Weekly Recap #46: DAZN in Spain, beIN SPORTS, F1 TV Pro, Serie A & MLS Season in Review
In this notes column, I want to recap some recent developments in "Sports Business, Media & More" and try to add some not-so-obvious things to look for beyond the pure headlines, including:
DAZN's Launch in Spain: OTT Service exploits a favorable market environment and hamstrung competition.
BeIN SPORTS with Decreased Commitment: It's about more than just lower rights fees for sports leagues.
F1 TV as "Beta Project": Broader rollout and marketing push for a niche product targeted at hardcore fans?
IMG's Deal for Serie A Overseas Rights: Overpayment even after C. Ronaldo unexpectedly joining Juventus F.C.?
Global Sports Rights Market: No bursting bubble, more growth, and even less cyclicality?
MLS in Review: Good headline numbers for TV and attendance, but some weaknesses upon further inspection?
In the end, I give my quick hit on my favorite podcast of the week, Amazon's bid for the Regional Sports Networks, and an interview which you should give a watch this week.
The digital-only OTT service just announced the eighth market for its ongoing international roll-out in the pursuit of becoming the “Netflix of Sports”: Spain. Although the company never dubbed itself with the nickname, as it was given by the media press during its launch in the first market in 2016: Germany, Austria, and Switzerland (DACH-Region). Understandably, DAZN never fought this given perception of being the same disruptor to the sports broadcasting market as Netflix has been to the general entertainment genre, but picked up the slogan and the inherent associations in a subtle way going forward. With regard to Spain, the English Premier League (2019-21) will be the core right that is supposed to serve as subscription driver for DAZN. In the same announcement, MotoGP was advertised as complementary content at this point in time, which makes the platform’s launch at the beginning of March (i.e. start of MotoGP season) most likely since the first season of the EPL during the acquired rights cycle does not kick off before early August 2019.
This announcement by DAZN follows two constants when looking at the Blavatnik-backed operation over time: First, the English Premier League also served successfully as core content when launching in its first market back in 2016 to persuade a significant audience to subscribe to a totally unproven platform, or at least give it a shot through the month-long free trial. Second, DAZN once again acted opportunistically whenever an opportunity materializes to get a foothold (i.e. subscription-worthy live content) in an additional market. In this case, the potential competition on the Spanish sports rights market was either financially hamstrung such as market-leader and current EPL rights holder Telefónica, which back in June almost tripled its financial commitment to the La Liga compared to the current rights cycle (2016-19) with +/- €2.94bn over the next three seasons and had already content acquisition cost for live sports of +/- €1.5bn per year on its watch at the time the EPL tendered its rights, or shifted their focus to other markets such as the MediaPro Group, which secured the majority of the broadcasting rights to the French Ligue 1 for three seasons starting in 2020 for +/- €1.15 per season. Another beneficial circumstance for DAZN’s successful acquisition of the world’s biggest soccer league was certainly the fact that Pan-European pay-TV operator Sky PLC is not active in Spain as the ties between the Comcast-owned media company and the EPL has certainly deepened over the last few months: Remaining the foremost important domestic media partner through 2021 by accounting for +/- 77% of EPL’s revenue from domestic live broadcasting rights, having scooped up the league’s international rights in Germany by paying almost double the amount (+/- €20m per season) compared to current rights holder DAZN, and extending the EPL rights in Italy have tied the Pan-European broadcaster and the Premier League to the hips for years to come. (see: Twitterpost)
By the same token, the EPL, by far the most successful European soccer league in the United States, leaving Comcast-owned NBC (paying +/- $167 per season through 2021) anytime soon, is more than unlikely as well. In a nutshell, DAZN getting its hands at the EPL in a market with a Comcast-owned property will be big difficult going forward.
Speaking of Sky PLC, recent news of adding mobile and near-live highlights to its rights packages starting next season (2018/19) supports the trend of leagues continuing to slice and dice its rights packages in pursuit of incremental revenue. However, as long as primary rights holders just add these newly carved-out slots to its portfolio and the field of rights holders does not expand (think: NFL), I don't see much potential to drive additional revenues for leagues. By the way, the same happened with streaming rights back in 2001 when the EPL carved out additional rights the last time based on the distribution system: Such online rights were only scooped up by the incumbent Sky PLC, which already possessed linear broadcasting rights at the time. Instead of providing a broader access to the league's product, however, the main reason for the acquisition was simply to keep these additional rights away from competitors and were actually heavily underutilized since the potential of monetizing the live sports content was in the linear distribution systems instead of digital space.
