#38 Ten Takeaways from Bundesliga’s Proposed Media Rights Tender for 2021/22 to 2024/25 Season
After all other members of the European Big-5 football leagues had locked in new domestic media rights deals during 2018 and will run at least through the 2020/21 season, I started to take a closer look at the German Bundesliga over the past few months: It was the next major football league that was going to throw its domestic broadcasting rights back on the market. Some major talking point that I tackled in the past include:
Eurosport cannot wait to finally move on from the Bundesliga and its annual commitment of €70m to the German top-flight competition after the 2020/21 season while pivoting to sports such as Golf, Cycling, and Olympics in which they can take better advantage of their global footprint and long-term partnerships - compared to facing the risk of either losing or significantly paying-up for their sports rights every three-to-four years: Discovery’s Pivot in to a „Global IP - Company “ in the Entertainment, Sports, and Content ecosystem (Facebook - Post).
Launching back in August 2018, Germany has probably been DAZN’s most successful market up to this point, boosting currently more than one million subscribers, but getting live coverage of the Bundesliga starting with the 2021/22 season will be vital to attract a completely new target group (i.e. mainstream sports fan) and finally increase subscription prices (€12-14/month) to potentially move towards profitability over the next few years: Live Coverage of the Bundesliga will be a Must-Have for DAZN’s Business in Germany (Facebook-Post).
Just like its peers across the English Premier League and Spanish La Liga, league and club officials in Germany tried to publicly push the interest from Big-Tech over the last few months, but why the Bundesliga, in particular, should not bet on Big-Tech which has served as a deflationary force instead of catalysts anyways for the EPL (see: UK) or La Liga (see: India): Big-Tech as Deflationary Force on Sports Media Rights Fees (Blog #35).
Besides Big-Tech, there are a few levers left that can be pulled in order to untap incremental revenues, including near-live highlights, league-operated (additive) OTT services, or emphasizing the second division: Alternative Catalysts for Bundesliga heading into next Media Rights Cycle (Blog #36).
The big question: Can the Bundesliga build upon its eye-popping increase in revenue during the current rights cycle (+ 72.9%), or do we see a similar scenario like in the UK where the EPL suffered a significant market correction in wake of a suspiciously similar one-time explosion in domestic rights fees (+ 67.0%)?
So what’s the news to once again tackle the Bundesliga here? We already knew that the proposed media rights tender was currently under review by the German watchdog. Last week, however, SPONSORs, the leading sports business publication in Germany, provided a first glimpse into some specifics of how the DFL, the body that is operating the first („Bundesliga“) and second („2. Bundesliga“) division in Germany, plans to bring its broadcasting rights for the next four-year cycle (2021/22 - 2024/25) to the market. SPONSORs did a good job in summarizing the key facts and also started to critically assess the implications and consequences for both potential bidders and consumers. Building upon that, I want to provide my ten major takeaways from the proposed media rights tender:
DFL Responsive to Market Feedback by Eliminating „No-Single-Buyer“ - Rule, catering to the interest of both the consumers and rights holders.
Interested in Getting into Business with Digital-Only / -First Players, but not to the extreme like other major sports leagues.
No „Slicing & Dicing“ of Rights, live packages providing a path for all rights holders for effective monetization of consumers and even the potential for a “One-Stop-Shop” instead.
Higher Number of Exclusive Broadcasting Windows across the Weekend as Value Driver, compensating for the elimination of Monday Night Games.
Eurosport Moving on to greener Pastures, but was dealt a bad hand by the DFL from the beginning.
Clear Path for Moving 2. Bundesliga out of the Bundesliga’s Shadow, awarding second-tier division to a dedicated rights holder would be beneficial for everybody involved.
Re-thinking the Value of Non-live Content, making highlights about marketing instead of immediate monetization. (Focus on Package “N”)
Increasing Value of Near-Live Highlights, shorter attention spans of the younger audience are both a curse and a blessing. (Focus on Package “M”)
Game of Supply and Demand, restricting supply while still making all 306x Bundesliga matches available as live broadcasts.
Longer Rights Cycles in Interest of Rights Holders, providing more time for monetization and innovation remains critical in times of skyrocketing rights acquisition costs.
