Both Major League Soccer and Formula One have signed new media rights deals in the past 90 days that are significantly more valuable than their expiring deals. The Big Ten Conference signed a record deal following the move, and the Champions League hopes the value of its rights will increase, as well. The increase comes at a time when the world of pay-TV is shrinking, inflation is stretching consumers’ wallets, and the threat of a recession will temper advertising spending.
Considering the head winds, it’s reasonable to wonder when the so-called sports bubble will burst – or at least show signs of leaking air. But neither John Skipper (co-founder, Meadowlark Media), nor David Levy (chairman, Genius Sports), saw that coming.
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Skipper, the former president of ESPN, said that while broadcasters and cable networks continue to pursue live streaming rights, which are necessary for them to collect the lucrative broadcast licenses and carry fees they receive today. , there will be more buyers of rights packages, and the price of those rights packages will continue to rise.
Levy agreed, the former president of Turner Inc. he said that even if some traditional broadcasters are returning direct rights, history has shown that new platforms with the ability to expand the pie will emerge.
JWS’ Take: While broadcast and cable networks, and even some streaming providers, have begun to scale back their programming budgets, sports rights continue to command meaningful increases across the board. But the former head of the network does not distinguish between the current rights environment bubble. “This is not an easy jump,” Skipper said.
The bull market for live sports rights exists because the genre offers the ultimate viewing experience. Sports are generally the highest rated programs on TV.
Live sports rights are also considered to be the most secure on television. “You know what the NBA is going to do on TNT,” Levy said. The league has a “built-in” fan base. “You know what’s not built? When [network] starts a new series of posts. It’s either a hit or it’s not and there are more failed shows than successful ones. The rate is below 10%.”
Live sports are equally predictable—and productive—in terms of generating advertising revenue. Remember, sports include a number of ad breaks, and products, that attract the most cost-per-thousand viewers on television, usually sales.
As a result, media companies across broadcast, cable, digital and streaming are all interested in carrying live sporting events. “And if they all have interests, that causes a supply and demand [imbalance],” Levy said. “If there’s a lot of demand and not a lot of supply, the price will go up.”
Competition from streamers has put more pressure on broadcast and cable networks to retain the rights to the high end of their business. As a result, the two former network executives believe that traditional broadcasting will increasingly focus on the top of the pyramid.
Newspapers that need both live content and variety in their sites are likely to “play both high and make low bets,” Skipper said.
To be clear, just because live gaming programs are more predictable than their written counterparts does not mean that the rights holder is guaranteed a good financial return on their investment. A streaming provider can reasonably expect to gain 2 million subscribers with the addition of NFL Sunday Ticket and still lose money on the rights package depending on how much it pays and what the LTV is for each subscriber.
The predictable form of sports advertising may become unpredictable. “If we’re going into a recession, the advertising [business] is obviously going to be weak,” Harry Melandri (consultant, Macro Intelligence 2 Partners) said.
Inflation can also muddy the equation for rights holders. “Who is the great guardian?” Julian Brigden (co-founder and president, Macro Intelligence 2 Partners) asked. “All these millennials who have crashed into crypto, who have been chewed up by inflation because their wages haven‘t risen yet. Are they going to pay an extra $100 to join all these channels?
Levy acknowledged that both concerns are valid and said that macro conditions are likely to account for short-term budgets. But as the network’s chief, “If you have a 10-year contract, you have to believe there are going to be good and bad cycles,” he said. “I would consider the financial constraints, but if I think it’s a great sporting asset, it won’t stop me from explaining the package.”
While cable providers and lenders are expected to increasingly focus on the most predictable assets, Levy expects that the prices of prime and popular properties will continue to grow, as well. “What happens is, when you’re a new platform, to get the rights, you have to pay more,” he said, referring to streaming.
There will be exceptions. Houses that don’t move the needle enough to fuel the bidding war may be forced to take what’s on offer, and there may be others who choose to take smaller deals to reach direct television.
Skipper sees the current bull market for sports rights continuing, “certainly in the near to medium term.” However, he said rights fees could eventually break if some traditional broadcasters consolidate, or give up carrying live sports, and the number of competitors is expected to decline.
But even if broadcast and cable networks aren’t aggressively pursuing the rights, Levy said, it’s hard to imagine waning demand. “What always seems to happen is new distribution sites are launched.” In the 1980s it was cable. Then it was telco, digital and streaming. “Every time a new platform is launched, that increases the pie or expands the pie in different areas,” Levy said. “It is a well-known fact that the early adopters of new technologies and new devices are young men. So, when new distribution platforms open, sports content is always sought after because of the young male population. , its built-in fan base, and the engagement it brings to its [other] content.”
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