In wake of the news that DAZN acquired rights to live in-game highlights (think: MLB's version of NFL RedZone) for +/- €300m over the next three seasons and Sky adding additional mobile and highlights rights to its inventory, having asked decision-makers at the leading players in the German sports broadcasting market, mobile clips and near-live highlights were indeed identified as one of the main drivers for sustained increases in media rights fees for premium sports content. Additional insights into the past, present, and future of the sports broadcasting market can be found in my book:
"Auswirkungen der Digitalisierung auf den Sportrechtemarkt in Deutschland"
The book can be purchased as E-Book (PDF) directly on my blog or as Paperback and Kindle-Edition over on Amazon.
Similar to the situation for DAZN in the DACH-Region, which has been paying +/- €12-13m per season for the EPL since 2016, losing the English Premier League is going to hurt Telefónica. However, there has not just been bad news for the Madrid-headquartered telecommunication company as its spending-spree for live sports content over the last few months including extensions as the (exclusive) broadcasting partner of the Formula 1 (through 2020) as well as UEFA Champions League and UEFA Europa League (through 2021) has already paid dividends: In times in which the narrative of cord-cutting is omnipresent, Telefónica actually increased its subscribers base for its bundled telecommunication services (think: “Quadruple-Play” of television, broadband, telephone, and mobile) by adding +/- 101,000 television customers in the quarter leading to September on the back of its acquisition of a number of soccer rights. For reference, about +/- 1,000,000 people ditched their cable and satellite TV packages last quarter in the United States and although “cord-cutting” rather describes a phenomenon that includes “cord-switching” to skinnier, less-expensive television bundles, these virtual MVPDs are obviously not able to compensate for the overall trend as net losses still came in at +/- 500,000 customers, implying a conversion rate of +/- 50% from the traditional cable bundle (MVPDs) to these digital-only alternatives (vMVPDs). In fact, research firm eMarketer predicts that cord-cutting in the United States will grow more than 30% this year and has increased its projections for cord cutting twice in less than a year, a sign that the trend is rather accelerating than anything else. In the specific case of Telefónica however, having by far the most comprehensive sports offering in the market seems to help as premium live sports continues to serve as a true differentiator for telecommunication companies or any other bundled product offering (think: Amazon Prime).
Coming back to DAZN, there is certainly more to come as Chairman John Skipper specifically mentioned South America (think: FC Diez Media), Africa, and Asia as next target markets, truly going global. Although general entertainment and sports content are fundamentally different (e.g. territory-based vs. global rights, shelf-life of content, on-demand vs. live consumption), at this point, comparisons to Netflix make sense again.
In wake of the ongoing piracy issues for beIN SPORTS in its domestic market (think: MENA-Region), Bloomberg report David Hellier had a great scoop last week by reporting that the region’s dominant pay-TV operator intends to drastically reduce its financial commitment to live sports content given the reduced ability to monetize such content under the presence of beoutQ. In the grand scheme of things, I do see two major implications for sports leagues around the world given the current developments at the Qatari-based beIN Media Group:
First, an interesting nugget by Hellier’s report was that beIN SPORTS has actually been able to retain many of its sports rights that were recently up for renewal in the MENA-Region despite bidding +/- 50% less for the same content compared to current rights agreements. The reduced ability to monetize the content provides a reasonable argument towards original rights holder for lowered bids. However, given the monopolistic position of beIN SPORTS in the region, there has not been any viable competitor, or alternative from the original rights holder’s point of view, for the world’s most sought-after sports content. Although the decreased price level would certainly provide an attractive opportunity for new players to enter the region’s sports broadcasting market, the ongoing uncertainty given the presence of beoutQ will probably more than offset these beneficial factors for the foreseeable future. This raises the question of whether beIN SPORTS could actually end up being the big winner if the industry-level piracy issues could be resolved anytime soon. In fact, institutions on different levels including the U.S. government, FIFA, and La Liga, which actually claims to lose out on +/- €400m due to piracy but also employs a dedicated department of 106 FTE to fights such issues, have stepped up its effort. (see: Twitterpost)
If beoutQ could effectively be fought at some point in the future, many sports rights deals could have already been renewed for years to come at this point in time - under reduced rates, but the same rights holder: beIN SPORTS.
