Iceberg again: why sports rights holders would do well to heed the wider trends

In this week’s Member Insights, Ian Whittaker, Twice City AM Analyst of the Year spotlights on what the sports rights holders should be focusing on.

To an outsider, the global sports rights market must look attractive right now. As with most things globally, attention is always directed first to the United States and there it seems as though the Tech giants cannot get enough sports rights at the moment. Not only have Amazon and YouTube become major distributors of the NFL games but Apple has been showing Major League Soccer and Netflix is showing a growing interest in the space. That attention is now permeating down into second and third tier rights. Netflix (again) has been buying up rights such as WWE and is speculated to be a front runner for the US F1 rights, which ESPN has refused to renew.

In Europe, the English Premier League continues its role as the primus inter pares when it comes to global soccer rights and, while there have been unfortunate incidents such as the debacle with the French Ligue 1 rights, generally sports remain a core of the existing Pay-TV models. Meanwhile, the ever growing ease of distributing content to a wide audience over the Internet has meant that sports rights owners now have more potential options to distribute their content, a particular boon for niche content and new sports, such as UFC, do well amongst young audiences. 

However, for many sports rights owners, the longer-term picture may be more uncertain than that rosy picture suggests and really for two reasons. 

The first is that – a particular issue both in Europe and in the US for the major traditional sports rights holders such as ESPN – the economics underpinning their purchase of premium rights have fundamentally shifted and for the worse. In the US, linear television is in freefall as the traditional, expensive Pay-TV model has broken down as Americans move to cheaper streaming services (the US has over 85% SVOD penetration according to Kantar). In Europe, the Pay-TV operators – who have been the historic buyers of premium rights – are not seeing such a dramatic fall but they are seeing stagnation overall when it comes to subscriber growth and a growing unwillingness from consumers to take price increases. 

The second is that the traditional buyers of rights are starting to reassess their attitude to sports as a “must have” product. Perhaps tellingly, the catalyst for such moves has generally tended to be a breakdown in historically strong relationships between the rights owners and the channels, usually because the former want higher revenues which the latter refuses to pay. In France, Canal+ took a hardline against the French football league when the latter asked whether it wanted the Ligue 1 rights post-the collapse of MediaPro but it is the US where there have been the most noticeable shifts recently. Warner Bros Discovery (WBD) CEO David Zaslav recently stated that it does not need any more sports rights stating WBD would rather focus on content which it owns (movies, dramas etc) rather than rents (sports rights). Meanwhile, ESPN and Major League Baseball have ended their several decades relationships post-a recent spat. 

Both trends represent an existential risk. Buyers buy rights because they expect a financial return not out of charity. If the economics no longer work, then they will stop buying the rights, which is why you have seen the major Tech giants mainly not renew the European football rights they held when they came up for renewal. And even if the economics do work, there has to be a willingness on the part of potential buyers to buy. Trust is an important element in business. If one side is perceived as untrustworthy and / or motivated by short-term factors, it can cause an irreversible breakdown in the relationship. Just ask the owners of Ligue 1 and their relation with Canal+.

So far, that has not been an issue for the major US sports rights holders at least who have benefited from incoming money from the streamers which has led to inflation in sports rights costs in games such as the NFL. And even in Europe, Sky’s deals with the EPL and the EFL (English Football League) led to an increase in absolute terms for the leagues. 

Yet sports rights owners should not get complacent, even at the top. For the NFL, yes, it is locked into long-term contracts and its lock on live US TV audiences looks unshakeable. But there are growing signs that younger audiences may be engaging less with the product and, perhaps more of an issue when it comes to their long-term future, an increasing reliance on major Tech giants to whom your product is seen as an end to a means (taking a substantial share of the US television advertising market) more than an ongoing relationship may come back to bite the NFL. Meanwhile, it is clear the current deal between the EPL and Sky / TNT is really a (long) stopgap until both sides can work out what they need to do for the very long-term. 

The overriding point is this. For many of the traditional leaders in sports rights, now would be a good time to think the unthinkable and start to plan their options on how to maintain their revenue streams in case the existing sports rights order breaks down. 

As usual, this is not investment advice.