Time To Face Reality: Why The Major Football Leagues Need To Get Used To The New Dynamics

Ian Whittaker, Twice City AM Analyst of the Year pens down why the major football leagues need to get used to the new dynamics.

We are truly into the flow of renegotiating the top tier football rights in most of the major European markets (except for Spain). So far, the picture does not look particularly pretty. In Italy, DAZN and Sky Italia have extended their hold on the Serie A rights up until 2029 and, while the headline price is only slightly below the current levels by low single-digits, once the inclusion of features such as archive rights (once bought separately) is factored in, then the decline is closer to 10%.  

However, Serie A has got off lightly compared with the disaster of the Ligue 1 rights where the LFP (France’s footballing body) has scrapped the auction process and faces a potentially significant decline in revenues. It highlights how major football rights holders need to change their mindsets to reflect the growing economic reality of their traditional buyers. 

To recap, the LFP was targeting €1 billion in revenues from the sale of the rights, a figure originally promised by Spain’s Mediapro in 2018. The hope was a familiar one namely that the entry of Tech giants would offset the relative decline of the power of the traditional Pay-TV platforms such as Canal+ and the sports-focused beIN and DAZN. After all, both Amazon and Canal+ already held the rights under the existing deal. 

However, the LFP appears to have made two fatal flaws in its thinking. The first is a fundamental misunderstanding of why companies invest in rights. The second (and related) is to be caught in a mindset where it believed it could dictate the value of the rights to the market.

Commercial organisations are not charities. They buy rights because they believe – ultimately – they will make money from showing them. Timeframes may differ – Sky has an established subscriber base while DAZN may be thinking of the longer-term economics. Routes to profitability may also differ. A Canal+ may be thinking about how many subscribers and / or how much ARPU it can grow / keep but Amazon may be thinking more about the overall value from a consumer relationship such as additional retail sales. However, the need to make money (eventually) is the fundamental driver. 

I mention what should be an obvious point because the clear reason why the bids did not attract the asking price was because economics for buyers simply do not make sense. Amazon may hold the rights now – only because it stepped in – but it could not make the numbers work. Canal+ may still be smarting over been passed over in 2018 for the rights but it will be monetary, not pride, factors that drove its decision. Ditto for beIN and DAZN.

It should also have been obvious if one thought about the wider dynamics. The traditional Pay-TV operators in Europe are seeing structural stagnation and / or decline in the numbers, impacted in part by streaming but also other factors (see below). Demographic trends – particularly around household formation – are less positive than they were. Interest rates, even if they remain elevated, are unlikely to come down to the levels they were which will constrain funding. Everyone is even more mindful of their financials in the current environment. 

However, the key point is there is not enough scale in each of the five major markets in Europe to justify mass investment, particularly from the Tech giants. Amazon, Apple and Google have made major investments in US sports rights because the scale of both the advertising and subscriber bases are huge. That is not the case in Europe, including the UK. The advertising / demographic dynamics are smaller and the TV market is different. 

That leads onto the second point. In economics, the phrase ‘producer capture’ relates to organisations that are run for the benefit of their employees or ‘producers’ not the end consumer. A similar dynamic seems to have built up amongst major football rights holders over the past few decades, fuelled by what had been until recently fierce competition for rights, with infusions of new money from sources such as the Middle East and Private Equity. The leagues got into the habit of believing they could dictate the price to the buyers. It feels like they are still stuck there to some degree at least.  

Yet that will not work anymore. Publicly listed companies are beholden to shareholders who have made it clear they do not see the upside from aggressive bidding for rights. Moreover, as interest rates have risen and the flow of free money ended, the focus has shifted from growth to cash conservation. Even for sovereign-backed Middle Eastern buyers, their changing strategic priorities suggest buying European football content rights is not a core priority, even if they are buying the clubs. 

What does this mean for the rights holders? For a start, they need to understand better the structural dynamics of their customers (who buys the rights) and the wider market and macro trends. They also need to face an uncomfortable reality. The days of European Pay TV companies growing as they did 15 years ago have gone and the Tech companies either don’t see sports as a priority (Netflix) and / or do not see the economics working (Amazon / Apple). Meanwhile, the specialist sports platforms (eg DAZN) are financially constrained. It is not an attractive message – but it is one that needs to be said. 

As usual, this is not investment advice.