Second, beIN SPORTS not only face major challenges in its domestic markets but also in its most important international markets:
In Spain, it just lost the UEFA Champions League and the UEFA Europa League to market leader Telefónica, now paying +/- €360m per season. At the moment, the channel still carries some live games of the La Liga through a sublicense agreement with the MediaPro Group, but this rights package will go to Telefónica starting next season as well. As a result, it already reorganized its channel portfolio in Spain and now offers slimmed down versions with less distribution given the reduced rights portfolio.
In France, beIN SPORTS will not only have to compete with the traditional home of French soccer (Canal+) but also with new market entrant MediaPro Group: The Barcelona-based company identified the French markets as its focal point for its ongoing quest of transforming its business from a mere production and rights brokering operation to a content creator and distributor. After a similar but ultimately unsuccessful attempt of acquiring rights to the domestic premier soccer competition in Italy (Serie A), it successfully acquired the vast majority of rights to the Ligue 1 starting from 2020. The other successful bidders for the upcoming rights cycle (2020-23) beIN SPORTS and Chinese-owned telecommunication company Free were left with only one rights package each, greatly reducing the live sports inventory of beIN SPORTS, in particular, going forward.
In the United States, ongoing carriage disputes with the country’s largest MVPDs including Comcast’s Xfinity and DirecTV dropped the channel’s already limited distribution (+/- 21.6m TV Households) to effectively about +/- 10m TV households. After the Italian Serie A moved over to OTT platform ESPN+ (+/- 1.0m subscribers) including the occasional linear broadcast on ESPN (+/- 86.0m TV Households) before the season, the Spanish La Liga remains the only strong reason for MVPDs to carry and customers to subscribe to a cable / satellite TV bundle that includes beIN SPORTS. However, La Liga's always-entertaining president Javier Tebas probably already counts down the days until the current rights agreement (through 2021) expires given the highly reduced visibility of the league in U.S. television and lackluster OTT offering by beIN SPORTS: Arkena-powered beIN SPORTS Connect.
Although not facing serious piracy issues outside of its domestic markets, the prospects of beIN SPORTS in its international markets are equally bearish. Whereas sports leagues and organizations (i.e. original rights holders) often sell their rights directly to broadcasting partners in their respective domestic market, they actually rely heavily on multinational pay-TV operators (think: ESPN, Fox Networks Group, beIN SPORTS, Canal+) to monetize their intellectual property in overseas markets and such media companies often acquire and subsequently distribute as well as monetize their broadcasting rights in dozens of territories. For example, have a look at the concentration of current rights holders to La Liga’s “El Clasico.” (see: Twitterpost)
The possibility of beIN Media Group pulling out of aforementioned markets in combination with a more fragmented global media landscape as digital-only players pop up left and right could have serious implications for original rights holders: Either having to manage an increased number of relationships with local broadcasting partners or going back to the struggling intermediary model with rights-buying and -selling agencies (think: bankruptcy of MP&Silva, sale of Lagardère Sports). The challenge for the first option, under which currently only the world’s biggest leagues (think: NFL, NBA, English Premier League, Bundesliga) operate is the lack of internal resources. Although the world is getting smaller thanks to technology and intermediaries have less added value to original rights holders compared to the previous decade, having foots on the ground (think: local offices) to understand social and digital platforms to best distribute content or building relationships to local broadcasters (read: potential bidders) would still be an expensive but necessary undertaking for leagues. Such increased financial commitment, however, would not necessarily lead to increased revenue for leagues, making the lack of strategic partners covering multiple territories such as beIN SPORTS much worse.
Therefore, I can see sports agencies (think: Octagon) increasingly assuming the role of advisors to original rights holders with proprietary data and consulting services instead of relying on the razor-thin margins of actually brokering their rights on their own risk.
