Rights holders have built empires selling broadcasting rights, tickets and sponsorships, with some held by private interests driven by a strong vision, like Ecclestone and Formula 1 or the France family and NASCAR. Changes in media are affecting these structures, both in terms of consumption habits and technologies used for display, which challenge the established revenue and sponsorship models.
Media consumption habits
While live events have been a relative safe haven with regards to media consumption, a strong current is taking hold as people decide to go cable-free and turn to other sources of content. The number of cable TV subscribers in the United States dropped from 44.5 million homes in 2010 to 37.8 million in 2015. This trend is particularly true for younger generations: only 46% of 18 to 36-year-old consumers subscribe to selected pay TV services in the US, whereas 63% of 68-year-olds and more do. Besides, younger generations show much more enthusiasm for new sources of content such as Netflix: In 2015, 65% of 16 to 24-year-old Internet users in the United States used Netflix versus 24% of 55 to 64-year-olds. Furthermore, with the growth of sports-related content now available on various platforms, there is more audience fragmentation. Why is this relevant to sponsorship? Well, TV rights are the foundation of many sports leagues and organizations.
Here’s how it works: The governing body or league sells the broadcast rights, and the money gets redistributed to teams. The broadcast also boosts the value of sponsorships being sold either at the league or the team level, because of the size of the audiences and the high level of impressions. Live event themselves may generate revenue by the sales of tickets, hospitality and concession revenues, but the broadcast is the real deal. For example, the Union of European Football Associations gets 429 million euros from tickets and hospitality and 3.185 billion euros for broadcasting rights. As for North America, ticket sales represented 29% of the MLB’s total revenue (2016), a little over 25% of the NBA’s (2015/16) and only 16.5% of the NFL’s (2015).
So TV broadcast matters. A lot. Plus, the fact that audiences are not simply turning on their TV sets to watch a live broadcast means that it’s harder for sponsors to reach the same audiences with a unique channel. It requires more adapted rights, and, quite possibly, higher production and activation costs.
While fans will not all cut the cord in the near future, some up-and-coming properties are approaching content distribution with different models. Here are some of the trends that are emerging:
Pay as you go
Grand Prix Motorcycle Racing (Moto GP), the premier class of motorcycle road racing, held since 1949, provides races directly to fans through their own website where users can either purchase passes for an entire season or pay to watch individual races.
Free live stream
Social media has jumped headfirst into live content and most platforms have integrated that offer, from Facebook Live to Twitter to Snapchat to YouTube. These channels represent a great opportunity to go directly to the digital audiences and craft original or exclusive content without using a major media partner.
Furthermore, leagues see in such platforms a way to rejuvenate their audiences, reach new global audiences and create a more meaningful connection between the sport and the fans.
Some leagues jumped on the bandwagon early: The IPL, the most attended cricket league in the world, was the first sporting event to be broadcast live on YouTube back in 2010. MLB was the first US sport to live stream on Facebook in the pre-season of 2011 and are now in talks to broadcast full games. The NFL and Snapchat inked a multi-year agreement to be featured in the Discover section of the app, as well as with Twitter, for the entire stream of Thursday Night Football throughout the season. Finally, the MLS will stream 22 live soccer matches on Facebook.
Other leagues are leveraging social networks without specific agreements, like NASCAR, which uses various platforms to bring fans closer to the action. The NBA recently broadcast its first game on Facebook live, but as a paid service available only to subscribers of the League Pass in India. Their goal is to reach a global audience and increase their international reach. Live broadcast on social networks is also an interesting option for smaller leagues looking to increase their reach, as is the case for the IFL on YouTube and others.
This trend also influenced the development of new media. Hotstar was initially created to support the streaming of the 2015 Cricket World Cup. The new platform took off instantly and developed into a more complete content provider (offering movies, TV shows, live cricket, etc.). It even hosted the live coverage of the 2015 Academy Awards.
After decades of being on the fringe, this sport now reaches major audiences. Tournaments are available for free on the Amazon-owned Twitch platform, often referred to as the ESPN of live gaming, with the help of either advertising or premium accounts.
Twitch is the go-to video streaming service for the community as well as for all major tournaments, but it is facing growing competition from YouTube. While e-sports tournaments were available for free on multiple platforms, YouTube secured exclusivity deals with the two major Counter Strike leagues, pulling the rug out from under Twitch’s feet, which now has to play catch-up. YouTube’s live platform is also quite strong in terms of UX and performance.
Out-of-home advertising is changing
Other technological advances are having a massive impact on the revenue landscape of sports organizations. One of the oldest advertising formats—out-of-home billboards—is undergoing major transformations: new display technology paired with other advances and use of meta-data is transforming the industry in a dramatic fashion. There has been a rapid democratization of high-quality, low-cost screens, which has made them ubiquitous in stadiums and during events. While the in-stadium digital visibility has increased the assets available for sponsors, the most disruptive innovation is coming in the form of augmented reality and new virtual assets placed on top of static visibility.
While it may seem trivial, this transformation could have a huge impact on revenue. Generally speaking, virtual assets are owned by the leagues and are visible only during the broadcast. But now, in certain contexts, they are being added to or superimposed on existing visibility in the stadium, which is usually owned by teams. If this practice becomes widespread, it could dramatically affect the value of sponsorship assets and prove catastrophic for some. But it is unlikely that a decision will be made without sign-in from the majority of the teams and a revenue redistribution scheme. For now, such visibility has been tested at the latest World Cup of Hockey and virtual signage is broadly used by the F1 and the NHL.
These changes in the media consumption landscape have and will continue to have a direct impact on sponsorship revenues and sponsors’ reach. Properties will need to start crafting contracts that deliver on impressions, regardless of the platform used, to ensure that their partners are getting sufficient value for their investment.
While these trends will continue to affect our industry, it is relatively safe to say that live sports and live events still attract major audiences and deliver a huge value for partners.
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Statistic Brain Research Institutde (2015). Number of cable TV subscribers in the United States from 2010 to 2015. In Statista, 2017.
Statistic Brain Research Institutde (2015). Share of consumers who subscribe to selected pay TV services in the United States as of January 2016, by age. In Statista, 2017.
GlobalWebIndex (2015). Share of internet users who use Netflix in the United States in 1st quarter of 2015, by age group. In Statista, 2017.
UEFA (2016). Union of European Football Associations (UEFA) revenue breakdown from 2004/2005 to 2015/2016. In Statista, 2017.
Forbes (2016). Ticket sales as share of total Major League Baseball revenue from 2009 to 2016. In Statista, 2017.
Forbes (2016). Gate receipts as percentage of total revenue in the National Baseball Association from 2010/11 to 2015/16. In Statista, 2017.
Forbes (2015). Gate receipts as percentage of total revenue in the National Football League from 2010 to 2015. In Statista, 2017.
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