Dropping the ball on broadcast revenue: are sports game to change?

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12 !{ArticleDetails-ReadTime} 30 Oct 2019
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EY Oceania

Multidisciplinary professional services organization

12 !{ArticleDetails-ReadTime} 30 Oct 2019

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As sports wrestle with disruption to their broadcast pathways, can they survive by using technology to keep fans loyal and engaged with tribally-driven experiences?

W

ith each turn of the crank, Chris Froome suffered a little more. The three-time Tour de France winner and Grand Tour Champion had crashed on the first stage of the 2018 Giro d’Italia and was bleeding time through mishaps and missed chances. After 18 unforgiving stages, he was almost three minutes off the lead. In front of him, midway through the next stage, towered the Colle de Finestre, one of the most notorious climbs in professional cycling: 27 hairpin turns, double figure gradients and 7.2 kilometres of grinding, snow-flecked gravel to finish.

“I knew it would take something crazy to turn the race upside down,” Froome would say afterwards. “A kind of move, almost a suicide move. It would be all or nothing.”

On the morning of Stage 19, Froome picked crazy. His solo attack on the Colle de Finestre not only turned the race upside down, it catapulted him to a lead he wouldn’t relinquish and toppled accepted strategies for winning a Grand Tour race. It was also a strategy that, for the first time, was being recorded in real time and streamed to cycling enthusiasts.

“It was an extraordinary, highly-orchestrated plan that he launched, and as he shot off the front of the peloton, the Velon platform provided all of the things that a traditional broadcast couldn’t: power wattage outputs, heart rate, cadence, speed, relative position,” says EY Global Advisory Chief Data Officer, Conrad Bates, who helped develop the Velon platform.

“The platform added colour and data to what was unfolding. In a traditional broadcast you just get the footage and the time gaps – not even exact speeds of riders – so this gave viewers what they wanted. It helped not only tell the story as it unfolded but was crucial for the analysis afterwards.”

Velon is at the frontline of upending the way we watch and listen to sports. VelonLive, a platform co-developed by EY and Velon, the company owned by 11 World Tour cycling teams, now provides over 100 days a year of deeply immersive and personalised professional cycling content, from on-bike cameras capturing the brutal jockeying deep within the peloton to post-race analysis using each rider’s personal performance data.

It shows the way that sports organisations can use technology to solve a basic marketing problem: how to deliver a product and content to spectators at the moment it happens.

“Broadcasting in the future will be more about personalisation and customisation,” says Bates. “Through these sorts of platforms, sports can uniquely identify every audience member, customise the consumer experience and, in real time, monetise those viewers through a whole range of channels.”

Kim Brennan, a former Olympic gold, silver and bronze medallist and now a key player in EY Oceania’s Sport Advisory capability agrees. “The monetisation of viewers is just the beginning,” says Brennan. “In my mind, Velon is about so much more than a new commercialisation stream, it’s re-connecting the elite with grassroots participants. Relatable data is adding a richness and colour that has previously been absent from the spectator narrative. Now, from the comfort of our living rooms, or Kickrs, we can watch in awe at the physiology of our cult heroes, bringing connection and colour to the masses to inspire and excite.”

Digital video minutes watched on Facebook and YouTube for ICC Men's Cricket World Cup 2019

3.5+ billion

ICC #cwc2019 By The Numbers

The Game is Changing

The traditional broadcast interface between sport and its fans is undergoing a generational shift. No longer do we sink into the armchair at home, turn on the TV and watch a match or game from start to finish. We live stream AFL and NRL games to our phones while camping (or at dinner with the in-laws).

We consume English Premier League highlights packages on the commute. Golf fanatics will soon be able to log on to GolfTV and follow the round of a single player rather than whoever the broadcaster chooses. Cycling fans can get an intimate view of what their favourite cyclists are going through.

Cashed up sports are also upping the game on viewer engagement. As fans watch multiple sports on multiple screens, intuitively benchmarking sports against each other in terms of the experiences they provide, sports like the NBA and the EPL are leading the way in terms of providing sophisticated, personalised and exclusive experiences.

Fans are willing to subscribe to content where they see value and, increasingly, the smart sports are augmenting their content with in-screen polling, betting, stats, expert breakdowns of the game and real-time graphical analysis. Platforms such as Vudoo, MIA, Second Spectrum and DOT Loves Data are the emerging enablers of this new value creating. And sports must engage with this new world or risk falling by the wayside.

The emergence of Over The Top (OTT) broadcasting is also starting to rattle the cage of traditional broadcasters by allowing sports to stream direct to the viewer in the same way that Netflix, Stan or Hulu do for drama. As the relationship with each fan becomes an important driver of revenue, many clubs and leagues are realising that it’s far better to control the content, the distribution and hence the relationship, in-house. Sports can now index their content according to the value of each fan and “own” them more readily in an ever more crowded marketplace.