A current theme that I have repeatedly observed in recent months has been the increased interest by North American investors in European sports teams. However, in contrast to new ownership groups from Asia or the Middle East who seem to intend to leverage such investments primarily for non-monetary benefits (e.g. image and brand building, political relationships), profit rather than win maximization is the main objective for these ownership groups including businessmen, hedge funds, and private equity investors. The underlying investment thesis: There is a lot of untapped potentials to further monetize European soccer by simply applying the more business-focused mindset that is known in North American sports leagues such as the NBA and NFL. (see: Twitterpost)
However, North American investors have also started to target European-managed sports properties beyond soccer. Probably the biggest bet on an under-managed sports asset has been the takeover of the Formula One by Liberty Media Group for an enterprise value of +/- $8.0bn in 2016. Already having ownership stakes in sports-related assets such as the MLB franchise Atlanta Braves (100%) including its newly-built SunTrust Park (+/- 41,000 seats), the DRL Drown Racing League (3%), Kroenke Sports & Entertainment (7%), and Live Nation Entertainment (34%), the "Americanization" of the Formula One started immediately: heavily increasing the company's headcount, new start times, more races per season, increased numbers of GPs in the United States, reportedly granting linear broadcasting rights to ESPN in the United States for free in order to maximize distribution and exposure in the world's largest, but merely penetrated sports media market, relaxed IP guidelines for activities on social media, a cross-promotional partnership with soccer content platform Dugout, or considering a NFL-like draft to make the racing series a year-round event are just a few attempts to uncover further revenue streams. Not surprisingly, launching a self-operated direct-to-consumer offering was firmly in the new ownership's plan for the racing series as well.
After picking iStreamPlanet (owned by Turner Sports) and PlayMaker Media (owned by NBC Sports Group) from a broad but fragmented field of backend-provider for hosting and streaming capabilities (Blog #30 OTT-Technology in Sports (Part I): “Buy or Make” - Decision for Legacy Media) to power is soon-to-be-launched OTT service, Liberty Media decided to differentiate between linear and digital media rights going forward: In other words, in every market in which the successful bidder for the linear rights was not willing to pay a significant premium for also retaining the rights for the exclusive digital distribution (e.g. Sky Sports [Pay-TV] in United Kingdom & Ireland), it launched so-called "F1 TV Pro" as a commercial-free streaming service that is targeted at the competition's hardcore fans (e.g. RTL [Free-to-Air] in Germany). The first season, however, was characterized by major technological issues and was later described as "Beta Project" in retrospect by Liberty Media. I have recently looked extensively into the technological limitations for complementary and, in particular, exclusive distribution of live sports coverage at scale and in real-time (Blog #31 OTT-Technology in Sports (Part II): Limitations, Risk of Independency & Conclusion): Given that the launch of F1 TV was planned by Liberty Media since the acquisition of the racing series back in 2016, there was a lot of lead time to develop a robust subscription-based streaming platform before ultimately launching the product in May 2018. Adding the fact that industry leaders in the field of streaming video and subscription services developed F1 TV, everybody should remain suspicious whenever a rights holder publicly places the possibility of simply launching an own OTT service on short-notice (think: La Liga's Javier Tebas, EPL's Richard Scudamore) once it notes lackluster demand for its media rights during the tendering process. Having possibly overcome its initial issues after the first season, Liberty Media now plans to launch F1 TV Pro in additional markets under a newly-developed strategy of co-marketing and co-branding its streaming platform with the existing linear media rights partner in the respective markets (e.g. Ziggo Sport [Pay-TV] in the Netherlands). Interestingly, Liberty Media argues that there is no risk of cannibalization of the linear broadcaster's channel in an attempt to persuade them to either surrender the previous exclusivity for any multi-platform coverage in case of valid rights agreements or agreeing to solely focus on linear distribution under any new media rights deal. The question then becomes why does a niche product that is targeted at the competition's hardcore fans need a broader marketing push - it cannot be broader, less targeted than traditional television - if it is not intended to convert additional consumers into subscribers to the direct-to-consumer offering? The intended target group (= hardcore fans) will already be highly aware of the availability of F1 TV Pro and only converting the mainstream consumer could result in incremental subscriptions and revenue for FOM. By the way, branding its D2C-offering as "F1 TV PRO" is a subtle move by Liberty Media to support its point of view.
