The Orlando Magic are extending their foray into venture capital as a source of finding new inspiration for team operations. The NBA team owned by the DeVos family is joining the Lead One fund as a venture partner, the second major U.S. team to join the sports- and health-tech focused investor.
“We had been monitoring the increasing number of professional sports teams that had been developing their own venture capital arms, in the NBA, the 49ers, the Dodgers,” said Magic chief strategy and innovation officer Jay Riola on a video call. “We felt Lead could help us fast-track, through a partnership, being knowledgeable and aware and bringing a strategic approach and framework to that.”
Lead One is the pre-seed stage investment fund from Orlando-based Lead, a sports- and health-tech focused venture capital company founded by members of the Dassler family of Adidas fame. Pre-seed generally refers to companies that may be little more than an entrepreneur’s well-thought-out idea, or small-scale businesses that have yet to generate notable, if any, revenue. Last month, MLS’ FC Cincinnati became the first pro team to become a venture partner with Lead, bringing the fund’s outside team partners to two. The pair may end up being part of as many as a dozen pro sports and corporate venture partners, according to Thomas Rudy, Lead’s chief investment officer.
“The idea is for the venture partners to be value-add. The dream is for those venture partners to eventually see Lead is making good investments … and maybe they want to deploy some capital—not necessarily to the benefit of the Lead fund—but to the benefit of the [portfolio] company,” Rudy said on a phone call.
“You can do any due diligence that you’d like and we will be an open book for you,” he said of Lead’s pitch to pro team venture partners. “We’re not expecting a team to necessarily put up capital or invest in companies.”
The Lead One fund is one of four VC funds the business has. The others cover later-stage VC rounds, and one is a special-situations fund for athlete investors. Lead One seeks to invest in about 10 startups a year, writing checks around $100,000 to each. It replaced an accelerator program Lead used to operate in Florida, since the company felt it was limiting its investment targets needlessly by requiring entrepreneurs to spend time in Orlando.
Joining forces with the fund doesn’t necessarily mean the Magic are becoming aggressive VC investors. Instead, the partnership deepens the club’s existing relationship with Lead that began about two years ago. Ahead of the 2022-23 NBA season, the Magic retained Lead in an “innovation partnership.” Through that, the team got access to the 70-odd companies in Lead’s investment portfolio, gaining insight into new technologies.
While the Magic pay Lead a consulting fee for its services, Rudy says the fund benefits more when the Orlando team elects to serve as a proof-of-concept client for portfolio companies who often need a first deployment to convince other customers to sign up. “A lot of times you see VCs working with corporations, but I believe we’re entirely unique in building deal flow and getting use cases in the world of sports with sports teams,” Rudy said.
The Lead partnership also involved the VC fund producing quarterly reports on markets and new technologies they present to Magic officials. The team has commissioned deep dives into esports, AI, cryptocurrency, NFTs and blockchain, among other topics.
The Magic have been focused on new technologies and innovation long before connecting with Lead. Riola has been working on innovation for the Magic since joining the franchise in 2006, with the club ramping up its creative efforts around fan experience when its arena opened in 2010.
“As a team at the time we really focused on being advanced in data management, data collection, building an enterprise data warehouse and using the insights that came from that to operate better both in terms of our business and in terms of better understanding our fans,” Riola said.
A direct result of those early pushes into fan-related data evolved into the team’s Magic Money program, which today is a virtual currency. Season ticket holders can return tickets they know they won’t use to the club, which credits the price as Magic Money and allows the club to sell the otherwise empty seats. The ticket holders use the credits to upgrade seats at other games or add on experiences at the Kia Center, something that has gotten a lot of traction with younger fans. Other ideas have led to delivering badges to fans for different milestones, like an attendance streak or being at a game the Magic won at the buzzer, and unlocking discounts. Still, others have enabled easier bookings at restaurants and crafted bespoke thank-you emails to all ticket buyers.
In recent years, the club has seen many ideas come from its Innovation Lab, which the team established in 2014. It’s a department where employees send ideas to be worked through in a design-process approach, which is a systematic effort for sussing out ideas to get to the “A-ha!” moment.
“We’ve had over 100 projects come through the Innovation Lab and receive facilitation and ideations and deliver report-outs and be implemented in different ways,” said Riola. “Some have resulted in renovations to the arena, some in the launch of new digital products that are fan-facing, some have launched internal processes like revamping our quarterly employee review process.”
More recently, the club has moved to crowd-source innovation externally, hosting the annual Innovation Challenge where people including graduate students and entrepreneurs pitch business ideas related to some part of the basketball team’s operations—such as how to better digitally engage fans or further globalize the Magic’s fan base. Lead fund executives serve as facilitators and judges during the three-day event, with the winning team getting recognized at halftime during a Magic game.
“We’re process-oriented trying to fuel creativity. We’re a professional sports organization. We’re not a software company spinning up software or entering a new market. Innovation for us is creating value from new ideas,” Riola said. “In some ways we compete for discretionary spend with Disney World and Universal, so it’s incredibly important for us to deliver an incredible experience no matter what the outcome is on the court.”