OTT runs the gamut from large, existing providers such as Amazon, Youtube and Facebook (Amazon, for example, has been paying about $65 million to stream NFL Thursday Night Games on its Prime Video app since 2017. Facebook recently won the right to be the exclusive International Cricket Council digital content partner up to 2023, giving it rights to share clips from ICC events on Facebook, WhatsApp and Instagram) – to start ups such as OTT platform, YuppTV. In addition to global digital broadcast rights to the Indian Premier League, YuppTV recently gained non-exclusive broadcast rights for India’s home cricket matches outside India, tapping into to the 31 million strong global Indian diaspora.

Smaller sports are also taking advantage of the OTT possibilities, with the World Surf League (WSL) and Ironman streaming their competitions via Facebook. (The WSL has 7 million likes and Facebook says that 3.5 million people watched at least one minute of an Ironman event on Facebook in 2018.)

Formula 1, meanwhile, has opened up its own direct OTT channel to capture revenue opportunities from hardcore fans, “super-serving” unique behind the scenes content, archival content and live footage from 24 different feeds on the track.

At the same time that the connections between fans and clubs, leagues and rights holders are changing, the business-as-usual economics of sports is being upended. Sports and entertainment cable subscriptions and bundles are being disrupted, bringing downward pressure on the value of new broadcast deals.

Combined with falling participation rates in some sports, and sponsors stressing the need to derive a more commercial return on their investment in sport, some sports organisations are staring into a revenue hole.

As this upheaval washes through the sports broadcast space, most of the commentary has focussed on how the codes, especially the larger codes in each country, are going to negotiate their next rights deal. Alongside the question of money, there’s arguably a bigger question at play: how should each sport reassess and transform their capabilities to future-proof their revenue streams – and ultimately their survival?

 Online Sports viewing by device, GlobalWebIndex Q3 2018 Sports Around the World report, 

A New Team Model 

Sports organisations have traditionally been geared around the stability and certainty delivered by three-to-five year broadcast rights deals. Typically risk-averse by nature (“We can’t damage the brand”), and faced with rapidly increasing player payments and other costs, they have historically looked to lock in broadcast and sponsorship revenue and take any other revenue as a bonus. The challenge, however, is that revenue certainty from those sources is rapidly eroding.

In some sports, leagues and clubs, there’s still an assumption that that’s the way it will carry on. “There are new competitions coming on and we know that fans are demanding different formats,” says Fraser McLennan-Pike, Leader Strategy Sports, EY Oceania. “In cricket, we’ve gone from five-day Test cricket, to 50 overs to 20 overs and now we’re down to a hundred balls. We have Rugby Sevens and people are demanding more rapid rugby. But these new formats aren’t yet adequately catered for in some broadcast rights agreements or sponsorship arrangements.”

Fundamentally, the commercial set up of sports organisations has been very much aligned with on-field performance, creating a win-loss culture. Boardroom discussions have revolved around doing whatever it takes to get money into the club to pay the players, the coaches, the staff to get the team on the field performing better.

“But the world doesn’t work that way anymore – it relies far more on collaboration, influencing, sharing, building partnerships and changing the way you develop and maintain relationships with customers and fans” says McLennan-Pike.

It means that sports organisations need to adapt – to change their culture, their business models and the way they engage with their fans. The more progressive sports organisations are spending more money on data and analytics, understanding their fans, who they are, where they are, what they like to do, and their propensity to engage with multiple sports.

“It’s an enormous change management exercise to take a sports organisation, league, club or governing body from where it is now to where it needs to be,” says McLennan-Pike. “Like all good change it needs to be led from the Board and executive team right down through the organisation.

“It’s a top to bottom cultural transformation from win-loss to collaboration. A number of our sports clients are beginning to understand that, but they have little idea how to do it or budget or resources to make it happen.”

If I was a CEO of a sport right now, my biggest issue would not be how do I get an extra 10 per cent in my next broadcast rights deal. It would be finding out who gives a damn about my sport.
Tom Kingsley
EY UK, Leader Sports Industry Group
92050131

Knowing each individual fan will help sports navigate looming revenue challenges.

You Have to Know the Fans to Value the Fans

For Tom Kingsley, leader of Sports Industry Group, EY UK, the required shift is exemplified with a simple thought experiment. Imagine you were able to write a cheque to buy one of the large EPL teams in the UK, he says. For about US$3 billion, you would get a stadium and training facilities, a roster of some of the most gifted – but injury and tabloid-prone – football players on the planet, access to annuities such as sponsorships, season tickets and a share of the broadcast rights.

Crucially, you also get access to around 500 million fans. Now, says Kinglsey, compare that to a content production house such as Netflix that delivers content via their distribution platform. According to the company, they have over 151 million paid subscribers in 190 countries. And as at late September, the company had a market cap of US$115 billion.

It’s a way of showing how sport can derive true value from knowing its fans: ­not just the number but understanding them intimately. “If you know who those 500 million fans are,” says Kingsley, “you can segment that between people who have the club’s crest tattooed on their forehead all the way down to a fan in Indonesia who likes Facebook comments about the club’s star player.

“Once you know who your fans are, you can then develop commercial strategies to monetise those relationships.