In a nutshell, coming up with the idea of self-exploiting media rights through a self-operated OTT service from one day to the next as an desperate attempt to stir competition is as believable as that there would not be any cannibalization through ongoing slicing and dicing of media rights across different distributions systems (think: linear, digital, mobile, satellite/cable).
In a recent blog post (Blog #23 Konvergenz bei den nationalen TV-Erlösen im europäischen Fußball), I made the argument that revenue from domestic broadcasting rights among the Top-5 European soccer leagues is about to converge after a slight downward correction in England (-9.6%), modest increases in Spain (+14.9%) and Italy (+11.3%) as well as a major boost for the Ligue 1 (+58.8%) driven by the raised profile of Paris Saint-Germain. By implication, international media rights deal are going to be the main differentiator in European soccer going forward: While the English Premier League and the German Bundesliga moved toward the North American model of more direct relationships with local broadcasting partners and, therefore, retain larger control of selection of broadcasters and presentation of their product, Ligue 1 (beIN SPORTS), Serie A (IMG) and La Liga (MediaPro) continue to wholesale their overseas rights to intermediaries in exchange for guaranteed lump-sums.
At first glance, it already becomes pretty obvious that beIN SPORTS has made a tremendous deal at +/- €80 per season (plus revenue share after successfully recouping the initial investment) with the Ligue 1, which has made the French soccer league probably one of the most under-valued sports properties in the recent past. Due to the long-term lock-up, usually only observed in North America given stricter competition laws in Europe, the Ligue 1 totally missed out on PSG's rising popularity in overseas markets so far. With the current deal still running through 2024, the Ligue 1 reportedly inquired about possible renegotiations of the contract's terms with rights holder beIN SPORTS. If the Qatari-based media group would indeed agree to improve the terms from the league's point of view, it would certainly undermine the integrity of future media rights deals and provide evidence for the tremendous market power of original rights holders with premium live sports content in times of skyrocketing rights fees and continuing decline of linear television in favor of on-demand consumption driven by non-live TV alternatives with original programming like Amazon and Netflix. Regardless whether the French soccer league has a reasonable case or not given its lackluster overseas revenues compared to European competition, it would set a risky precedence for rights-buying entities (think: risk transfer) and could ultimately even have a deflating impact on rights fees - although certainly not to the level of piracy could have.
Compared to the new agreement between the La Liga and MediaPro Group (+/- €897m per season) that kicks in next season, even IMG's deal with the Serie A (+/- €371m per season) seems to be a bargain. Especially considering that at the time of the deal announcement more than a year ago, nobody could have expected that Cristiano Ronaldo was about to join Juventus FC during the upcoming summer, coinciding with the start of the new three-year agreement. Compared to the EPL and La Liga, the Italian league certainly lacks international appeal and star-power, but it should have been assumed that the unexpected addition of CR7 makes the deal an investment that might not come down to the usual razor-thin margin (+/- 2%) on which such investments usually operate on this time around. In the recent past, a few minor deals here and there have often decided about the profitability of sports agencies' entire investments in media rights, putting the entire business model of being a rights broker under pressure. (see: Twitterpost)
Despite a strong start to the new rights cycle (2018-21) in European key markets such as Germany, where DAZN will continue to be the home of the Serie A for at least the next three seasons, there were already reports that IMG had difficulties to sell the rights to the Serie A in the USA, by far the world’s largest sports media market and a key market for recouping the agency’s investment. Ultimately, the agency reportedly sold a bundled rights package including the FA Cup, Dutch Eredivisie, Australian A-League, and Chinese Super League to ESPN. Nonetheless, the reports about lackluster demand for the Italian competition does not only seem to be a result of being bundled together with less attractive rights by IMG but the limited global appeal of Italian soccer itself: According to reports in the Italian media, broadcasting rights for matches in Serie A are too expensive to succeed overseas as IMG seems to have to drive a tough bargain with interested bidders in wake of the new media rights deal. The deal with ESPN already came down to the wire and was agreed upon less than two weeks before the season's kick-off in August 2018. IMG also got creative in markets, in which its lofty demands were seemingly not met by local broadcasters, as it launched the so-called "Serie A Pass" as a stand-alone direct-to-consumer OTT service in selected Latin American and Scandinavian countries for +/- €70 per season. In these cases, the IMG's forward-looking acquisition of sports media service provider NeuLion at an enterprise value of +/- $250 in March 2018 (Blog #30 OTT-Technology in Sports (Part I): “Buy or Make” - Decision for Legacy Media) already provided a welcomed fall-back plan for the unsuccessful rights tender processes in several markets.