Sky DE as „One-Stop-Shop,“ Single-digit Percentage Increase in Total Rights Fees, DAZN vs. Amazon, and What If?
(Please refer to the SPONSORs article whenever some context is missing.)
1️⃣ DFL Responsive to Market Feedback by Eliminating „No-Single-Buyer“ - Rule, catering to the interest of both the consumers and rights holders.
Overall, the last domestic media rights tender covering four years starting with the 2017/18 season was considered to be a breakthrough success and led to a tremendous catch-up for the Bundesliga to other leading European football leagues. It did not only result in a major increase in annual revenues to €1.16bn per year (+ 73% compared to 2013/14 - 2016/17: €645m p.a. on average paid by Sky DE / ARD / ZDF / Sport1 / Axel Springer AG) but - at least publicly - the successful bidders expressed overall satisfaction with the packaging by the DFL as well.
Interested in additional insights into the current state of the sports broadcasting market in Germany?Amongst other things, my book includes an in-depth case study of the Bundesliga and how the ongoing digitization will impact the segmentation, distribution, as well as monetization of its audiovisual broadcasting rights:
"Auswirkungen der Digitalisierung auf den Sportrechtemarkt in Deutschland"
Over time, however, both rights holders and consumers started to express some degree of dissatisfaction: Increased fragmentation of live content across multiple platforms (i.e. no “One-Stop-Shop”) or rights packages lacking value to create a relevant product on a stand-alone basis (e.g. Eurosport’s package „A,“ RTL Nitro’s package „N“) became increasingly talked-about discussion points within the industry. The major weakness of the tender process was quickly identified: the “No-Single-Buyers” - Rule. Compared to other European or the U.S. media market, the German pay-TV landscape has traditionally been underdeveloped and the German customers had developed an underlying reluctance to pay additionally for media content across all mediums including video, audio, and written content. The reason: the world’s best-funded public broadcasting service which has been providing end-to-end coverage across television and radio plus a tremendously strong free-TV landscape of commercial, advertising-supported linear television channels. Historically, the Bundesliga was the only sports media property that even allowed a distribution and monetisation of live content behind a pay-wall. In other words, the rights-holder of the Bundesliga was usually the only (sports-centric) pay-TV service in Germany and still marked by consistently unprofitable operations (e.g. Premiere, Arena). Although even the German consumers gets slowly but surely accustomed to the idea of paying for media content thanks to Netflix, Spotify & Co. and Sky DE turned profitable for the first time in FY2015/16 on an EBIT-basis (+/- €5m) while hovering around the break-even point ever since, the market in Germany simply was not ready to support two sports-focused pay-TV services back in 2017. To DFL’s credit, the “No-Single-Buyer” - Rule actually was not part of the initially proposed tender for the current rights cycle (2017-21) either. The German watchdog (“Bundeskartellamt”), however, saw the (inexplicable) need for such measure to ensure competition on the pay-TV market and the rule was added later in the process. It has been obvious that the DFL wanted to respond to the market’s feedback and tried to set the tone early on when it came to the “No-Single-Buyer” - Rule by publicly demising the actual need for such requirement going forward. (see: Twitterpost ⬇️)
After all, even today - when a dual revenue stream of advertising and subscription revenue seems indispensable to profitably refinance acquisition costs for first- and second-tier sports media rights, a comparatively large chunk of live sports remains on free-to-air channels in Germany, and any sports besides the Bundesliga is simply not able to drive subscriptions in a meaningful way beyond the group of respective hardcore fans. Live sports, in particular, has been a significant driver for the adoption of pay-TV outside of Germany while pay-TV penetration remains sluggish around the 20% mark in Bundesliga’s domestic market. Both consumers and potential bidders (read: Sky DE) will keep their fingers crossed that there will not be any last-minute changes again.
2️⃣ Interested in Getting into Business with Digital-Only / -First Players, but not to the extreme like other major sports leagues.
Just like other major sports leagues, the DFL will be tasked with mastering the ongoing disruption of the (sports) media market, mainly driven by the digitisation, new market entrants into the sports broadcasting arena, and over-the-top (OTT) distribution: For reference, having a background in the media industry does not only seem to be a “good-to-have” but “required” prerequisite for any leader of today’s sports operators - as evidenced by the search still ongoing search for the next CEO of the English Premier League. (Blog #37: English Premier League - Is there anything to gain for Scudamore's Successor as the League's CEO?)
