PwC Sports Outlook: Value of Rights Will Continue To Grow; Legalized Gambling Will Have Major Impact
Media rights, gate revenues, sponsorship, and merchandising forecast to rise 3% annually to 2022
PriceWaterhouseCoopers released its annual PwC Sports Outlook today and projects the North American sports market to grow at a compound annual rate of 3% — from $69.1 billion in 2017 to $80.3 billion in 2022 — across four key segments: media rights, gate revenues, sponsorship, and merchandising. In addition, the report looked at the impact of legalizing sports gambling on these four revenue streams.
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Capitalizing on Revenue from Sports Betting
After the Supreme Court ruled to allow individual states to determine whether to legalize sports wagering in May, Delaware and New Jersey made the move a month later. Mississippi and West Virginia soon followed suit, and other states, including Pennsylvania and Rhode Island, are on track to do so. Now leagues and team are looking to capitalize on the expected onslaught of revenue spurred by legalized sports betting.
Several leagues are seeking an “integrity fee” to be paid by sportsbooks, which would amount to a tax to compensate the leagues in their efforts (for example, data monitoring and other compliance issues) to ensure the integrity of the game. Assuming that a mature sports-gambling industry could generate an annual handle of $100 billion (in Nevada alone, it was $4.8 billion in 2017), a 1% integrity fee would yield $1 billion for the leagues (and, potentially, collegiate athletics as well) to split.
In addition to the integrity fee, leagues are exploring sponsorship revenues with MGM Resorts inking multiyear sponsorship deals with the NBA (a reportedly three-year, $25 million deal announced in July) and the NHL (announced last week). Prior to this season, the NFL relaxed its policies on accepting advertising from casinos.
In terms of media rights, a new study from Nielsen and the American Gaming Association (AGA) projects NFL media rights to increase by nearly 18% because of bettors’ appetite for live sports events.
In addition to receiving a portion of any league-wide integrity fees or sponsorships, teams are free to enter into sponsorships with sportsbooks. That has already been seen in the New York Jets deal with MGM and a three-way deal between the Philadelphia 76ers, New Jersey Devils, and Caesars Entertainment. PwC also sees the potential for teams to adopt a more European approach to sports gambling in which casinos have sportsbooks located at their venues and teams participate in revenue-sharing.
All of this offers the potential for increased fan engagement and participation, greatly benefiting both leagues and teams.
FAANG Enters Bidding Wars for Media Rights
In 2017, media-rights officially became the industry’s largest segment — a year earlier than anticipated because of slower gate-revenue growth than expected. PwC projects media-rights revenue to remain strong through the beginning of the next cycle of national rights deals, given increasing competition for rights among traditional broadcast intermediaries and emerging distribution partners. With key deals underlying the media-rights segment locked in until 2021, the growth of rights in the near term is driven by contractual escalators within the national deals, as well as the runoff of 16 regional sports network deals across MLB, NBA, and NHL through 2020.
However, change is on the horizon. This year’s edition refreshes PwC’s five-year revenue forecasts through 2022, with broadcast contracts for both the NFL and the MLS expiring after that season. The NHL’s contract expires in 2021, and the NBA deal ends in 2025. The sports-rights landscape is likely to look very different in the next cycle, with FAANG (Facebook, Amazon, Apple, Netflix, Google) likely entering the fray.
However, according to PwC, one thing is clear: “No matter how consumers experience live sports (in 2023 and beyond) across their devices, channels, and apps, one thing is for sure: all signs point to an increase in competition for sports-media rights, which could yield a significant rights-fee increase.”
Gate Revenues, Sponsorship, and Merchandise
Gate revenues are projected to increase at a compound annual rate of 2.2%, from an estimated $19 billion in 2017 to a projected $21.2 billion in 2022 (although gate-volume metrics — ticket sales and game attendance – have leveled off and even decreased in recent years.
Sponsorship is estimated to surpass the $20 billion threshold in 2022, at which point it is projected to close its market-size gap to within $1.1 billion of gate revenue.
Licensed merchandise sales are projected to increase at a compound annual rate of 1.2% percent (from an estimated $14.4 billion in 2017 to a projected $15.2 billion in 2022).