Sports, as one of the world’s most enduring and captivating forms of live entertainment, is being disrupted at uncommon speed and on an unprecedented scale globally.
The result is that the commercial development of sports is changing in ways and at a speed hitherto unknown. For example, football (soccer to U.S. readers), like other entertainment, is being sliced, diced and shaped as easily digestible and snackable content – a trend reinforced in 2018 by the ways we watched the FIFA World Cup™ in Russia, the world’s most watched sporting event trumpeted by FIFA as the most popular edition yet. At stake is a battle for eyeballs, engagement and revenues in a world of converged entertainment.
Amazon, Facebook and Netflix are now potential competitors, as well as distribution partners, for sports rights holders such as FIFA, UEFA, the Premier League, La Liga in football alone, Formula 1 and global and national governing bodies in other sports.
BT Sports has chosen to simultaneously stream live and free-to-air on YouTube the past two UEFA Champions League finals, the jewel in the crown of a rights package for which the company paid £1.2bn ($1.5bn over three years as recently as 2017). What began as a platform for growing TV subscribers and revenues may now be seen as much as a defensive play to stem the bleeding of broadband subscribers to rivals. It remains to be seen whether partnering with Google/YouTube to screen sports rights may make commercial sense in the short term, but in the long term has allowed the barbarians inside the gates; if the ‘FAANG’ companies go hard after sports, it would be expected that the natural progress would be for them to build better technology platforms and user experiences, and reach more fans directly, without the need for broadcast intermediaries.
A month before the Russia World Cup, Amazon signed a deal to livestream 20 Premier League matches per season for its subscribers for three seasons from 2019, breaking the broadcasting duopoly for UK domestic Premier League rights of BT Sports and Sky. More worryingly for the pay TV companies, immediately after Russia 2018, UK media regulator Ofcom reported that for the first time, the number of UK households subscribing to ‘Over The Top’ entertainment services such as Netflix, Amazon Prime and Now TV (15.4m) surpassed those subscribing to traditional satellite or cable subscriptions from BT, Sky, Virgin (part of Liberty Global) and others (15.1m). Forty percent of UK households now go ‘Over The Top’ - whereby consumers pay for basic broadband connectivity access, and then pick and choose which entertainment options to ‘top up’ with; more of an à la carte menu than the all-you-can-eat buffet which has sustained pay TV subscriber numbers and profits until now, by dangling the carrot of live sport as one of the tastiest items on the menu. The very real danger for traditional media companies is that they are left with a highly-regulated, high cap-ex, low margin, commoditized utility ‘pipes and wires’ business, which is exploited by the entertainment rights holders to reach consumers directly with higher revenue, higher margin services. And these are the consumers that broadcasters can get to pay at all – as the Financial Times reports, 58 percent of under 30s admit to illegally streaming matches. And it is very hard to compete with free.
Surprising new niche players also threaten to disrupt the field of play: in the past few months BT Sports has lost the overseas rights for Italy’s Serie A, and Sky Sports for the first time has lost the rights for Spain’s La Liga, to the previously unheralded Eleven Sports, which will chiefly seek to sell these to consumers in online packages. The collapse of Traffic Group, traditionally the major power player in sports marketing in the Americas, following the indictment of its leadership as part of the Department of Justice’s RICO case against FIFA officials, also clears the field for new players for the first time in generations.
Given that live sports is also the peak of unscripted drama, there is also a very real fear that Netflix, the biggest funder of independent drama production, will soon wake up to the possibilities of sports rights. But merely screening the matches, which can be viewed elsewhere for free, may not be enough – the winners in this battle will surely be the ones who can provide the exclusive behind-the-scenes access to the drama on the pitch (field).
Merger of Mega Brands
Within one week of launching its own YouTube channel this year, Manchester United had acquired 800,000 subscribers on the platform, notably choosing to benchmark this achievement not against other football (soccer) clubs, but the Dallas Cowboys NFL franchise. Many global sporting clubs and brands may choose to ‘go it alone’ rather than rely on distribution partners to reach their fans – not all will have the name recognition and brand equity to survive at the top table, but they all recognize the way the wind is blowing. Against this backdrop, Spain’s La Liga has signed a 15-year deal with Relevent – the company which organizes the International Champions Cup and is backed by U.S. billionaire and Miami Dolphins owner, Stephen Ross, to grow the value of its commercial partnerships in the U.S.
The signing of a 33-year-old Cristiano Ronaldo on a four-year contract by Juventus of Turin for €100m ($114m) after the World Cup not only added 40 percent share upon initial reports of the impending transfer, but at the time of writing, the club has been reported to sell over $60m worth of Ronaldo replica jerseys. At a conservative estimate (and leaving aside the not insignificant matter of player wages and factoring a 10 percent profit on shirt sales) the transfer could be said to have paid for itself four times over, before a ball has even been kicked. It was in effect, a merger of global super brands more so than a player transfer.
For a long time, Europe’s elite sides have carped about having to share revenues on an equitable basis with smaller clubs – the argument being that the big sides pull in the paying punters and the eyeballs. But perhaps this now seems more likely than ever to happen, either in the form of a more streamlined breakaway super-league to replace the current Champions League format (which UEFA would need to sanction and control) or the idea of a quadrennial World Cup of Clubs, to replace the current FIFA World Club Cup. Expect a battle for the soul – and commercial control – of football between and among regulators (FIFA, UEFA, CONMENBOL) and the country FAs and clubs themselves. The hope is that fans will get a say, other than voting with their feet, and eyeballs, after the fact.