The increased relevance of stand-alone pure-sports OTT services (e.g. DAZN, Eleven Sports, Eurosport Player, ESPN+, B/R Live, WatchStadium, FloSports) as well as the likes of Facebook, Google, Amazon & Co. will inevitably mean to get into some form of business relationship with these new digital-only/-first players - and live sports broadcasting rights are simply the most sought-after assets of leagues specifically and the streaming content business in general. Carving-out non-exclusive (e.g. NFL’s Thursday Night Football) or even fully-exclusive (e.g. FA Cup, Premier League) streaming packages has been the approach chosen by many leagues, given the multitude of issues for streaming services when competing directly with legacy media companies for sports rights (e.g. streaming stability issues, exposure/distribution, monetizability). Although there will not a be an exclusive live rights package fully dedicated to only OTT players as observed in other sports leagues (e.g. FA Cup, Premier League), the DFL at least opened up the opportunity for digital-only players to distribute sought-after live content for the first time by reducing the number of distribution systems that must be served by any given rights holder to two out of four technologies (i.e. satellite, cable/IPTV, online-streaming, mobile-streaming). (see: Twitterpost ⬇️)
Given that the “Any Where - Any Time - Any Device” (AWATAD) - approach has been a major selling point of digital-only players, this requirement should be met by every one of them through at least online- and mobile-streaming. At the minimum, the DFL wants to ensure that at least one non-exclusive rights package is going to land with an OTT player given the specific packaging and tender guidelines. OTT players having inevitably access to one major package, however, will probably not be able to serve as a big driver for overall rights fees since no market rate is paid yet for (non-)exclusive digital live streaming rights (see: EPL/Amazon, LaLiga/Facebook, NFL/Amazon).
First and foremost, it will be about gathering first experiences in the OTT live streaming space with a potential major pay-off in the future. Thereby, the DFL rather follows NFL’s (i.e. non-exclusive, complementary distribution) than EPL’s approach (i.e. exclusive distribution), with two big implications: (I) DFL does not take the risk of restricted access (e.g. broadband infrastructure, adoption of digital media) and / or streaming reliability issues (see: current Eurosport Player’s and Sky Ticket’s struggle with Bundesliga) of any digital-only distribution. (II) The ability of non-exclusive live content to serve as a meaningful subscription driver for pure-sports subscription services has to be questioned - which means that the proposed tender might better serve the specific needs of a digital-only bidder á la Amazon who can monetise customers on multiple ways, unlike a pure live video streaming and SVOD subscription service such as DAZN which has a dual revenue stream of subscription and advertising revenue (at best) and highly relies on some exclusivity.
3️⃣ No „Slicing & Dicing“ of Rights, live packages providing a path for all rights holders for effective monetization of consumers and even the potential for a “One-Stop-Shop” instead.
Carving out additional rights packages, either consisting of fewer games or being exclusively dedicated to a specific distribution system (e.g. mobile, web streaming) has often been the default approach for rights owners in their pursuit of incremental revenues. In general, rights owners need a tremendous amount of market power to pull off this approach without facing too much backlash from existing rights holders who understandably fear at least some degree of cannibalization. That is especially true if these additional rights packages are created during an ongoing rights cycle, resulting in rights constellations to which they did not originally sign up for. In other words, only the world’s most popular sports leagues, with which any company that competes in the video content arena would like to be in business with, are able to take that approach (see: MLB ChangeUp on DAZN, granted in 2019 during 2014-21 rights cycle with ESPN, Fox, and Turner; NFL Thursday Night Football on Amazon, originally granted in 2016 to Twitter after CBS/NBC already secured platform-neutral rights for 2016-17 cycle). The DFL. instead, is probably going to take the opposite approach: Consolidating rights packages, both for live and highlights content, to provide potential bidders - regardless of how many packages are acquired - a sufficiently attractive product proposition to make every package even on a stand-alone basis intriguing, if not essential, for the end consumer. This could not be said about the current live package „A“ held by Eurosport which has proven to not be sufficiently indispensable for the mainstream Bundesliga fan - but more on that later.
