- Pandemic brings sharp dip in revenues amid longer-term decline
- Experts say rights-holder approaches must change
- More revenue-sharing and investment in product development expected
Even before Covid-19 struck, it was clear the sports media-rights business globally was heading into a challenging new era. Several decades of stunning value growth, that saw media rights become one of sport’s two big revenue pillars alongside sponsorship, were grinding to a halt. It was clear that to even maintain existing revenues, many sports would have to think very differently to years gone by.
To discuss the challenges facing the sector, SportBusiness gathered a panel of experts at the All That Matters Online 2020 conference, composed of: Chris Guinness, senior vice-president and head of Asia-Pacific for agency IMG Media; Aarti Dabas, chief media officer at electric motorsports series Formula E; and Eric Geng, senior director, strategy and business development, at agency China Sports Media.
The panellists expect a big short-term hit to the business due to the pandemic, although the industry’s heroic efforts to return to the field of play have staved off “armageddon”, in the words of one. Looking ahead, rights-holders are expected to have to share more of the burden of growing the value of media rights, both in terms of investing in their products and engaging in more revenue-sharing deals. Lucrative rights buy-outs are expected to become rarer, although undoubtedly some markets will continue to create the conditions for them.
Pandemic slam
Media-rights deals around the world are being renegotiated and in some cases terminated in the wake of competition cancellations, postponements and rescheduling due to the pandemic. This is exacerbating a secular value decline largely linked to the maturation and decline of pay-television businesses. A sharp short-term drop in revenues is assured.
Guinness says the outlook has been improved by the quicker-than-expected return to play by many sports. “As long as sport returns to people’s screens, then to a certain extent the enormous impact we’ve seen this year will continue to ease.
“There is no doubt that the impact will be felt for the remainder of this year and probably into next year. But we as a business are seeing a return to revenue growth next year from a position of, quite frankly, armageddon this year.”
China is experiencing a particularly sharp crunch after several years of overspending by its growing OTT operators, for whom Covid-19 was the final straw. Geng says: “Covid-19 gave them a good excuse to renegotiate deals, but the main reason is overspending in the last three-to-five years.”
The Chinese rights market experienced slippage in 2017 and 2018 when the big-spending OTT platform LeSports exited after over-extending on sports content acquisitions. But growth rapidly resumed as new players including PPTV and Wuhan DDMC Culture and Sport filled LeSport’s shoes. Geng says this time is different, for two reasons.
One is the hit taken by the broader Chinese economy, with Geng saying that the “impact will not be huge, but still there will be some big influence”.
The second is growing political and trade tensions between China and the rest of the world: “If you deal with China, politics is a topic that you can’t avoid. And in recent years…[it] is more and more evident that this is a key factor that we need to take into consideration.”
There have been high-profile cases of media-rights deals affected by such tensions in the last year, most notably with the NBA and the English Premier League.
But the slump is already old news. The industry is focusing on what happens next.
Two shifts
A return to rights revenue growth is not envisaged in the near future, but pockets of opportunity remain and there is much work to be done to preserve existing revenues.
Dabas expects two main changes to the business going forward. The first is more revenue-sharing deals, as opposed to rights buy-outs.
“I think everybody is going to look for reduced risk,” she says. “I think the days of one broadcaster taking the risk and getting all these rights, and then the rights-holder sitting comfortably, saying, ‘OK, we’ll just produce the world feed and give it to you’, I think those days are changing.”
She pointed to DAZN’s recent renegotiation of its Japanese J.League deal as one indication of the direction of travel.
Geng sees the same shift happening in China. “I think the platforms will prefer to negotiate minimum guarantees plus revenue-sharing models with the rights-holders,” he says. More broadly, he thinks rights-holders need to stop chasing high-value deals of dubious sustainability in China, and think more long-term. He points to Premier League chief executive Richard Masters’ recent comment that the league would not be rushing to replace its collapsed rights deal with PPTV as an example of the longer-term thinking required. “I think that’s the smart attitude, rather than thinking short-term and focusing on the highest values.”
The deal agreed this week by the Premier League with online group Tencent notably includes a revenue-sharing element.
Dabas’s second expected shift is increased investment by rights-holders in their products.
“There has to be more investment in the product,” she said. “Rights owners cannot just sit back and say it’s the broadcaster’s job to build the brand. I think it’s a collective job to build the brand.
“So these two things are really important. It’s about shared risk and more investment in the product…which will help you in the future to build that direct relationship with fans. We can only have a b2b business if we have a d2c relationship with fans.”