In order to drive additional global interest, Serie A executives also seem to have taken a page from La Liga's playbook: The desire to stage league matches in overseas markets. In fact, although having just pocketed a major deal with the New York - headquartered sports agency, the league has an inherent interest that IMG has a marketable product on hand. The guaranteed +/- €370m per season over the next three seasons will only be banked by the league if the sports agency is actually able to make those promised payments. Admittedly, IMG has more diversified business compared to just-defaulted MP & Silva, but it explains why league executives like the ever-entertaining Javier Tebas (La Liga) continue to push the envelope although having seemingly secured guaranteed payments for years to come. After all, if IMG struggles to recoup its financial investment in the Serie A, it is hard to imagine that Barcelona-based MediaPro Group will make a great return while having to pay more than double the amount compared to what IMG pays for Italy's premier soccer competition (2.15x) and significantly more compared to its current deal with the La Liga (1.54x) as soon as next season kicks off.
Admittedly, this notes column, as well as my recent blog posts, have been heavy on topics covering the sports broadcasting market, including the upstream sports rights market and the downstream sports programming market:
#29 Future of Sky PLC after Ownership Change [published 10/3/2018]
#30 OTT-Technology in Sports (Part I): “Buy or Make” - Decision for Legacy Media [published 10/14/2018]
#31 OTT-Technology in Sports (Part II): Limitations, Risk of Independency & Conclusion [published 10/29/2018]
Hot-Take #2: DAZN in US - Takeaways from John Skipper’s Media Push for OTT Service [published 11/12/2018]
However, it's the sports market's segment in which the recent news has been and, more importantly, where the money is currently made: For reference, the Spanish La Liga just released revenue figures for the previous season (2017-18) and an astonishing 95.6% of total revenues (+/- €1.76bn) were generated through the sale of media rights to its domestic broadcasting partners (think: Telefónica & MediaPro) as well as granting overseas broadcasting rights to Barcelona-based rights brokerage MediaPro Group. Admittedly, the non-media segments including commercial rights, ticketing, and merchandising can be much better monetized on the club-level as opposed to the league-level. However, the enormous reliance on distributed proceeds from the centralized sale of broadcasting rights emphasizes the importance of that revenue source for financing the day-to-day operations of smaller clubs in particular. Another news that provided further evidence for the current and continued focus on media revenue on the league-level has been the appointment of media executive Susanne Dinnege (President @ Discovery's Animal Planet) as the successor of EPL President & CEO Richard Scudamore as the new chief executive of the world's most profitable soccer league. By introducing her as a "leading figure in the broadcasting industry" while being relatively unknown in the sports circle and not having soccer-specific professional experience clearly revealed the league's future priorities on the business-side: managing the digital disruption in the media industry as at least the domestic rights fees have reached a natural end point as evidenced by the minor downward correction (-9.6%) for the upcoming rights cycle (2019-21).
