What was the most important M&A deal of 2022?
One candidate: in August, casino operator Penn Entertainment Inc. spent $162 million to acquire 36% of digital media site Barstool Sports, thus completing a multi-year acquisition (Penn already owned 64% of Barstool via multiple transactions dating back to January 2020).
On the popular business podcast All-In, investor and entrepreneur David Friedberg said it was the most important deal of the year because it highlights an important consumer trend: People buying consumer products from influencers instead of corporations.
Let me explain his argument with a quick thought experiment:
Imagine that you work for Procter & Gamble Co. in the early 2000s and want to sell a mop replacement called the Swiffer. How would you market it to millions of people? Well, first you'd create the product then buy ads where the attention is concentrated: print, TV, radio and in-store placements.
Today, the creation of popular consumer products often proceeds in the reverse order of operations. Internet influencers build massive followings on social media — in other words, they capture attention — then they go out and create products to sell to that audience.
That's the exact playbook that Jimmy Donaldson (aka MrBeast) is perfecting. Only 24 years old, MrBeast has built an enormous audience by creating viral content like re-creating Willy Wonka's Chocolate Factory, amassing more than 200 million subscribers across multiple YouTube channels (as of last week, his original channel — with 112 million subs — made him the most followed person on YouTube).
And now he's selling products to that audience.
In December 2020, MrBeast created a delivery-only burger chain called MrBeast Burger which has done sales of more than $100 million. He did so by creating an ordering app for consumers and partnering with 1,000 locations across Europe and the US. In September of this year, MrBeast Burger opened its first physical location at the American Dream Mall in New Jersey (~10,000 fans reportedly showed up). Separately, in January 2022, MrBeast created a chocolate bar called Feastables, which has already generated sales of more than $10 million.
"Distribution is the number one problem for consumer goods and services," according to David Friedberg on All-In. "If you don't naturally have content creation in your blood, you will have to go and buy a content business or…you will not be able to compete effectively."
Why? Because consumer goods are so competitive — and so easily substituted in many cases — that the best way to stand out is with story and content. And social platforms like Instagram, Twitter, YouTube and TikTok are where people are increasingly going to consume said content.
Traditional consumer brands without a successful content play are stuck spending huge dollars on advertising. In fact, Procter & Gamble is the world's largest advertiser, spending $11.5 billion in the 2021 fiscal year.
MrBeast can sidestep such ad spending because he already commands the attention of millions. MrBeast of course has expenses. Any ad money he makes from YouTube gets ploughed back into the business at the current pace of $8 million a month.
Here's a key difference, though: Advertising a product may create short-term interest, whereas making content creates an owned asset that can continually bring in new fans.
Is the combination of content and commerce enjoyed by MrBeast replicable by those who aren't one of the world's biggest YouTubers?
According to Ben Mathews — a general partner at Night Ventures, a VC fund connected to MrBeast's management firm Night Inc. — influencers can take a few different routes.
"There are less than 100 celebrities or creators who are truly big enough to carry their own white labelled brand," Mathews tells me over an email. "Everyone else is better doing a licensing deal like Kanye [West]. Doing it yourself is really hard."
Mathews says the main trade-offs the influencers must consider are margins, product quality, ownership and speed to market. In September, Night Inc. launched a $100 million fund with Peter Chernin's Chernin Group to help other successful internet creators navigate these trade-offs and build a MrBeast-like consumer empire.
Let's circle back to Barstool Sports, which has done several interesting product partnerships.
In October 2018, Barstool Sports launched what is now the world's most popular hockey podcast — Spittin' Chiclets, which is co-hosted by two former NHL players (Ryan Whitney, Paul "BizNasty" Bissonnette).
In an early episode, Whitney said his favourite drink was pink lemonade and vodka. Pictures of fans making the drink at home started going viral and — eyeing an opportunity — Barstool CEO Erika Nardini partnered with distiller E&J Gallo to manufacture that drink combination. They named the flavoured vodka Pink Whitney and, when I wrote about the brand in March 2021, it had sold more than $100 million in its first 18 months. (Full disclosure: I was recently a guest on the podcast to talk about the FTX meltdown. Sadly, no pink lemonade vodka was consumed.)
A month ago, the Spittin' Chiclets team was back at it and launched a beer called Big Deal Brewing, in partnership with Labatt USA.
"Conventional wisdom is that the beer industry is on the decline," says Bissonnette's manager Jeff Jacobson. "But if your audience has followed you for a long time and trusts you, you can take the risk. Hockey fans might be a small niche compared to the totality of MrBeast's audience, but as the success of Pink Whitney shows, you can have a huge hit with the right product and right strategy."
Ultimately, the sports and comedy platform was attractive to Penn Entertainment because of its huge built-in audience. Under Penn, Barstool launched an online sportsbook that brings awareness to the casino operator's properties (which would otherwise be a big marketing expense).
The marriage of content and commerce isn't only for physical consumer products. Attention is truly the only finite asset, which means every industry must fight for it.
The Hustle, a tech and business newsletter with 2 million subscribers where I previously worked, was acquired by HubSpot, and the marketing software firm now promotes various products through the newsletter. Other software firms that acquired media operations include investment platform AngelList (and Product Hunt), fintech firm Stripe (and Indie Hackers) and automation platform Zapier (and Makerpad).
Building brands tightly tied to an individual obviously has risks. Over the past month, Adidas AG and The Gap Inc. both canceled lucrative contracts with Kanye West after he made a string of anti-Semitic comments. Now, Adidas has to replace the $1.8 billion in sales attributable to West's shoe brand Yeezy, which is responsible for an estimated 45% of the company's net profits.
What's next for MrBeast?
Recent reports show that the super-YouTuber is seeking to raise $150 million for his business empire at a valuation of $1.5 billion. If the deal goes through, it'll be a major milestone. And it won't be long until the most important M&A deal is a massive creator buying out a legacy brand.
Trung Phan writes for Bloomberg and hosts the Not Investment Advice (NIA) podcast.
Disclaimer: This article first appeared on Bloomberg and is published by a special syndication arrangement.a