[Courtesy of SPONSORs]
After all, the DFL seems to acknowledge that it is only reasonable to demand yet another increase in annual media rights fees if it provides respective buyers with a product in which consumers can be interested in. Leagues call the media rights holders „broadcasting PARTNERS“ for a reason. Although Sky DE has remained the primary home of the Bundesliga, it naturally suffered a big hit by not being the “Home to all Bundesliga Games” anymore since the 2017/18 season. Reducing the number of available live packages from five to four combined with the elimination of the “No-Single-Buyer” - Rule will increase both the entry barrier for any pay-TV rights holder on the cost-side (currently at €70m per season) and the probability for having once again a “One-Stop-Shop,” for which Sky DE will most likely be happy to pay a meaningful premium. The negative impact on Sky DE’s value proposition due to the non-exclusivity for selected games should only be minimal: Due to the limited adoption of digital media throughout many demographics in Germany, the cannibalization of Sky DE’s offer through the complementary distribution of some live games would be limited given that these packages would be reserved for an OTT player in case of a “One-Stop-Shop” that provides access through all four distribution systems. Although it should be taken into account that this rights period would be in place until 2025, which is a long time away and even German consumers (and the country’s broadband infrastructure) should be more ready to embrace digital means until then.
4️⃣ Higher Number of Exclusive Broadcasting Windows across the Weekend as Value Driver, compensating for the elimination of Monday Night Games.
As demand for live sports content, which continues to be able to draw large audiences at a specific point in time in front of the television (think: “Appointment TV”) in spite of today’s on-demand culture, grew, some league took advantage of the fact that not all their games had been broadcasted live and in full via national airways and simply added more games to the the inventory that was made available to potential bidders. Among the Big-Five European football leagues, the EPL, in particular, was in the comfortable position to simply increase the supply of games, selling 32x more games per year for the next three-season period (2019-22) compared to the current rights cycle (2016-19). Starting with the 2019/20 season, 200x out of a total of 380x games will be broadcasted live and in full by the likes of Sky Sports UK, BT Sport, and Amazon - even leaving some more levers to pull on the table in the future. Similar developments have been observed across the NBA (1,230x regular season games), NHL (1,271x), and MLB (2,430x), which have much more games per season in general, but have constantly been increasing their supply to broadcasters over recent years.
[Courtesy of SPONSORs]
The Bundesliga has made all of its 306x games per season available as a live and full-game broadcast through its broadcasting partners for a long time though. Eliminating all matches on Monday nights in wake of significant fan protests and rolling up the current package “A” (43x matches across Friday nights, Sundays around noon, and Monday nights plus Promotion/Relegation & Supercup matches) into the remaining four live pay-TV packages would suggest even more compressed, less monetizable match inventory. However, the DFL knows that it is not just about the number of games made available, but - maybe even more importantly - the number of exclusive broadcasting windows because not all broadcasted games are created equally: For example, the monetizability of the 20x Premier League games that were acquired by Amazon for the upcoming rights cycle (2019/20 - 2021/22) - by probably less than £1.5m per game - is far lower than every 20x games that will be shown by Sky Sports (£9.3m per game) or BT Sport (£6.25m per game; also including two complete mid-week match days á 10x live games). Sky Sports and BT Sport - except for the latter’s two just mentioned two exclusive full-schedule mid-week matchdays - never show multiple games at the same time, providing any single broadcast with the most possible exclusivity and exposure in order to maximize football fan’s attention, eyeballs, and ultimately wallet share. Amazon, on the other hand, will have to work with multiple simultaneously-played matches, splitting viewership (and advertising consumption) across multiple broadcasts.
