Underweight: Basement Sports is No Home Run

Key Stats:

Summary

The Basement Sports team has been selected as an “Underweighted Deal” by KingsCrowd. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

The Centers for Disease Control and Prevention report that childhood obesity is a “serious problem” in the United States. Almost one in five U.S. children — nearly 14 million in total — are obsese according to their body mass index. 

Childhood obesity rates have tripled in America over the past three decades. The rise of technology has almost undoubtedly been one cause. Numerous studies have documented that increased screen time causes children to gain weight. This results from the likelihood of eating while viewing, advertisements for unhealthy foods, and reduced sleep. 

At the same time, kids’ engagement in youth sports is declining. Organized sports have long been a primary outlet for children to exercise regularly, but increased fears of injury and rising costs have forced many kids off the field. The coronavirus pandemic has caused youth sports participation to plummet even further. Currently, it’s not clear when kids will be able to play sports again. 

Kids are in need of an exercise outlet that pulls them away from screens and video games and back into athletic pursuits. 

Solution

Basement Sports is a “mixed reality” gaming company. It offers a sports scorekeeping app alongside physical sporting toys like foam baseball bats and balls. Kids and adults are encouraged to set up an indoor sports “field” in a room of their home. Then, they can leverage Basement Sports’ indoor-safe sports equipment to play a game and keep score via the Basement Sports app.

Baseball is the first sport the company is offering, with “starter kits” available in late summer 2020. A baseball starter kit includes floor mats to use as bases, marking tape to indicate a pitcher’s mound or field boundaries, a foam baseball bat, foam baseballs, and stickers to indicate targets for a base hit, home run, etc.. After receiving the starter kit and setting up an indoor baseball field, players can use the Basement Sports app to compete and keep score as they physically play the game. 

Basement Sports was founded in 2019 after the exit of founder Arman Rousta’s previous company. So far, Basement Sports has focused on developing its mobile app and securing manufacturing for its physical play sets. The company has not yet generated meaningful income and operated at a net loss of $31,790 in 2019.

The Team

Basement Sports was founded by Arman Rousta, a business builder with both undergraduate and MBA degrees from Columbia. Rousta is the Founder and CEO of b.labs Ventures, a venture studio that incubates a wide variety of business concepts. Rousta previously co-founded Ajustco, a hardware and construction company, which apparently achieved a successful exit of “20x valuation.” This capital was recycled back to b.labs Ventures to create Basement Sports and a number of other companies. Rousta’s primary focus seems to be b.labs Ventures and its entire portfolio of companies, not solely Basement Sports. It is unclear whether b.labs’ portfolio is composed solely of companies founded by Rousta or whether other founders are also funded and supported by the studio. 

Growth Plan

Basement Sports’ most important milestone is launching physical play kits to complement its scorekeeping app (the app debuted earlier this summer). Basement Sports indicates that these physical kits are sourced from China, so the company has undoubtedly encountered manufacturing delays due to the global pandemic. 

After baseball is fully launched both digitally and physically, Basement Sports’ offerings will expand to include basketball, football, and soccer. The company also has plans to diversify revenue with expansions into customizable merchandise (jerseys, etc.), tournament entry fees for groups competing through the app, and sponsorships and in-app advertising. Ultimately, the company intends to open a Basement Sports brick-and-mortar location to host games and tournaments. 

Rating

After careful consideration of the company’s areas of opportunity and seeming weaknesses, Basement Sports has been ranked as an Underweight deal. Investors should consider three critical uncertainties when evaluating this opportunity: 

• Dubious innovation and defensibility: While Basement Sports is branded as a “mixed reality” sports company, really the company sells unremarkable physical sporting toys and a generic scorekeeping app. Both of these categories already exist, and the combination of the two under one umbrella is not particularly compelling or unique. If Basement Sports could eventually develop a way for physical toys to be tracked within the digital interface for more automatic scorekeeping and advanced statistics, that concept would be more interesting. As the company currently stands, consumers are better off purchasing a foam baseball bat from a local store and keeping score on paper or with another simple scorekeeping app.

• Lack of traction and proof of product-market fit: Basement Sports is still an extremely early-stage concept. The company’s physical toy products — which seem to be a core stream of revenue — haven’t launched yet. Moreover, Basement Sports does not provide any metrics on user adoption or user satisfaction from initial product testing to support the company’s core thesis. This lack of demonstrated product-market fit is not a reassuring signal of success for prospective investors.

• Founders’ lack of focus: Founder Arman Rousta is apparently a serial entrepreneur who founded a venture studio to incubate several company ideas at one time. Rousta describes on LinkedIn that he is currently developing two additional companies under the b.labs Ventures brand, in addition to managing day-to-day operations for the venture studio itself. Therefore, prospective investors should be concerned that Rousta’s focus is divided across this portfolio of companies. He will likely not be able to devote the necessary time and attention to Basement Sports to ensure success. 

While the general concept of a mixed reality sports platform that allows kids and adults to compete physically with digital enhancements is a promising one, Basement Sports does not achieve that goal. At present, the company is competing with major toy brands like Hasbro and Mattel to sell foam baseball bats, balls, and other indoor sports accessories, with a small stream of additional “freemium” revenue from an unremarkable scorekeeping app. Particularly given Basement Sports’ lack of traction and its founder’s divided attention, this business model seems difficult to justify. Therefore, Basement Sports is an Underweight deal.