. They are proactively engaging with their portfolio companies to:

Identify and mitigate cyber risks:
Proactive risk assessment and mitigation strategies are crucial to protect valuable intellectual property, customer data, and financial assets.
Enhance operational efficiency:
Robust cybersecurity measures can streamline operations, improve data-driven decision-making, and optimize resource allocation.
Enhance brand reputation and customer trust:
Data breaches can severely damage a sports organization’s reputation, erode customer trust, and negatively impact revenue streams.
Increase investment value:
A strong cybersecurity posture can enhance a company’s long-term value and improve its attractiveness to potential acquirers.

Five Use Cases for Data, AI, and Cybersecurity in Sports Private Equity

1. Data-Driven Performance Enhancement:

Data-Driven Performance Enhancement: Leveraging AI and machine learning to analyse massive datasets from various sources (player performance data, fan engagement metrics, social media sentiment) to optimize player recruitment, training, and performance.
Cybersecurity Considerations: Protecting the integrity and confidentiality of sensitive player data, preventing unauthorized access to performance analytics systems, and ensuring the ethical and responsible use of AI algorithms.
Investment Example: A PE firm investing in a professional sports team could leverage AI-powered analytics to identify and recruit promising young talent, optimize training regimens, and predict injury risks, ultimately enhancing the team’s competitive advantage and driving revenue growth.

2. Fan Engagement and Revenue Generation:

Use Case: Utilizing AI and data analytics to personalize fan experiences, develop targeted marketing campaigns, and create innovative revenue streams (e.g., personalized merchandise, immersive fan experiences, dynamic pricing).
Cybersecurity Considerations: Protecting customer data (personal information, payment details, viewing history) from cyberattacks and ensuring compliance with data privacy regulations (e.g., GDPR, CCPA).
Investment Example: A PE firm investing in a sports media company could use AI to analyse fan viewing habits, personalize content recommendations, and develop targeted advertising campaigns, increasing audience engagement and generating new revenue streams

3. Digital Transformation and Innovation:

Use Case: Investing in cutting-edge technologies such as blockchain, virtual reality (VR), and augmented reality (AR) to enhance fan experiences, improve operational efficiency, and create new revenue streams.
Cybersecurity Considerations: Ensuring the security of blockchain-based platforms, protecting VR/AR systems from vulnerabilities and exploits, and safeguarding sensitive data associated with these emerging technologies.
Investment Example: A PE firm investing in a sports technology company developing innovative fan engagement platforms must prioritize cybersecurity to protect user data, prevent fraud, and ensure the reliability and security of their platforms.

4. Predictive Analytics and Risk Management:

Use Case: Employing AI and machine learning to predict future trends, identify potential risks, and optimize resource allocation across various aspects of the sports business (e.g., player injuries, ticket sales, sponsorship deals).
Cybersecurity Considerations: Protecting the integrity and confidentiality of the data used for predictive modelling, ensuring the accuracy and reliability of AI-powered predictions, and mitigating the risks associated with biased or discriminatory algorithms.
Investment Example: A PE firm investing in a sports betting company could leverage AI and machine learning to analyse vast amounts of data (player performance, team statistics, betting trends) to identify potential betting patterns, predict match outcomes, and mitigate risks associated with fraud and match-fixing.

5. Operational Efficiency and Cost Optimization:

Use Case: Utilizing AI and automation to streamline operational processes, reduce costs, and improve overall efficiency across various areas of the sports business (e.g., ticket sales, stadium management, logistics).
Cybersecurity Considerations: Protecting critical operational systems from cyberattacks, ensuring the security of automated processes, and mitigating the risks associated with data breaches that could disrupt operations.
Investment Example: A PE firm investing in a sports stadium could utilize AI and automation to optimize energy consumption, improve crowd management, and streamline ticketing and concessions operations, leading to significant cost savings and improved operational efficiency.

A Four-Step Framework for Cybersecurity in Private Equity Sports Investments

1. Establish a Common Cybersecurity Framework:

Define a clear and consistent cybersecurity framework across the entire portfolio, such as ISO 27001, NIST Cybersecurity Framework, or CIS Controls.
Develop a crosswalk between different frameworks to ensure consistency and facilitate reporting.
Establish key performance indicators (KPIs) to measure cybersecurity performance and track progress.

2. Conduct Comprehensive Risk Assessments:

Perform periodic risk assessments for each portfolio company, including vulnerability scans, penetration testing, and threat modelling.
Utilize a combination of methods such as surveys, interviews, and document reviews to gather information.
Maintain an enterprise risk register to track and prioritize identified risks.

3. Develop a Cross-Portfolio Maturation Plan:

Identify common vulnerabilities and develop targeted remediation strategies.
Leverage economies of scale by negotiating group discounts on cybersecurity solutions and services for the entire portfolio.
Implement consistent security policies and procedures across all portfolio companies.

4. Continuous Monitoring and Improvement:

Conduct regular cybersecurity audits and assessments to monitor progress and identify areas for improvement.
Analyse security incident data to identify trends and improve incident response capabilities.
Continuously adapt and refine cybersecurity strategies to address emerging threats and technologies.

Conclusion

Cybersecurity is no longer an after-thought in PE sports investments. It is a critical factor that influences deal valuations, investment and risk decisions, and long-term portfolio performance. By embracing a data-driven, AI-powered approach to cybersecurity, PE firms can:

Mitigate risks and protect valuable assets.
Drive innovation and create new revenue streams.
Enhance operational efficiency and improve profitability.
Build trust and strengthen relationships with stakeholders.

By implementing a robust cybersecurity framework and continuously adapting to the evolving threat landscape, PE firms can unlock the full potential of their sports investments and thrive in the digital age.

About the Author:

David Andrew
Founder & Managing Partner
www.tiaki.ai
[email protected]

David is the Founder & Managing Partner at TIAKI, a niche consulting practice helping executive leadership in sport make confident, informed decisions on their risks, investments and business outcomes powered by secure ‘data-at-scale’. He collaborates with bold and determined leaders in the sports ecosystem to define their data, AI and cybersecurity strategies to deliver sustainable value.

David’s vision for TIAKI is to empower sports franchise CEOs, leadership teams, sports media broadcasters and investors in the global sports industry with strategic advisory frameworks to deliver secure, pioneering digital fan experiences and new ecosystem business models to achieve breakthrough returns.

David has over 20 years of strategy and technology enabled business transformation experience, providing consulting expertise in cloud native technologies, data strategy, digital business enablement and cybersecurity strategy. He is passionate about helping talented leadership teams succeed in securely growing their differentiated business models in the data-driven, digital sports economy.

Based in Stockholm, David previously worked for IBM Consulting, EY, Accenture Strategy and Orange Business. He studied Chemistry at Durham University and holds an MBA from Trinity College, Dublin Business School.

Search