Friday Mailing #48: Lebron's SpringHill Zigs Where Reese's Hello Sunshine Zagged

Despite both popular “Metaverse” business logic and more line items than Hello Sunshine, SpringHill may have a more conservative valuation than Hello Sunshine

Yesterday it was announced that Lebron James’ and Maverick Carter’s SpringHill The SpringHill Company sold a “significant minority stake” to a consortium of investors that includes private equity firm RedBird Capital, Nike, Epic Games and Fenway Sports Group.

The valuation of the deal was $725MM.

The outcome invites obvious comparisons to the $900MM sale of Reese Witherspoon’s Hello Sunshine to Blackstone, both because of similarities in their business models and because both started searching for investors and buyers at around the same time.

I have written about Hello Sunshine and its “Hollywood-meets-Creator-Economy” business logic four times since the deal was announced in August:

At the root of Hello Sunshine’s business model are four cornerstones that lie within the overlap between streaming and the Creator Economy:

  1. Production Business

  2. Book Club

  3. E-Commerce

  4. Audio (Podcasts)

SpringHill has three cornerstones in common but otherwise is betting on a completely different set of cornerstones:

  1. ✅ Production Business

  2. ✅ IP Development (NOTE: included within Production Business, above)

  3. ✅ E-Commerce

  4. Brand consulting

  5. Live events

  6. Gaming

On that last point, Dade Hayes of Deadline reported that SpringHill has its eye on both the “metaverse” and the Creator Economy, too:

The new investment will enable SpringHill to expand its existing businesses (IP development, commerce, content, brand consulting and live events) and explore new categories and global markets. The company said it will consider M&A opportunities and connect with the creator community. It plans to build games and other digital experiences, and work with Epic (the privately held game company known for Fortnite) to “bring new content to the metaverse.”

Sara Fischer of Axios also reported:

[SpringHill co-founder Maverick] Carter tells Axios that Nike will help SpringHill do more licensing deals in fashion and commerce, while Epic will bring SpringHill IP into games and the metaverse. Fenway will help with international expansion.

"Metaverse"-type online/offline convergence

The participation of Epic Games is notable, and not only because it offered to buy all of SpringHill. The “Metaverse” is its business objective.

Epic becomes both an investor and partner with SpringHill for "Metaverse"-type online/offline convergence, which I wrote about in Member Mailing #273: MGM Resorts M life "Convergence" vs. "Metaverse" Convergence:

…how will gaming, music, streaming, Virtual Reality, Augmented Reality, and e-commerce drive the convergence of digital and physical worlds, private and public networks/experiences, and open and closed platforms?

More importantly, what will this convergence look like operationally and strategically?

SpringHill is “purely an entertainment brand”, as Carter told Fischer, and so its bet on Metaverse"-type online/offline convergence will be limited to creators/creative and IP.

But, with Epic Games, SpringHill IP will be delivered to over 180MM users of its games who generated over $5.1B in revenue in 2020. Therefore, it is not unreasonable to predict SpringHill IP will be brought to users who spend, especially after the (surprising) success of Space Jam 2.

Is SpringHill worth $725MM?

Hello Sunshine’s $900MM valuation was largely built upon its projected revenues of $310MM in 2022, but could also be estimated off of its $125MM in projected revenue for 2020, or about 7.2 times projected revenue.

SpringHill seems to have a similar valuation, as Justin Birnbaum of Forbes reported:

According to people familiar with the agreement, SpringHill is on track to post more than $100 million in revenue over the next 12 months.

So, assuming the valuation reflects the sum-of-all-parts, with investors as partners to hedge the risk of these individual bets, there is a growth multiple that lands towards the conservative end of the 5x to 10x range.

SpringHill’s valuation implies that if "Metaverse"-type online/offline convergence and/or “Hollywood-meets-Creator-Economy” are part of the 7.25X revenues valuation here, both are being valued conservatively.

Conclusion

What’s notable about the SpringHill investment is that it is relying on its investors as partners:

  1. Production Business

  2. IP Development

  3. E-Commerce ↔ Nike

  4. Brand consulting ↔ Fenway Sports (according to Financial Times and Axios, will be helping SpringHill reach athletes across the globe who want to build their brand and business beyond sports)

  5. Live events

  6. Gaming ↔ Epic Games

That hedges the risk of the investment across multiple channels, and more line items than Hello Sunshine. Moreover, two of those channels buzzy growth bets like Hello Sunshine-type “Hollywood-meets-Creator-Economy” and "Metaverse"-type online/offline convergence.

But neither seem core to valuation or to the business plan.

This is what makes the comparison to Hello Sunshine so interesting.

SpringHill is betting on the Metaverse, the Creator Economy, and more traditional businesses like brand consulting and live events. But its investors value the last, most.

Hello Sunshine’s investors applied the same valuation to 2020 revenues on the Creator Economy, alone.

Also unlike Hello Sunshine’s focus on Reese Witherspoon, SpringHills “Hollywood-meets-Creator-Economy”-type bets are less focused around Lebron, and more around a broader portfolio of athletes/celebrities (NOTE: SpringHill owns the entertainment platform Uninterrupted, which produces films, podcasts and other media to tell the stories of athletes beyond the court).

In seeking a similar outcome to Reese Witherspoon’s Hello Sunshine but with both buzzy “Metaverse” and Creator Economy business logic and more line items than Hello Sunshine, Lebron James’ and Maverick Carter’s SpringHill seem to have ended up with a more conservative valuation than Hello Sunshine.