Next in Tech | Ep. 191: Sports Media

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Eric Hanselman  

Welcome to Next in Tech at S&P Global Market Intelligence Podcast with the World of Emerging Tech Lives. I'm your host, Eric Hanselman, Chief Analyst for Data and Insights at S&P Global Market Intelligence. And today, we're going to be talking about sports media and a lot of the sports media rights that have been rattling around of late. And with me to discuss it are 2 of the members of our analyst team, Scott Robson and Michael Johnson. Welcome to the podcast to you both.

Jordan McKee  

Thanks for having me.

Michael Johnson  

Yes. Thanks, Eric. It's a pleasure to be here.

Eric Hanselman  

Well, it's great to have you on, especially as we start diving into not only the seasons, but a lot of season-inspired deals that are going on. Why don't we lead off with the first one that's coming down the pike. A lot going on in the NBA.

Michael Johnson   00:00:46

Yes, absolutely, Eric. So the big news over the summer was the NBA rights renewal. The NBA is looking to bring in around $76 billion over 11 years with their new contract, which is about a 164% increase over the previous contract. So a lot of money to be made there on the NBA front.

Eric Hanselman   00:01:07

That's the 3-pointer, right?

Michael Johnson   00:01:09

Yes. Exactly. One of the big details there that has stunned the industry is the NBA opting to go with Amazon Prime Video as one of their media partners over TNT Sports, which has been the home of the NBA since 1989, I believe. And so we're seeing a shift there. It's a shift that we're seeing across the industry as consumers look to view streaming services over legacy linear TV networks.

Eric Hanselman   00:01:42

Well, and it's also an area in which Amazon has been moving pretty aggressively in a number of different sports deals.

Michael Johnson   00:01:49

Yes, absolutely. They had their first foray into live sports with the purchase of their Thursday Night Football, which seemed to be a success. They offer a lot of things that the traditional TV networks weren't doing like alternate broadcasts and added insights into statistics and in-game probabilities, which we didn't see on the traditional TV networks.

Eric Hanselman   00:02:14

I noticed just today, they're also talking about live news. This really is changing at least what's historically been their perspective in terms of content. So a lot of interesting stuff going on there for Amazon getting into what is the more linear mode of some of the media they've been looking at.

Michael Johnson   00:02:32

Yes, absolutely. And it's not just Amazon. Netflix is also doing the same thing. They purchased the rights to NFL regular season games this year that will air on Christmas, which the NBA can't be too happy about as traditionally, they've been the sports destination on Christmas, airing a slate of games. And so they're going to be competing with the NFL on Netflix this year, which should be interesting.

Eric Hanselman   00:02:58

The NFL can't leave it alone. I'm sure they see that opportunity and hey, they need to act on it.

Michael Johnson   00:03:04

Absolutely.

Eric Hanselman   00:03:05

So what else is going on out there? It's not just the NBA. There's a lot that's taking place across the sports landscape.

Jordan McKee   00:03:12

Yes. So there's been a lot of changes with the regional sports networks in Major League Baseball, the NHL and the NBA as well. You're seeing a lot of changes highlighted by the Diamond Sports Group going through bankruptcy right now. And teams are either dropping the traditional regional sports network model and developing in-house broadcast and partnering with local broadcast teams and also developing direct-to-consumer options as well. So you're seeing this across the board Major League Baseball NHL and NBA as well. So a couple of the highlights recently, you're seeing teams like the Rockies, Diamondbacks, Padres, they're partnering with Major League Baseball and developing in-market streaming options through Major League Baseball. You're seeing teams like the Dallas Stars shift away completely from the regional sports model and just developing a network themselves. They've launched Victory Plus as well in collaboration with the parent Media, so direct-to-consumer product there. And you're seeing NBA teams follow this as well, teams like the Trailblazers just developed Blazer Vision, the Clippers, another one Clipper Vision, -- so you're seeing a number of different teams kind of experiment with different avenues away from these regional sports networks.

Eric Hanselman   00:04:40

It seems like this has been a while coming, right? It's not just Diamond's financial problems. It just seems like regional sports has had some challenges really over the last few years, especially given some of what were the high hopes, what, maybe even 3, 4 years ago, that this was really going to be an avenue where you had specialized content, you had dedicated audiences, but that doesn't seem to have panned out.

Jordan McKee   00:05:06

Yes. So the regional sports networks, they've been a staple of the sports industry for about 60 years. And you're seeing since post-pandemic, the shift in direction away from the regional sports model. Traditionally, the regional sports networks offered a large media rights payment that would propel the different leagues and teams going forward. And they've shifted that mindset away from the regional sports into kind of experimenting with different streaming options and things like that to make up the lost revenue from the regional sports networks.