Speaking of outgoing Richard Scudamore, the executive has largely been known for the skyrocketing domestic and international media rights revenues since assuming the role of the league's CEO in 1999 from +/- £210 (in 2000/21) to currently +/- £ 2.75bn (in 2018/19) per season. However, Scudamore was also responsible for the revolutionary introduction of the tiered sponsorship model which, even on the league-level, led to major increases in commercial revenue: No other European soccer league has nearly an as potent line-up of exclusive category sponsors like the EPL including Nike (Official Ball), Barclays (Official Bank: +/- £12m per season), and TAG Heuer (Official Timekeeper: +/- £5m per season). At the same time, the league maintained a comparably clean branding as the league, for example, did not renew its title rights deal with Barclays (+/- £40m per season) two season ago in favor of a cleaner branding for its internationalization efforts and has limited its "Official (Commercial) Partners" to currently six brands. (see: Twitterpost)
With the EPL emphasizing expertise in media segment among its highest-ranking executives, the league does not seem to foresee a bursting of the so-called "media rights bubble" any time soon. At least global intelligence service company Sport Business Group agrees in its annual "Global Media Report 2018" with the EPL by forecasting continued growth (CARG: +/- 5.6%) through at least 2021, reaching a market volume of +/- $53.3bn globally in three year's time. Having taken an in-depth look at the company's report last year for my book ("Auswirkungen der Digitalisierung auf den Sportrechtemarkt in Deutschland" [German]) and comparing it the top-line numbers of this year's report, I would like to highlight of few points:
First, the growth in the past has been much more cyclical and volatile, often relying on major global sports events (think: Summer/Winter Olympics, World/European Championships in Soccer) in order to be able to report a year-over-year increase. Expected future growth seems to be much more stable and less reliant on one-off or non-annual events. In this regard, some inconsistencies (or restatements) in the top-line figures compared previous years should be noted: This year's report states global market volume for 2015 (+/- $39.6bn) much higher than last year's version (+/- $35.3bn) did, actually outlining continued growth since 2014 for the traditionally volatile business in the most recent release.
Second, I generally expect an ongoing concentration of the market volume on a few sports as broadcasters will continue to pay the big bucks for premium content that reliably able to drive subscriptions and above-average viewership numbers in an increasingly fragmented media landscape. However, the combined share of the six biggest sports, as defined by SportsBusiness Group ("Soccer", "American Football" "Basketball", "Baseball", and "US College Sports"), has actually slightly declined in 2018 (+/- 78.5%) compared to the previous year (+/- 78.9%). In addition to the fact that the validity of year-over-year comparisons are susceptible to outliers given the aforementioned volatile nature of sports media rights (think: three-to-ten-years rights cycles between renewals), the main reason is probably looking at sports instead of specific properties (= sports league/organizations) and should normalize in the long-term: The just-signed seven-year extension between FOX and MLB for multi-platform broadcasting rights that will keep the World Series, All-Star Game, post- and regular-season games on its broadcast channel and FS1 through 2028 (+/- $728.5m per season) certainly supports the hypotheses of further market concentration on premium properties and their outperformance of the industry-wide growth rate. However, whether the FOX/MLB - deal will have a higher compounded annual growth rate (CAGR of +/- 4.5% through 2028) than the industry average (CAGR of +/- 5.6% through 2021) is another question given the usual long-term lock-up of media rights for premium properties in North America. To finish the column with at least some non-media rights content, let's take a look at some key metrics from the just-finished regular season in the Major League Soccer.
With the MLS Playoffs set to resume this weekend, some interesting numbers regarding the regular season's viewership, stadium attendance as well as the annual financial performance and valuations of the franchises have been released recently: A common theme of good-looking headline numbers and some weakness upon further investigation could have been identified.
First, Forbes made headlines with its annual franchise valuation with the average MLS team now being worth +/- $240m, up from +/- $223m last season (+ 7.6%). However, excluding the expansion teams that have joined the closed-league system since 2016 (Atlanta United, Minnesota United & Los Angeles FC), the average valuation only grew by +/- 3.6% to +/- $232m compared to the previous year. Additionally, their equal share in the league-owned media, promotional, and marketing arm Soccer United Marketing, most recently valued at an enterprise value of +/- $2bn in 2016, has been diluted by 0.65 percentage points with three additional franchise in the ownership pool, actually offsetting the increase in average valuation of old franchises (+/- $8m). Banking expansion fees of reportedly $200m for any new franchises joining the exclusive group, should continue to mitigate any potential opposition by existing owners and given the fact that Atlanta United, with only two seasons under its belt, is already considered to be the most valuable franchise (+/- $240m) via Forbes, should certainly further grow rather than shrink tthe pool of interested expansion locations despite exploding expansion fees and investments for a soccer-specific state-of-the-art stadium.
Second, top-line figures for the stadium attendance and linear television viewership during the concluded regular season have been reported via Sports Business Journal: Overall, broadcast viewership for the 2018 season is up +/- 6% compared to the previous season, reaching more than +/- 26m viewers across all networks.
