Eye on the Ball

“Some broadcasters are struggling in terms of advertising and sponsorship,” says Ian Holmes, the head of television distribution for Formula One Management, which is currently in renewal discussions with networks around the world. “Most of our conversations are with commercial free-to-air broadcasters, and they are the ones feeling the pinch. We are fortunate in that Formula 1 is generally perceived as something they must have. We are not necessarily expecting increases. Things have flattened out a little bit.”

 

The sports market basically has three tiers. One of the biggest differences between the distribution of sports and other programming is that a lot of sports programming below the top two tiers does not obtain rights fees from broadcasters. Rights holders are happy to get their events on the air without being paid by TV because their revenue comes from the sponsors and TV gives the exposure the sponsors want. In many cases, the sports even pay the broadcasters to get on the air by buying the time.

 

The top tier includes most of the big football leagues, all of which are on pay TV first and foremost and are thus protected from any advertising downturn. Formula 1 and the Champions League also sit in this tier as must-haves. The Olympics and FIFA World Cup are, of course, in this tier but they do not take place every year and they negotiate well in advance, so they are not constrained to make deals in today’s poor climate.

 

“The middle tier is where they are feeling the pressure,” Holmes says. “These are events that broadcasters pay rights fees for. They are things broadcasters would like to have but don’t need to have. Networks need to identify what’s important in terms of audiences and targets and what really works for them, and sometimes these properties struggle.”

 

Then there’s that third tier. These are the sports properties that have not been getting rights fees anyway. Broadcasters still have airtime to fill. If anything, these sports might even be in a better position in today’s climate.

 

“We are especially seeing the impact of the downturn in Eastern Europe, where the demand and price picture has changed,” says Jonas Persson, the chief executive of the Stockholm-based IEC in Sports, the world’s biggest tennis distributor with about 25 men’s ATP (Association of Tennis Professionals) and 20 WTA (Women’s Tennis Association) events, as well as Olympic sports such as badminton, table tennis, swimming and gymnastics. “Premium properties are still selling, but even they are seeing some impact in a market like the Ukraine. It’s worst for the next tier down.”

 

Asia is holding up well, with the exception of Japan, according to Persson. “There is generally still a good appetite for sports,” he says. “Sports programming has a big advantage in the current environment because it has the live element. It has something to offer that other programming does not. For the right programming, rights fees can even go up.”

 

An example of that occurred recently in Sweden, where the price of the Swedish Ice Hockey Association rose by 20 percent to 25 percent recently when Canal+ Sport renewed the rights with its cousin TV4 taking over the free-to-air rights to the playoffs from TV5.

 

IEC is a subsidiary of Lagardère Sports, as are World Sport Group and Sportfive. The International Olympic Committee (IOC) has chosen Sportfive to handle distribution of the 2014 and 2016 Olympics broadcasting rights for Europe on a country-by-country basis, ending a 50-year partnership with the European Broadcasting Union (EBU). The IOC rejected a global bid from the EBU last year. The EBU paid about $740 million for the 2010 and 2012 Games package. For the IOC, the decision to switch partners was not only a matter of price.

 

The IOC view for the Vancouver and London Games was that it had long-term partners and would rely on them to redistribute rights to new-media outlets. That was convenient because it meant one deal per territory. But Timo Lumme, the managing director of IOC Television & Marketing Services, realized that just as it was not always enough to leave all the relationships with one broadcasting union to handle countries X, Y and Z and not worry about it, it did not necessarily make sense to rely on the broadcaster in a country to handle broadband, mobile or pay TV.

 

Sportfive has thus acquired the rights to the Olympics across all media platforms in 40 countries in Europe, excluding the five biggest markets plus Turkey. The rights for Italy (SKY Italia) and Turkey (Fox Turkey) have already been sold, while the IOC will negotiate directly in France, Germany, Spain and the U.K.

 

“For the big sports, life carries on regardless,” says Richard Bunn, the former controller of sports of the European Broadcasting Union, whose consultancy, RBI Network, advises many international governing bodies. “They are essentially safe. We are actually seeing increases in rights fees in some cases. They are not going down. What matters is whether there is competition. Where there is competition, fees continue to rise. For the other sports, things are more difficult, for two reasons. One is that broadcasters sometimes overpaid in the past. Two is the technological change that has taken place with audiences declining and young people watching less television.”