Michael Johnson   00:05:41

Yes. And I'll just add to that and say, at the end of the day, it's all dictated by consumer behavior. And so this trend of cord cutting, people canceling their pay TV subscriptions has been around for about a decade. And with the regional sports networks, we are in a really tricky spot because it costs a lot for a pay TV operator like Comcast to carry a regional sports network like say, Bally Sports Detroit. So they start to push back on the pricing of that a little bit and then that network gets seen by fewer and fewer subscribers in the region. So the team is really getting less exposure in their region, which isn't good for anyone. And so it's come to a head. It seems like in the past 2 years where teams are saying, all right, we really have to start listening to our fans and putting our games in front of the widest audience possible. And the best way to do that some teams are seeing is through going back to the future in a way to the local broadcast stations that used to run the games.

Eric Hanselman   00:06:46

So getting back to local linear coverage. But even then, it does seem to your point that when you get such a significant change in viewer behavior, when people are pulling back, especially for something that's specialized as regional sports, that's got to be that prime driver. And the teams themselves, if they're getting less exposure, that's less revenue and they basically, they got to act to do something in order to pull that back. I wonder what's your take on their chances of being successful in building their own streaming capabilities? I mean that's not a small undertaking.

Michael Johnson   00:07:20

Yes. So I think that is something that everyone is focused on who's watching the industry, how many subscribers are these regional direct-to-consumer services getting. They're very limited in scope to begin with because you have to live within the region to purchase it. So these services that Michael just talked about like Clippervision and the rest, you can't purchase that unless you're in the Southern California region. And while there haven't been many disclosures in terms of how many subscribers these services have gotten, I think the Utah Jazz service was one of the only ones who disclosed subscribers. They had about 20,000. So there's a ceiling on how big they can get and the willingness to pay anywhere between $15 and $30 per month just to watch the local games is also something that's hampering rapid growth of those services.

Eric Hanselman   00:08:17

Yes. To your point, when you've got challenges like that in terms of limits on what that total viewer base winds up being and relatively high costs, -- it's a challenge.

Michael Johnson   00:08:28

Absolutely.

Eric Hanselman   00:08:29

Now in other areas, there is significantly brighter lights, I guess, that are going on in various forms. We got a bunch to choose from. Maybe starting off with NFL.

Michael Johnson   00:08:39

Yes. So the NFL, I think, is the most valuable product on television. If you look at what it costs to advertise, it costs more to advertise on NFL Sunday Night Football on NBC than any other TV series. It's about $800,000 per 30-second spot. If you look at the top 100 broadcasts of 2023, the NFL had 93 of them, and that's grown over recent years. Just back to 2020, it was more like 75. And so as viewing migrates towards on-demand streaming services, the strength of the live sports genre is really growing, and the NFL is leading that in terms of ad revenue, in terms of viewership and in terms of rights fees. And so they're in a very lucrative rights deal, long-term rights deal right now that spans to 2033. However, the NFL can renegotiate that deal at the end of the 2029 season. And there are a lot of things going on there, potential international expansion, maybe adding an extra game during the regular season, all things that like different levers that the NFL can pull to squeeze more media rights revenue out of the season.

Eric Hanselman   00:10:00

It's been interesting seeing this expansion into international venues in terms of where they're turning up. We've got another one coming up well, as we're recording, another one coming up the weekend ahead.

Jordan McKee   00:10:10

Yes. The expansion internationally, that's a big component of their goal of increasing revenues annually. So you're seeing -- I'm not sure the total number of games this year, but you're seeing those number of games rise every year. And it's just another way to increase revenues and I believe, reached the goal that they're trying to reach is $25 billion annually in revenues. So you're seeing the changes in the schedule, the expansion to possibly having the Super Bowl around President's Day. So you're seeing creative ways of driving revenues going forward for the League.

Michael Johnson   00:10:46

Yes. And on the international front, the NFL is playing 5 games internationally this year. It recently came out that they're looking to expand that to 16 games, which would be one almost every week during the season. So the players have to agree on that as it increases travel times and everything being away from their families and all of that. And then at the same time, if you're a season ticket holder to some of these teams, you're probably going to be a little bit perturbed if one of your 8 weekends gets swallowed up by a trip out to London.

Eric Hanselman   00:11:20

Suddenly, it's out of town in a big way.

Michael Johnson   00:11:23

Exactly.

Eric Hanselman   00:11:24

Well, a quick trip down to Brazil. Well, and I also wanted to touch on one of my favorites, heading into hockey, NHL is moving along, and that actually is another area where Amazon is looking to play.