Although the DFL is not going to the extremes like the Spanish LaLiga which has been pushing the envelope when it comes to the staggering of games and plays almost never two games at the same time across Saturdays and Sundays, the German league operator is obviously taking steps to maximize the time of live match coverage. As a result, the Bundesliga, together with the 2. Bundesliga, will certainly demand a much higher share of the fans’ available leisure time across Saturdays and Sundays going forward - starting at 1:30pm on Saturdays. I also think that the DFL was wise to not start games even earlier, which might be beneficial to cater to the Asian market, given that the weekend’s mornings and early afternoons have traditionally been reserved for youth and amateur football. At least with regard to the domestic market, such move would have only had downside risks (e.g. public backlash, lower viewership numbers) as the DFL, in general, faces the challenge of scheduling kick-off times that strike the balance between maximizing rights fees - both domestically and internationally - while maintaining a core broadcasting window with the majority of the games on Saturdays at 3:30pm. Interestingly, that time period falls directly into the black-out window for football games in the world’s second-largest sports media market: the UK. (see: Twitterpost ⬇️)
In this regard, the German top-flight competition actually misses out on the UK market to a much higher degree as the Spanish LaLiga: Bundesliga’s 4-5x games compared to LaLiga’s 1-2x games during the UK black-out window for football broadcasts - and provides clear evidence of the different attitudes between the German and Spanish league offices when it comes to somehow closing the financial gap to the all-dominating EPL. As long as four to five games remain in that window, the Bundesliga will continue to punt on one of the most attractive overseas markets - bowing to the rather traditional fan culture and values of the German football landscape.
Finally, by stretching the matchday more aggressively across the weekend with ultimately up to six broadcast windows (1x Fridays, 2x Saturdays, 2-3x Sundays), the Bundesliga aims at increasing the average viewership of any one of these individual broadcast windows. Keeping the total supply of live broadcasts at all 306x season games, a higher average TV viewership would then directly translate into a higher total audience delivery over the entire season - and the number of total eyeballs should have a direct impact on expected advertising revenues (i.e. bidder’s willingness to pay for Bundesliga rights in the first place). All else equal, there should be a pretty good chance that the Bundesliga can increase the average TV viewership. However, the impact of EPL’s initiatives to increase media rights revenue (i.e. increasing number of live broadcasts) on average TV viewership is less obvious and it will be interesting to see whether Sky Sports and BT Sport can keep last season’s encouraging ratings trend going. An increase in total audience delivery, however, should be a foregone conclusion, probably more than overcompensating for any potential decline in average viewerships. (see: Twitterpost ⬇️)
Such things like adding at least the options for more total ad-revenue-rich live programming across the weekend are little tweaks that do not make the big headlines such as the abolishment of the „No-Single-Buyer“ - Rule but could be vital for the DFL to maximize bids - while remaining more fan- and team-friendly compared to the case of increasing the number of games outside of the weekend.
5️⃣ Eurosport Moving on to greener Pastures, but was dealt by the DFL a bad hand from the beginning.
If you needed one more reason why Eurosport’s four-year endeavor in the Bundesliga was doomed to fail from the beginning, here it is: The package which the DFL was essentially forced to award to Eurosport in order to satisfy the current cycle’s „No-Single-Buyer“ - Rule was eliminated and is now bundled together with the Sunday games. Given the low inherent value of Eurosport’s current package „A,“ it was an easy decision for market-leading Sky DE which package it would be willing to concede to the competition back in 2016: the one, which went for a mere €70m per season to the Discovery-owned pan-European pay-TV operator. After initial plans to go for a carriage agreement with Sky DE which would have ensured a „One-Stop-Shop“ for fans by aggregating both the Sky Sport and Eurosport pay-TV channel on Sky DE’s platform and solid start to the challenge to refinance the rights acquisitions costs thanks to a major guaranteed sublicense fee from Sky DE, both Eurosport’s linear pay-TV channel (Eurosport 2 HD Xtra) and its stand-alone OTT service (Eurosport Player), in particular, never gained any meaningful traction among the mainstream football fan: The inability of the package’s composition to drive subscriptions and its concentration on Friday nights, which is probably the weakest primetime-window across the entire week, as well as the Germans being highly sceptical about any digital-only distribution of live (sports) programming, have been among the contributing factors. Having repeatedly self-inflicted issues on the technical side with its Eurosport Player only confirmed the consumer’s negative bias towards OTT live streaming from the beginning. (see: Twitterpost ⬇️)
After all, I do not expect Eurosport to seriously bid again. That does not mean that they will not look into the tender and even submit an offer, but since getting a great bargain for any live games seems more than unlikely with DAZN and Amazon also at the table, I do not think Eurosport will remain a holder of live or highlights rights beyond the 2020/21 season - regardless of the future plans of its partnership with commercial broadcaster ProSiebenSat.1 and their combined streaming service “JOYN” that will also include the Eurosport Player. In general, more parties than somebody might expect will look into and even bid for the Bundesliga - which is simply by far the most relevant and valuable sports media property in Germany and any association with the top-flight football league offers much more benefits than the expected increasing subscription and / or advertising revenues, including spill-over effects on other programming, improved image, or increased brand awareness. Regardless of any discussion about the „sports media rights bubble“, the fact is that premium live sports remains the most resistant programming genre within the secular trend of declining linear television viewerships. However, it will ultimately come down to the expected frontrunners (i.e. Sky DE, DAZN, Amazon) and I do not believe in any major surprises - more on that later.