 

Bunn continues, “The same thing is happening in sport as in many other businesses. Companies are using the crisis as an excuse to make up for past mistakes. Sometimes they didn’t think carefully enough before making deals. Now a cleansing is taking place.” But, he adds, “You really cannot compare the current crisis with the last one at the time of the Internet bubble. Broadband has grown enormously.”

 

“There is much more drive for value for money,” says Murray Barnett, the VP of sports channels and syndication for Europe, the Middle East and Africa at Disney-ABC-ESPN Television. “In late 2008 and early 2009 there was a very nervous mentality in the market, and operators just did not want to incur any costs. They were not signing deals at all. Now people have accepted that they need content, and channels are acquiring programming without being as free-spending. So we are engaging with our partners but there is some hard bargaining.”

 

Barnett has been in the middle of probably the biggest story in the sports market lately—the startup of ESPN’s new British service on August 3 in the wake of the collapse of Setanta Sports. This is ESPN’s first fully localized service in Europe, with a full lineup of specific British content—meaning loads of football—and just a nod to American sports. The schedule will include England’s Barclays Premier League, Scottish Premier League (SPL), Germany’s Bundesliga and the Dutch, Portuguese and Russian leagues. The new service will be a premium pay channel on Sky, Virgin Media and Top Up TV and in a package on BT’s digital platform. ESPN previously had two channels in the U.K.: ESPN America covering American sports (originally North American Sports Network) and ESPN Classic showing archived action.

 

Having a powerful single property can get a new channel, even a new platform, off the ground, as the Premier League proved for Sky in the U.K. in the 1990s. Setanta was hoping to repeat that success story. But of course one marquee property is no guarantee of success unless other pieces are in place. Before going bust in the U.K., Setanta was losing an estimated £100 million a year. The service reached only 1.2 million subscribers, well short of a 1.9 million break-even target.

 

“Setanta’s business model could never work,” Bunn says. “You cannot get people to pay for an offer that includes only one quarter of the product. A pay-TV sports product has to cover everything.”

 

ESPN will show 46 live Premier League football games that were to have been shown by Setanta and will pay £159 million per season until 2013­—the same terms as Setanta had.

 

Entry into the British market has been on the drawing board for ESPN for some time. The U.S.-based company was a partner in the original Screensport, which was taken over by Eurosport in the early 1990s. ESPN had bid for a piece of the new Premier League deal, which will run from 2010 to 2013, but lost out when Sky won five of the packages and Setanta got the other one.

 

ESPN and Sky also picked up the rights to Scotland’s SPL for five years for an estimated £13 million a season, a bit less than Setanta was paying. However, the SPL has lost out on a new £125-million package agreed to by Setanta until 2014.

 

Being both a channel operator and a programming provider, ESPN needs a balance in its distribution approach. “The National Hockey League (NHL) is a good example of the situation,” says Barnett. “It’s shown on ESPN America in Scandinavia, where ice hockey is very popular. But we also sublicense to local terrestrial channels for additional revenue and exposure. So there is a trade-off to analyze between program sales and channel distribution. In many cases, discussions straddle both areas. It depends on the operator. If you take Viasat in Scandinavia, they are a platform operator with channels and they have their own sports channels, so it’s easy to have a joined-up discussion. In these cases, if you talk to a senior-enough person, it’s a single discussion.”

 

He adds, “At the end of the day we are working together. So often the program and channel providers are seen as being on the opposite side of the table from the platform operators. I don’t see it that way. We need to achieve a better level of cooperation to maximize value. It’s all very well to put a big number on the table and see if somebody will swallow it, but if it’s not a win-win situation it probably won’t help build a good long-term partnership.”

 

The need for more cooperation also extends to the relationship between media companies and the sports themselves, according to Bunn. “There will always be an audience for sport,” he says. “The question is, how much will media companies pay? There needs to be more intelligent cooperation between rights owners and television partners. To a large extent, that means sports need to adapt their mindset. I have been in negotiations where a sport requests a rights fee and I’ve asked where they came up with the number and the answer has been that the amount is what it takes for them to run their sport. And I’ve had to point out that the issue under discussion is putting a value on television rights; the broadcaster is only interested in what your television rights are worth, not the funding of your organization.”