There are plenty of opportunities for building those relationships using content beyond the live product, Dabas says. “As we’ve seen during the pandemic, the demand is not only there for live. Yes, live is the core, but we have to build shoulder content around it. It is about having that narrative right through, whether the sport is live or not…So there is an onus on rights owners to invest more, to create those opportunities to engage with fans, and to actually understand fans better.”
This does not come cheap, but Dabas says those rights-holders that are able to invest will be the long-term winners.
“People who know their fans, people who have that direct relationship, who understand their fans, are going to fare well in the longer term. In the longer term, sports is not going anywhere. It’s here to stay. It’s always one of the top forms of entertainment. It’s about, how do you slice and dice your product? Where does sponsorship come in? Where does media rights come in? I think at the end of the day, you have to take some risks in the short term to protect the long term future of your sport and your rights.”
Other opportunities
One of the elusive hopes of the sports media rights sector has been that new digital players would take up slack from declining pay-television businesses and support further revenue growth. Guinness says subscription OTT services hold out more promise for sports revenues than advertising-supported streaming services, but the generally low price-to-consumer of the former is a limiting factor.
“The challenge with OTT from a sports perspective is the link between pricing of services that are designed to capture the younger generation, who may be more resistant to pay for content, and the enormous cost of acquiring content in the first place,” he says.
Guinness believes there is a particular opportunity for higher-priced OTT services aimed at more mature audiences. “I think there’s an older audience that, if they can be offered a more targeted and streamlined opportunity to watch the content that they want, and they can have a destination for sport…will be in a position to pay for it. And I think that hasn’t been fully explored.”
Another current growth opportunity he picks out is that presented by sports betting and its ability to drive live audiences. “Watching sport live remains a hugely interesting proposition, particularly in regard to the growth of sports betting,” he says. “I don’t think anyone should underestimate how big and rapidly growing that phenomenon is.” His firm has been seeking to tap this in recent years with its growing IMG Arena sports betting unit.
Agencies like IMG Media have been at the heart of the story of sports media-rights revenue growth for the past 20 years, opening up new markets for rights-holders around the world. Their businesses have been squeezed in recent years as the market turned downwards.
Guinness says there are two big, immediate opportunities for agencies like IMG. One is that rights-holders that have taken rights in-house in recent years are “facing the stark reality that, in markets such as these, they will need help and people on the ground to them steer through what are obviously uniquely troubled waters”.
The other is lending expertise to the private equity groups and other investors whose interest in sport has ticked upwards recently. “There will always be an opportunity for agencies or individuals to lend their expertise to those entities, helping them to focus in on the opportunities that they want to look at from an investment perspective,” he says, adding: “Sport is still a hugely attractive investment. Obviously, valuations at the moment because of Covid-19 are way down. And a lot of rights-holders are needing external investment for the first time given the critical situation that they’ve found themselves in.”
China optimism
Geng is optimistic that the Chinese sports media rights market can return to growth, although says it is a longer-term hope and could take five-to-ten years to play out. Four reasons in particular underpin his optimism.
One is that the sports culture in China has matured in the last decade. “In the past, sport was quite a luxury product for us. But, especially in the last 10 years, youngsters are getting access to more and more sports…So, when they grow up, they will love sports, they will participate in sports, and they will consume sports.”
A second reason is the development of consumption and payment habits for high-quality sports media products. “Five years ago, 10 years ago, people did not believe in the entertainment subscription [model]. People said, ‘We have been used to [getting] everything free in the Chinese market’. But…Tencent, iQiyi and Youku, they all invested in premium content and charged subscriber fees.”
He notes that the subscriber base for iQiyi’s video entertainment service passed the 100 million mark last year, and says if premium-priced sports subscription services can penetrate even 10 per cent of this market, it would be “a very healthy industry for us in the coming years”.
The third reason is faith that the Chinese economy will continue to grow: “We are quite confident about the economy and, with that as a cornerstone, we have confidence in the sports industry”.
And the fourth reason is increasing interest in sport from the growing Chinese technology industry: “Many of the leading technology companies are coming to the sports industry…When they invest in the sports industry, we have big potential to grow in the future.”
Accelerator of change
This period should be, the panellists say, an inflection point for sports media-rights industry thinking. “I do think that it will be a moment for major entities to reflect on what is the right model going forward,” Guinness says.
Dabas echoes: “I think it’s a great time for rights owners to actually realise…where this is headed. In some ways it’s a great learning experience for many this year.”
As in many other industries, Covid-19 is proving an accelerator of changes that were already happening in the media-rights business. Much depends on how long and how deep the current financial squeeze will be, but the hope is that the outcome will be improved businesses, better adjusted to the modern media, consumer and b2b markets.
