Sportel America: Sports-Rights Boom Continues Even in Shadow of Pay-TV De-Bundling

$28 billion from CBS, NBC, and Fox and $15.2 billion from ESPN over nine years for the NFL. $24 billion from ESPN and Turner over nine years for the NBA. $12.4 billion from ESPN, Fox, and Turner over eight years for Major League Baseball.

$7.65 billion from NBC for the 2022-32 Olympics. $5.2 billion over 12 years from Rogers Communications for the NHL in Canada. £5.14 billion ($U.S.7.68 billion) from Sky and BT over three years for the Premier League in the UK.

These eye-popping paychecks are just a handful of the gargantuan media-rights deals inked over the past three-plus years. And, as the value of sports-media–rights deals has skyrocketed over the past decade, many in the industry are asking one question: when will the bubble pop?

According to a panel at last week’s Sportel America featuring speakers from MP & Silva, NBC Sports, Rogers, and TEAM Marketing AG, the answer is, no time soon (and the 2014 PricewaterhosueCooper Sports Study agrees).

“I think that we will absolutely continue to see rights rise at a very healthy rate as long as the ecosystem exists that has allowed that to happen,”  said Robert Simmelkjaer, SVP, NBC Sports Ventures & International. “That ecosystem in the United States has been pay TV and the bundle of pay TV.”

Pay-TV Bundle Under Attack
The recent barrage of à la carte streaming services and stripped-down OTT video bundles could bring an end to the sports-rights party, as cord-cutters and cord-nevers threaten the traditional pay-TV bundle. Paired-down OTT bundles like Sling TV, Sony PlayStation Vue, and the soon-to-launch Apple TV service or direct-to-consumer OTT offerings like the WWE Network, HBO Now, and CBS All-Access — and the many more likely to come in the next few years — could dramatically change the way sports-media–rights deals are negotiated.

“Whether they are big sports fans or not, ESPN gets $6 or so from every single U.S. household. That has been the key to the growth,” said Simmelkjaer. “[Although] that ecosystem is still healthy, it is showing some signs of change. It certainly doesn’t appear to be about to collapse, but you see the OTT solutions becoming a greater and greater share of what people consume. Even sports now, from us to ESPN to the leagues, are starting to think about how we serve people who de-subscribe from cable or never subscribe in the first place. To me, that is by far the most likely potential game-changer in terms of the rights marketplace.”

The end of the all-encompassing pay-TV bundle is even closer in Canada, where the Canadian Radio-television and Telecommunications Commission ruled last week that pay-TV operators must offer subscribers a basic-programming tier for $25 a month or less and then can add on programming packages. Canadian MVPDs have until March 2016 to create the basic-programming packages.

“The de-bundling of sports is — next to piracy — the second-biggest challenge to keeping the sustainability of rights,” said Scott Moore, president, Sportsnet and NHL properties, Rogers. “In Canada, on top of being a heavily pirated market, we are the most regulated market in the world. With total flexible packaging and à la carte, it will be the end of a number of specialty channels. If we go from 10 million subscribers down to 5 million subscribers, we will have to charge double or 2½ times in order to stay sustainable.”

Longer Deals Mean Stronger Relationships
Although the majority of recent U.S.-based sports-rights deals have been long-term agreements, around 10 years, major European soccer properties, such as Champions and Premier League, have kept their rights on three-year cycles. This puts rightsholders in a difficult position, because they are constantly concerned with growing the value of a property just to lose it to a competitor in the next round of rights negotiations.

“It’s increasingly difficult,” said Thomas Schmidt, managing director, media rights, TEAM Marketing AG, which sells UEFA Champions League and Europa League rights globally. “These three-year deals are not necessarily our choice; that is the way European club football is organized. From our point of view, we would love to offer longer-term deals for our partners — not because of having a greater partnership but simply because we believe they will invest more if they have longer-term visibility for the product. But, unfortunately, we can’t do that. U.S. sports are a lot more flexible in that regard.”

Rogers, for example, just lost Canadian rights to the Champions League to TSN/RDS after building up the property over the past three years.

“You can’t have a partnership in three years; it’s impossible,” said Moore. “Where is the incentive for us as a three-year renter of rights to build your brand? NBC has done a great job with Premier League, but they could lose it to Fox next year, and all that investment is money down the drain. So, if you want partners, you have to go for more than three years. Otherwise, we are going to invest less in the promotion of properties we are renting.”

Platform-Neutral Rights Are a Must Today
Covering the full gamut of consumer platforms — broadcast, cable, streaming, etc. — is also necessary to any successful rights partnership, according to the panelists.

“It’s quite simple: we believe that our broadcast partners need control across all platforms and, if you don’t give them that control, they will pay a lot less,” said Schmidt. “We have not just sold them rights to all the platforms; we also oblige them to use them. We were pushing live streams over the Internet 10 years ago, and we more or less do the same thing today with some exceptions in certain markets. We very much believe that is the way to move forward.”

Moore added, “If you don’t [sell rights to all platforms], you’re crazy. Major League Baseball doesn’t sell all the rights to broadcasters, so you cannot stream the Baltimore Orioles local broadcasts in Baltimore because they belong to MLBAM. So the 70% of the millennials watching sports on their phones are no longer watching Major League Baseball. The longer MLB does that, the more of that generation they are going to lose.”

Daniel Cohen, SVP, Americas, MP & Silva, seconded the need to appeal to millennials, citing a recent study that estimates 70% of U.S. millennials consume live sports content on mobile devices. As a result, it’s essential that content owners and rightsholders work together to find new ways to engage this demographic and cater to its ever evolving video-consumption habits.

“There are less people watching full games than they did five years ago,” he pointed out. “It has become more about highlights and picking and choosing what they want to watch when they want to watch it. That’s created more verticals for rightsholders or broadcasters. We look to partner with leagues that are pushing the envelope and adopting and adapting to these new technologies that allow fans to engage and consume their content in many meaningful ways — as opposed to just the TV broadcast.”