Coming back to the rights segmentation, greatly upgrading the „least valuable“ live package has not only increased the entry barrier for rights holders significantly which will probably see the paid rights fee for this particular rights package (probably package „C“ which consist of 32x „first pick“ - choices for any given weekend’s Saturday games) at least triple compared to the €70m per season that Eurosport is currently paying, but will also present a much tougher decision for Sky DE this time around: Which games would Sky DE (or the primary rights holder for this matter) be willing to skip entirely or have only on a non-exclusive basis? Even a subscription-based offering with only the Saturday’s top game at its core (and not much beyond that) would immediately have much more relevance than what the Eurosport Player is currently offering - assuming that you are not a giant tennis aficionado.
The Discovery-owned pay-TV operator, for its part, also effectively admitted the failure when it comes to the Bundesliga: Although Discovery is not willing to leave the European sports rights market entirely, the company’s executives repeatedly hinted at a strategic pivot away from single-territory, short-term rights commitments (2-4 years) towards multi-territory, long-term partnerships in sports. Instead of facing the risk of losing broadcasting rights or at least the prospects of greatly increasing acquisition costs every other year given the short-term nature of rights periods required by competitive laws in many cases, it prefers to focus its time and resources on long-term, multi-territory, if not global, broadcasting rights on a platform-neutral basis (think: linear, digital, mobile): Recent deals of that nature with the PGA Tour ($2bn/12 years; 2019-30) and Olympics (€1.3bn/6 years; 2018-24) underline the company’s vision to become a global player with exclusive rights to a comprehensive sports and entertainment content library. I shared my thoughts on Discovery’s vision for becoming a “global IP company” (think: sub-licensing its content to streaming platforms with similarly global operations such as Amazon, Apple, or Netflix) in a recent post on Facebook: Discovery’s Pivot in to a „Global IP - Company “ in the Entertainment, Sports, and Content Ecosystem.
6️⃣ Clear Path for Moving 2. Bundesliga out of the Bundesliga’s Shadow, awarding second-tier division to a dedicated rights holder would be beneficial for everybody involved.
Already at the end of last year, I dedicated almost an entire blog post to the question why a „laissez-faire“ - market approach instead of trying to artificially create competition in the short-term when it comes sports media rights (Blog #33 - Status Quo of Media Rights in European Football: Can we do better than No-Single-Buyer Rule?) would have been the much more sustainable and healthy approach for the German (sports) media market: Viable competition (here: Eurosport) for market incumbents (here: Sky DE) simply cannot be created out of anywhere just because one of such contenders gets awarded a little piece of a valuable sports media property (here: Bundesliga). Ultimately, the regulatory intervention achieved exactly the opposite of what it intended: a less consumer-friendly product for four long seasons and a similarly consolidated / less dispersed market without a serious competitor for Sky DE at the end of the rights cycle. Understandably, the DFL wants to abolish the „No-Single-Buyers“ - Rule, exactly what I said back in December of last year. However, I also tried to answer the question I raised at the same time: Can we do better than the „No-Single-Buyers“ - Rule? Yes, we can. I suggested splitting up the first and second division between different rights holders. The benefits of granting exclusive broadcasting rights of a country’s second division to a sports media company that does not hold any rights to the first division would be twofold: First, the importance of the second division to the right holder’s top- and bottom-line would probably increase greatly and would inevitably result in much more visibility and resources within the rights holder’s overall programming and editorial strategy. Second, it could be an opportunity to build up a viable challenger for any incumbent holders of first-tier rights in the future, who are not ready for primetime just yet. Eurosport’s current endeavor in the Bundesliga, however, has just been the latest example of a long history that has shown that carving out small rights packages and granting them to unproven market players to simply satisfy the “No-Single-Buyer” - Rule (e.g. Setanta UK’s 46 EPL games in 2007-10; ESPN UK’s 23 EPL games in 2010-13) has not worked out for all parties involved - except for further reinforcing the uber-dominant position of one market leader like Sky Sport in the UK. Instead, let new or less-established market entrants move up the ladder from long-tail (think: second division) to premium rights (think: first division) instead of putting the burden of immediately refinancing extremely expensive first-tier rights on them while lacking any brand awareness, profitable operations, and sufficiently-attractive content libraries to drive a significant amount subscriptions. By bundling the first and second division together, the reality is that second divisions will always remain in the shadow of the top-flight domestic leagues. Although that should be common knowledge, both entities have been living under the same umbrella, not only in Germany (Sky DE) but across the European Big-Five: LaLiga 1|2|3 (Telefónica), EFL (Sky Sports UK), Serie B (DAZN), and Ligue 2 (beIN Sports & Canal Plus).
Therefore, I really like that the DFL offers a clear path with package „F“ to my proposed scenario of decoupling both divisions. Specifically, I would keep on eye on Deutsche Telekom. The integrated business model of the telecommunication company could provide additional benefits for the 2. Bundesliga: Normally, second divisions are not really made for pay-TV due to its limited ability to drive subscriptions beyond a core target group that mostly consists of fans whose favorite team is playing in the respective league. In this regard, the 2. Bundesliga actually benefits from being bundled together with the Bundesliga under Sky DE’s tiering of its subscription packages. In other words, anyone who wants to have access to the Bundesliga, has automatically to pay for and has access to all 306x matches of the second division as well. However, the main objective of telcos such as Deutsche Telekom is to provide additional incentives in form of differentiated content to become a Telekom-customer for its complete set of telecommunication services, not just a subscriber of its stand-alone OTT service (here: Magenta Sport) to consume the aforementioned content. That also means that consumers who are already Telekom-customers could get free access to the 2. Bundesliga (at least for a limited time) which would greatly increase the access to and, therefore, visibility of the 2. Bundesliga. Second-tier sports media properties always face the inherent risk of losing relevance by living behind a paywall and these leagues have shown no willingness to trade revenues for increased free-to-air coverage in recent years. Deutsche Telekom is already taking a similar approach with the third football division in Germany („3. Liga“), paying about €16-20m per season in order to use this exclusive content as a gateway into its ecosystem of broadband, telephone, television, and mobile services for potential customers. Acquiring the 2. Bundesliga would be the aforementioned „moving up the ladder“ of future Sky DE challengers and would meaningfully improve the value proposition of the telco’s sports rights portfolio - currently consisting of the German top-flight leagues in Basketball („easyCredit Basketball Bundesliga“) and Ice Hockey („Deutsche Eishockey Liga“) in addition to 3. Liga. Also, there are much more Telekom customers in Germany than Sky Sport or DAZN subscriber. In other words, much more people could immediately have access to the 2. Bundesliga.
One potential downside for the clubs from the 2. Bundesliga would be that their counterparts from the first division could demand a higher share of total media rights revenues in wake of a clearer delineation between both divisions. Currently, the DFL operates under an 80/20 - split when it comes to distributing TV revenue between both divisions - by far the most equalitarian approach among the European Big-Five. A more merit-based distribution formula or simply the amount to what the successful bid for package „F“ amounts to would certainly be to the detriment of 2. Bundesliga teams (in terms of pure short-term economics) compared to the current setting. I went into more detail of the dynamics between the first and second divisions in the UK, Spain, Italy, France, and Germany in the following blog post: Blog #33 - Status Quo of Media Rights in European Football: Can we do better than No-Single-Buyer Rule?
After all, the 2. Bundesliga would trade short-term revenues against more visibility, access. and relevance - benefits that might need a little bit longer to materialize into incremental income.