Jordan McKee   00:11:39

Yes, exactly. So the NHL, they just got started roughly 2 weeks ago, a couple of international games overseas and this regular season is in full swing now. So the NHL, they're in the midst of their current media rights deal. I think it's valued at about $4.5 billion through the 2027, '28 season. Yes. And you're seeing a number of different changes within the league here as well. You're seeing the Stanley Cup Champions from a year ago switching to direct-to-consumer with Panthers Plus. You're seeing the Utah Hockey Club just getting going this year with a direct-to-consumer product as well, Utah HC+. And like you said before, you're seeing Amazon enter the mix even more, especially in Canada with their Monday night hockey. So you're able to see the national games through the Amazon platform on Monday nights throughout the season.

Eric Hanselman   00:12:33

And hockey night in Canada comes to Amazon or not directly, but interesting to see where that expansion is, a lot clearly that's going on. But I guess professional sports is not the only place where we see a lot that's happening. When we look at Collegiate, a lot that's shifting there as well.

Michael Johnson   00:12:54

Yes, absolutely. So the changes that have occurred in the college football landscape over the past year have been very dramatic. You've seen big shifts in conference realignment. I know I live here in Austin, Texas, and Texas is now part of the SEC. And as those teams move around, they're really chasing these lucrative media rights deals. And so it seems to be like we're looking towards a situation where there's the haves and the have-nots. And so the big 10 in the SEC are pulling away in terms of how much money they're able to generate off their media rights deals. And then with that comes their ability to recruit the best talent and go out and get some of the best talent in the transfer portal. There's also big money to be made now as a college athlete with NAL deals. And none of this was around just a couple of years ago. College football is shifting, expanding this year with a 12 team playoff, which is really just more money for the media rights partners as those games generate massive audiences. And so they're really creating these big flag pole events kind of out of thin air, which bring in a lot of viewers, a lot of ad revenue.

Eric Hanselman   00:14:13

I made the distinction between professional and collegiate sports, but maybe we're getting to a point at which we start to drop that distinction. If we think about what the dollars are, again, it's never been small, but now we've got players involved as well. So...

Michael Johnson   00:14:27

Yes, absolutely. Players have high-profile agents. So they're doing things like holding out for bigger deals, which was unheard of on the collegiate level just a few years ago.

Eric Hanselman   00:14:37

It raises that question about what that dynamic is and the mix is and whether or not you start competing in different levels when we talk a lot about international sports, you're looking at soccer, where there's such strong national focus. That's sort of always been the territory of collegiate here in the U.S. And now whether or not those rivals that are going from the collegiate side, I wonder if that starts to shift some of the city loyalties to geographically based loyalties. It seems like we're working in an area where there are going to be a lot of different preferences, all competing for fans across this.

Jordan McKee   00:15:12

Yes, exactly. So you're seeing teams travel across the country just to play one game per season. You saw that last week with Ohio State versus Oregon. So you're seeing a lot of different high-profile teams every week go against each other and those loyal fan bases are able to see teams that they haven't traditionally played in the past. So every week, it seems like there's a marquee event.

Michael Johnson   00:15:37

Yes. And I think it's really by design, you've got Disney and Fox as the Puppetmasters here for college football and a lot of college sports. They have major ownership, I mean, Fox is the majority owner in the Big Ten network, then ESPN has the SEC network, the ACC network. And so they've got these hubs for games to be consumed, and they want to create some big high-profile matchups. So by reshuffling the conferences and placing some powerhouse schools together that traditionally haven't been in the same conference, they're creating these matchups like we saw last weekend that haven't existed before, but are big time money events.

Eric Hanselman   00:16:22

Are these the same kind of things that we see in other moves to create super Leagues and other sports? It seems like it's following a really similar pattern.

Michael Johnson   00:16:30

Yes, absolutely. There was an article that came out just last week about the potential for a super college conference where they selected, I think it was 75 of the top programs to all play each other on a more consistent and regular basis. One of the main complaints with college football is that there are a lot of mismatches and blowouts. You see 40-point spreads going into games and things like that. And so I think the media partners are just looking to have the most competitive games possible. That's why we're seeing more big time programs play each other that haven't played in the past.

Eric Hanselman   00:17:10

So the conference model starts to fade. I mean if we get to sort of mix and match, who cares about conferences anymore?

Jordan McKee   00:17:17

Yes. It definitely could fade away. I know earlier this week, too, the big 10 in the SEC, I think they formed a joint advisory committee to help them through this evolving college sports landscape as it changes so rapidly. And I know that they -- I think they are working on a possible scheduling agreement coming up in the near future, too. So you could see more big T1 SEC games going forward.

Eric Hanselman   00:17:42

More games, more revenue, right?

Jordan McKee   00:17:45

Exactly.

Eric Hanselman   00:17:45

All right. What else should we be looking at as we start heading into the real serious ramp-up of the fall seasons?