If that club was able to extract just 10 cents from each of those 500 million, or 50 cents from 100 million, that $50 million of revenue is equivalent to the value of a high-end shirt sponsorship. “Sports need to understand that growth in the future won’t just come from the value of an individual sponsorship,” says Kingsley. “Instead the growth will come from building a much deeper, personalised engagement with your entire fan base, whether they are inside your stadium for every match, or live thousands of miles away and will never set foot anywhere near your home ground.

“If I was a CEO of a sport right now, my biggest issue would not be how do I get an extra 10 per cent in my next broadcast rights deal. It would be finding out who gives a damn about my sport.”

Martyn Whistler, Media & Entertainment Lead Analyst, EY Global, agrees. Traditional sports broadcasters, he says, are facing the same disruption all media is. “At the moment, the most that traditional broadcast can tell advertisers is that a viewer is male, between 35 and 50, and who lives in this part of the country,” he says. “Whereas YouTube, Facebook, Netflix could tell you, not only who the person is, where they live and how old they are, but if they’re a new home buyer, interested in going on holidays to Thailand or if they want life insurance. The level of competition in knowing your audience is stark.”

“If you translate that into a sports world and add in something like e-sports for example, which can just roll out a competition globally in a very short time with millions playing and watching it online, how does Friday night soccer, football or cricket match that?”

Understanding your fanbase, and addressable market is the first threshold. Then it’s about tailoring the content, experiences and relationships to meet their needs, and delivering it in the ways they want to consume it: highly personalised, relevant and fulfilling an unmet need. “Content has its own intrinsic value,” says McLennan-Pike, “and is also an increasingly important enabler for other fan engagement and monetisation initiatives.”

And as sports push beyond their traditional territories, being able to offer one highly personalised, digital product to different markets and different consumers on different media channels globally points to sports having and maintaining their relationship with fans.

“One part is about interactivity, engagement and empowering the users. The other side is the empowering the leagues to take control of their own products and destiny,” says Antony Arena, CEO and co-founder of Unbnd. “The leagues can have control over their fans’ interaction, enticing them with new products and services, adding value to the user experience and generating additional revenue whenever they want. Our platform has created a marketplace where we can give control to both parties about how they interact with the sport without having the middle man. It’s a very direct to consumer model, but it’s the way of the future.”

Dunking on the Revenue Hole

In Game Six of the 2019 NBA playoffs, Golden State Warriors’ superstar guard Klay Thompson is deep in the zone. He stalks the court, terrorising hapless opponents with brutal shimmies and effortless shot-making. When he sinks a three-pointer in the final minutes of the third quarter to put his team ahead, the gold-clad Warriors mob whoop wildly in unison. But along with the 20,000 people hollering courtside and the millions at home riding his every looping arc, there is a non-human form shadowing Thompson and his fellow players, watching and listening to the game. In the background of the broadcast platform, an AI module can recognise when the crowd roars, for example, and link that uptick in volume to the player responsible for the statistical achievement and then deliver the viewer that player’s shoes, jersey and other merchandise in real time.

It’s a module that will roll out this season by Unbnd with the NBA as part of their new mixed-reality platform. “If someone’s done or is doing something spectacular, that’s the time to present their merch and endorsements,” says Arena, whose company created the tech platform. “But it doesn’t need to be merchandise, it can be any content: different statistics on that player, fantasy updates, the live odds of them scoring a certain number of points, what Twitter is saying about the game – really anything.”

As streaming services mature and proliferate, cable networks re-evaluate the amount they pay for sports broadcast rights agreements and free-to-air grapples with new advertising models and means of production, sports organisations need to change the way they themselves. Instead of trading their content for rights money or sponsorship and merchandise deals, they need to utilise technology to become sophisticated businesses in their own right.

“It’s about having different types of sponsorship and allowing your sponsors to leverage their sponsorship more imaginatively and directly than having a static board set up on the edge of the court or field,” says Arena, “Imagine being able to sell advertising that is hyper-direct to the viewer. Instead of generalised advertising, you can personalise the whole environment to the consumer interacting with it. You could have the Top 10 Dunks bought you by Dunkin’ Donuts that’s delivered into the app fully-branded, down to where the nearest Dunkin’ Donut shop is and a single-click option to have some delivered. Instead of revenue being limited by what people buy at the game, the opportunities for advertising suddenly open up.”

This is just one of the ways that the NBA is enhancing the fans’ experience of the game, and at the same time capturing the right moment to sell to their loyal fans. “Sports that aren’t already at this point are increasingly at risk,” says McLennan-Pike.

While content is critical, it’s not the silver bullet for sports facing revenue decline or uncertainty. Sports organisations need to get more creative and look outside the narrow fields of play they are used to.

Whether their plans need to get a little Chris Froome “crazy” or more lightly readjust, diversifying revenue and their outlook has to become a key strategic objective to ensure sustainability in times of disruption, especially where a monoline sports organisation can be disrupted incredibly quickly.

“Fans are into multiple sports,” says McLennan-Pike, “and sports organisations should be too. There is so much to be gained from sports expanding their horizons and seeing the world like their fans do.”

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As the way sports reach their fans is disrupted by new broadcast technologies, sporting organisations need a radically different approach to monetising their product. 

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EY Oceania

Multidisciplinary professional services organization