At first glance, these viewership numbers are tremendous and every linear TV programming would be jealous of year-over-year increases in today's on-demand culture when it comes to media consumption. However, the MLS viewership is probably inflated by the increased coverage of games on the FOX broadcast channel, which primarily took place during the World Cup 2018 in Russia, benefitting greatly from highly-watch lead-in programming in addition to the broader distribution (+/- 120m TV Households) compared to pay-TV channels (max. +/- 90m Subscribers). In fact, linear TV viewership on both ESPN (-8%) and FS1 (-15%) was actually down compared to last season on a stand-alone basis. The problem going forward: The MLS will not be able to benefit from this positive narrative in the short-term from a monetary perspective and will probably face a slight pull-back in TV ratings next season. Being right in the middle of its current media rights deal (2015-22) with ESPN, FOX, and Univision (+/- $90m per season), the next rights cycle will probably be negotiated around 2021 without having the benefit of highly-watched World Cup games at this point in time. Average attendance in 2018 (+/- 21,803) has also been down compared to last season (- 1.4%), although the league's three most recent additions had actually above-average attendance figures during the 34-game regular season: Atlanta United (1. +/- 53,001), Minnesota United (5. +/- 23,902), and Los Angeles FC (8. +/- 22,042) ranked all among the Top-10.
Just to stay on topic with this notes column, I will get back around to media rights one last time: As first mentioned in last week's blog post (Hot-Take #2: DAZN in the US - Takeaways from John Skipper’s Media Push for OTT Service), I consider DAZN to be a major dark horse candidate (read: front-runner) for an MLS package starting 2023, with DAZN Chairman John Skipper being a vivid soccer fan and potentially losing out on any NFL package in 2021 (ESPN) and 2022 (CBS, FOX & NBC). With DAZN entering the field of potential bidders, the negative impact of flattish TV ratings and attendance figures going forward might be non-material - even without taking more drastic measure such as the recently discussed merger with the Mexican Liga MX, in which, at least from an fan interest's point of view, the MLS would actually be "the little brother." After all, "FLAT" being the new "UP" in today's media landscape is a common narrative anyways.
Although all the current buzz around DAZN focuses on North America and the news of entering the Spanish market in early 2019, its largest subscriber base continues to live in the DACH-Region, probably closing on the five-million-mark pretty soon. Last week, the region's CEO Thomas de Buhr appeared on the podcast of industry magazine SPONSORs. I published my quick reactions to the CEO's statements regarding the painful loss of the English Premier League to rival Sky Germany, the subscriber count as the all-important performance metric, the interest in live broadcasting rights to the Bundesliga starting 2021, the potential sale of the business-to-business segment of the DAZN Group, and more on the OFFTEHFIELDBUSINESS.de - Facebook page. Please take a look if you are German-speaking: Reaktion auf SPONSORs - Podcast mit DAZN's Thomas de Buhr. (see: Twitterpost)
My other favorite podcasts and readings from last week covering "Sports Business, Media & More" can be found here:
Did I miss some good stuff?
I tackled the future of the 22 RSNs in a recent blog post while making the argument that teams acquiring these networks and thereby integrating vertically along the value chain of the sports broadcasting market could be the next big value driver for franchise valuations, whose growth in the recent past was primarily driven by skyrocketing media rights fees which might or might not flatten out at some point in the future. (Blog #24 Vorwärts- und Rückwärtsintegrationen: Teams werden Medienunternehmen und Medienunternehmen zu Investoren?) With regard to the seemingly confirmed bid by Amazon for all or part of the RSNs, I had two initial thoughts: First, it would be all about the acquisition of the broadcasting rights attached to those RSNs for Amazon in order to further boost sign-ups and engagement on it subscription-based Prime - Service. Second, the two-year deals for the in-market digital streaming rights to the MLB just expired after a two-year trial period in which the MLB granted such rights to the RSNs for the first time ever. Therefore, they should not automatically be part of any acquired Regional Sports Network any longer and I don't see any interest of Amazon in actually operating RSNs with linear-only distribution. The Major League Baseball, in particular, is probably the most localized sports among the major leagues and make the RSNs vital for many local sports fans given the vast number of regular season games that are not broadcasted on national airways, via CNBC.
Finally, I can only recommend to everybody to take a look at the annual wide-ranging interview on the changing media landscape of Liberty Media chairman and media mogul John Malone with CNBC's David Faber, via CNBC.
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