Michael Johnson   00:17:52

I think one of the things that we're going to see, I mean, news trickles out about this almost daily now is something we hit on before, and it's just the migration of local NBA rights to -- away from the regional sports networks and to the local broadcast stations. And really that national rights deal that I discussed at the top of the podcast that the NBA just signed is allowing a lot of these teams to do that. So all of the teams get a piece of that national rights deal. And as more than doubled over the previous deal, all of these teams are going to get a larger share of their overall revenue from that national rights deal, which allows them to take a haircut on the local rights deal near term by ditching the RSN and going with the local broadcast station because they have that added national rights money coming in.

Eric Hanselman   00:18:49

Yes. They've got revenue they can make up for that shortfall in.

Michael Johnson   00:18:53

Exactly. And so that migration is, I think, going to just continue to slowly trickle out and more and more of these direct-to-consumer services are going to be launched. And then at the same time, we're also seeing some of the more niche sports, some of the smaller sports start to get some lucrative TV deals. Part of that is also stemming from the NBA rights deal. So as TNT Sports was left out in the cold, they're now kind of weighing how to fill the loss of the NBA moving forward. And so they're scooping up a lot of different sports properties that have come to market. They just paid a great deal for the tennis French Open moving forward. They purchased the rights to the Big East College Basketball, some Mountain West football. And so I don't know what's up next, maybe pickleball. I think QVC just actually got in on that.

Eric Hanselman   00:19:51

Well, I keep wondering whether or not esports will start to pick up. And we do see that in other geographies becoming certainly a growing market, certainly not a major one yet, but who knows whether or not that picks up as well. When you start pairing it off with pickleball, I don't know, tough call.

Michael Johnson   00:20:10

Yes. So there was some experimentation with broadcasting big esports events on cable networks over the past few years. but it wasn't really as popular, I think, as the networks hoped. And I think that's kind of a reflection of where that industry stands and where that fan base lies. So I think you have services out there like Twitch, where people are naturally used to watching other people play video games. And if someone turns on TBS or TNT and sees an esport championship, they're not as used to it and hitting the wrong demographic there. So I think a lot of that growth in esports is going to continue to be online.

Eric Hanselman   00:20:55

That's where that audience lives and trying to bring that in, who knows, maybe sometime in the future. But certainly, the consumption model today doesn't seem to lean into it.

Jordan McKee   00:21:04

Yes. And I think another thing to take a look at, too, is the future of women's sports. The WNBA really took off this year with Caitlin Clarke's Rie season and the big NBA WNBA finals that are going on right now as we speak. So it will be interesting to track if these leagues continue to evolve and increase in revenues. And I know that WNBA, they're lumped into this new NBA massive deal, massive media rights deal. So -- and I think after 3 years, they get to reevaluate the pricing of that deal. So it will be interesting to track that info as well.

Eric Hanselman   00:21:39

Well, and we're also still seeing, I think, some of the echoes from a women's soccer, if you take a look because we actually in the podcast we were talking about it earlier this year, NWSL and some of those media rights set new records. So certainly a bright spot there.

Michael Johnson   00:21:53

Absolutely. And the same thing goes for the women's March Madness tournament. There was a new media rights deal signed with ESPN that included the a whole bunch of collegiate championships and the women's tournament was definitely the linchpin there and the driver for additional revenue growth.

Eric Hanselman   00:22:13

Well, it seems like we're getting so much broad increase in terms of overall rights valuation. And is there a cap on this? Is this something that runs into headwinds with advertising returns? Or are we just going to see this continuing to grow?

Michael Johnson   00:22:28

Yes. So I think that a lot of the growth that we're seeing during this round of renewals has been driven by streaming services and their willingness to pay up for sports rights as almost like a loss leader. So they're less worried about turning a profit and more concerned with how these -- the acquisition of these media rights deals will help grow their subscriber base, whereas the traditional media players, especially the basic cable networks are being more selective with their programming budgets. So a lot of the major deals are locked in now for the next few years. So during the next round of negotiations, it will be interesting to see if the streamers are still willing to pay up as they have during this round or if they also become more selective as the networks have, and we see kind of a slowdown in the growth of those media rights deals.

Eric Hanselman   00:23:26

Well, as you point out, being able to actually understand what that valuation is in that new realm on the streaming world. They're a new entrant, they're going to be aggressive, which picks everybody up. So we'll see what happens to turn out. Yes. Well, great perspectives. Thank you both. Appreciate all the insights.

Michael Johnson   00:23:44

Thank you, Eric. It's a pleasure.

Jordan McKee   00:23:46

Thanks, Eric.

Eric Hanselman   00:23:47

And so many other things we could be exploring, but we are at time. That is it for this episode of Next In Tech. Thanks for staying with us and thanks to our production team, including Sophie Carr, Feranmi Adeoshun and Kyra Smith on the marketing and events teams and our agency partner the 199.