Changing Demographics
Who travels to a World Cup? Currently, South Americans comprise the largest body of fans who travel consistently to tournaments – as supported both anecdotally (Peruvian and Colombian fans being among the most seen and heard in Russia) and by FIFA’s own pre-tournament ticket sales figures. The Olympics follow a similar pattern. But travelling to a World Cup or Olympics is a significant undertaking in terms of time and money. Even staying for the two-week duration of the knock-out stages, and securing tickets, can cost several thousands of dollars, so we are seeing the rise of the global, middle and upper class travelling sports fan. As developing nations grow their own middle classes, we can expect not only more South Americans, but also Chinese. The 40,000 Chinese fans who travelled to the 2018 World Cup in Russia will be as grains of sand in a desert compared to those who travel to the World Cup in Qatar in 2022.
If China’s overseas investment in football assets has latterly been schizophrenic, its longer-term ambition to host the 2030 World Cup (and win the cup by 2050) is stupefying in the scale of its investment in grass roots team sports, hitherto prohibited by the Chinese Communist Party’s strictures on group and association meetings. And keep an eye on India - despite a recent tapering off of attendance figures, until recently in cricket-mad India, ISL clubs in Kerala and Kolkata would regularly attract crowds of 60,000 plus. Both these markets, like an increasingly Hispanic North America, as the 2026 World Cup hosts, have the weight of demography on their side (there is a very good reason that all the major European club teams signed up to the International Champions Cup in the U.S. this summer, before FIFA’s decision to award the 2026 tournament to the United bid by Canada, Mexico and USA).
Take a look also at FIFA’s second and third tier sponsors for Russia 2018, and names such as Vivo, Mengnui, Hisense and Yadea replaced more familiar names to Western consumers such as Sony, Johnson & Johnson, and BP Castrol. The Wanda conglomerate (which also owns a stake in Club Atlético de Madrid) has signed on as a FIFA partner – the highest level of sponsorship – alongside Coca-Cola, Visa, Adidas and Russia’s Gazprom, for the next four World Cups.
Another trend is the fast growth of women’s and girls’ football (soccer). It is one of the fastest growing participation sports in North America, due in no small part to the success of the FIFA Women’s World Cup™ in Canada in 2015. The tournament averaged crowds of over 26,000, with 54,027 people attending the hosts’ quarter-final match against England’s Lionesses. The BBC reported a 500 percent increase in TV viewership between the 2011 and 2015 editions of the Women’s World Cup. UEFA reported a 7.5 percent increase in registered women’s players in 2017 alone.
Whichever way you look at it, interest in football has not peaked. Qatar, in 2022, will also provide kick-off times in primetime TV viewing slots for 3bn viewers – as befitting the first Middle Eastern World Cup, in the middle of the world.
Innovations on the Field and in the Stands
There is a compelling argument to be made that the FIFA World Cup, much like the Olympics, is one of the few exceptions to the rule of the decline of ‘appointment viewing.’ Consultancy Future Sports estimates that global TV viewing of sports peaked in 2012. A 2017 study by Magna Global published in the SportsBusiness Journal showed that for 23 of 24 sports in the U.S., the median viewing age was increasing – the NFL's median viewing age increased from 46 in 2006 to 50 in 2016, while Major League Baseball's changed from 52 to 57.
No doubt this is leading to innovations such as ever shorter formats of matches and competitions (T20, Big Blast and IPL, now a mooted 100 ball-a-side competition in cricket; and Tie Break Tens in tennis) seeking new, younger audiences. In motor sports, Formula1 has dropped its Pit Lane Girls while recognizing the need to reach more female fans; while FormulaE is a more climate-conscious cousin which is gaining traction.
Other innovations stem from technology, including the Video Assistant Referee (VAR), debuting at the World Cup finals and decisively in the final itself, and ball tracking devices. New technological possibilities are being hardwired into the infrastructure of purpose-built ‘smart’ stadia the world over, from the Mercedes-Benz Stadium in Atlanta, to the new Besiktas Stadium in Istanbul (sponsored and built by Vodafone as demonstration of its capabilities), to the eight stadia being purpose built for Qatar’s own World Cup.
Challenges for CEOs
Sports rights owners, broadcasters and advertisers all must determine how they can continue to extract value from sports and how to capture the next generation of fans, who are used to paying on-demand (or not at all) for everything else in their lives and get them to pay for sports content. Traditional subscription models are fracturing for broadcasters. Theoretically this should put rights holders in a position of strength. But this relies on them resolving two questions: how do the leagues and rights holders exert sufficient economic control over the clubs and the players to be able to convince them that they should continue to speak for them and collectively bargain for more than they can achieve alone?
Also at issue is the question of pricing. To what extent is fandom price inelastic – or can loyalty be stretched to a breaking point, beyond which fans won’t pay and will vote with their feet? It is no wonder that we are seeing more performance-linked sponsorship agreements being introduced – for instance with AB-InBev in its sponsorship of NBA franchises. The theory of enlightened self-interest being not only that a successful basketball team draws more fans, but fans of a successful team want to drink more beer.
The chances are that sports and – in particular football (soccer) – will continue to find growing audiences between now and the next World Cup in Qatar, and for decades yet to come. But don’t expect those fans to look like the fans of today, nor to watch their teams in the same way – and don’t expect the owners, investors, rights holders and distribution partners to look the same either. The beauty of sport is its unpredictability – and never before has that applied as much in the boardroom as it does on the pitch.
Learn about Teneo’s sports sponsorship advisory services.