 

Cooperation is not just a matter of prices for rights, but also competition rules and scheduling. “Sky Germany has a much better shot at succeeding now that the Bundesliga has agreed to change kickoff times to accommodate television,” Bunn says. “That factor has been absolutely fundamental to the success of Sky in the U.K., where Sky now has football on four days a week on multiple pay channels.”

 

It is no coincidence that the new German approach has come now that News Corporation has made Premiere (in Austria as well as Germany) part of the Sky-branded European pay-TV empire. The new Sky Fußball Bundesliga will feature six different kickoff times, all five kickoffs from the first Bundesliga and a Monday game from the second division, 2.Bundesliga. That means more than 20 hours of live action every weekend.

 

Reaching an international audience is the goal for any sports property. The media planning group Initiative, part of the Interpublic Group, has pointed out that when numbers of viewers are measured, the top 10 percent of television markets in terms of audience typically deliver 90 percent of the total audience. Indeed, for most events, if they were broadcast in only 30 countries instead of 200, it would make almost no difference to the total audience. Only for events of true global appeal does this 90/10 rule not apply. They are the ones for which the difference between the potential global audience and the actual audience is not so great.

 

These events are the Olympic Games, the FIFA World Cup, the UEFA European Football Championships, the UEFA Champions League and Formula 1. The National Football League’s Super Bowl is one of the biggest events in global viewing without being a global event. This is because the Super Bowl generates a huge audience in one very large market, its home market of the U.S.

While broadcast television remains at the heart of the media strategy for all sports, the new-media environment offers an unprecedented opportunity to reach a global audience. YouTube has particular importance. Last year, the IOC started using YouTube during the Beijing Summer Olympic Games in territories where broadcast rights were not sold, and in Korea. After the Games, that content became available almost everywhere outside the U.S.

 

Even though the barriers to entry may be lower than in the broadcast sector, having a broadband-video presence costs money, and can still be out of reach for smaller rights owners. But imaginations are working overtime.

 

An unlikely pair of allies has emerged in the online betting industry. The International Hockey Federation (FIH), the world governing body of the Olympic sport of field hockey, has pioneered the use of a betting partner in order to underpin new-media distribution. The FIH sold Internet rights to the Vienna-based Bwin via the company’s media-distribution partner Sportsman Media Group. The deal for live streaming of matches on Bwin’s website runs until the end of 2010 and the bookmaker is already asking to renew. The arrangement is effectively just like any other media deal, but it does contain specific clauses to protect integrity, including blocking the IP addresses at the venues where events are held and within the world of hockey more generally. Bwin is also contracted to inform the FIH of any integrity issues that arise. The International Volleyball Federation has a similar deal with Bwin.

 

The betting area is also emerging as a new way to monetize content for channel operators. Eurosport recently launched the online bookmaker EurosportBET in the U.K. and plans to roll the service out in other countries as regulatory conditions permit.

In the U.K., Sky Bet, the betting subsidiary of BSkyB, expects that the connection between sports content and sports betting may develop more strongly in the online market than it has in television, and it expects to follow the lead of other online betting providers in streaming more live sports content on its own website, while continuing to promote its offer linked to live events on Sky Sports on broadband.

 

More futuristically, a whole new potential market dimension is opening in the virtual world. Infront Sports & Media has launched Empire of Sports, an online gaming environment designed to provide an experience as close as possible to real sports. It offers competition in football, tennis, basketball and skiing. Players compete against one another via broadband. Infront, whose portfolio of media rights includes most of the Winter Olympic sports federations (such as the governing bodies of skiing and ice hockey), FIFA World Cup football in Asia and the Superbike World Championship, is the 60-percent owner of the venture, with a French technology and design partner, F4, holding the rest.

The Empire of Sports world includes virtual rooms, with partners such as the Spanish soccer giant FC Barcelona and the French sports newspaper L’Équipe. The new platform also potentially offers the opportunity to bet on “real” events. The in-game browser can show new-media coverage of an event as a virtual public viewing. For example, a player could be standing in a virtual square, while up on the big screen a live football match or tennis event is being streamed, so players would be able to talk about the event while their avatars see it. For the sports market of tomorrow, it’s a real case of “watch this space.”