How sports bodies are cutting out the middleman

Playng for keeps

Major sporting codes are taking control of their own valuable product, side-stepping the media networks by marketing video direct to their audiences’ smartphones.

In a 2011 interview, the then chief executive of the Australian Football League (AFL), Andrew Demetriou, dropped his guard for a few moments to talk about the possibilities offered by high-speed internet connections. The new technology could let the AFL cut out the media middlemen and stream content directly to viewers, he said.

“We might work across various platforms. We are trying to control as much as we can control and not deal with as many third parties. That’s where I see upside in the revenue.”

Five years later, current AFL CEO Gillon McLachlan ponders his predecessor’s words cautiously, clearly conscious of a deal the league has made with Telstra on streaming content. “Andrew was looking to the future, witnessing a fragmenting and changing media environment, particularly in the digital world,” he says.

“The AFL needed to be prepared for that. If there was an opportunity to be a player and control content, we wanted to be there.”

The AFL’s current deal with Telstra runs to 2022. In the meantime, McLachlan and his counterparts around the world are watching each other as they all experiment, trying to maximise their position as digital technologies open up powerful new possibilities in global sports.

For sporting bodies, the great dream is still about wresting control from the traditional media, just as Demetriou mused in 2011.

The battering ram

Based on estimates by global consulting firm A.T. Kearney, the global sports electronic viewing market is now worth more than US$30 billion a year, and in major markets it’s growing faster than GDP.

In Australia in 2015, eight of the top 10 free-to-air TV programs were sporting broadcasts. That has made the sale of broadcast rights the major revenue stream for large professional sports organisations.

The AFL, for instance, in 2015 negotiated a six-year, A$2.508 billion broadcasting rights deal, while the National Rugby League signed off on a five-year, A$1.8 billion TV rights deal that will include a dedicated pay television channel from the 2017/18 season.

For sporting bodies, the broadcast rights have a multiplier effect, enlarging the money-making sponsorship and merchandise-licensing opportunities and increasing public exposure and brand recognition. 

For broadcasters and pay-TV operators, they’re even more valuable. News Corp chairman Rupert Murdoch once described sports as “a battering ram” in his pay TV operations, and his success can be partly attributed to his deft use of battering rams like the broadcast rights to the US National Football League (NFL) and the English Premier League (EPL).

In late 2014, A.T. Kearney’s Nicolas Sultan dubbed sports “the most secure way for programmers to retain viewership”. Traditional media is convinced it must keep sport.

"If there was an opportunity to be a player and control content, we wanted to be there." Gillon McLachlan, Australian Football League

A changing world

In 2016, however, the world is watching sport differently. Merryn Sherwood, a lecturer in the Department of Communications and Media at Melbourne’s La Trobe University, has front-row seats to these changes.

“My students are able to find live sport easily, and, as I walk around the class, they’ll be watching NBA play-offs on their phones,” says Sherwood. “It’s hard to get too upset when it’s a sports journalism course.”

The streaming of live sport that Sherwood describes has been a game changer. In most major sporting leagues, video content can be accessed on demand for a price via smartphones, tablets and laptops with the capability of being “cast” onto a television screen.

Live sport can be with you everywhere, and it can appear on your TV in full HD glory. Multi-screen behaviour is quickly becoming the norm, with sports fans often plugging into apps for real-time statistics or connecting with other fans.

At the same time, consumers increasingly want to buy just the content they want to watch, rather than the bundles of programming that cable and satellite television providers have traditionally offered.

No replacement … yet

This leaves pay TV businesses and broadcasters facing greater challenges than ever before. As well as changing viewer habits and new rights competitors, they have to both compete with and partner with new online venues and service providers. On top of that, they must try to offer their own premium online content. 

All the other players, meanwhile, want to take a slice of the audience away from free-to-air broadcasters. Online media giants such as Yahoo and Twitter want to make themselves more attractive to more users. Telecommunications firms such as Telstra see an opportunity to profit from the technically tricky business of delivering live streams and offer their internet clients added-value services. 

The sports bodies want to maximise exposure and revenues any way they can, and they can already see the day when streaming revenues eclipse broadcast revenues. Several, led by US Major League Baseball, are already well on the way to being full media companies, controlling their product from the moment a player is recruited to the moment a dedicated fan watches him hit the last home run.

Yet broadcast and pay television still provide sporting organisations with more revenue than any other source.

So, there is now a delicate dance between all the players involved in sports media. They cooperate, they partner and they compete, depending on the situation. 

“No-one’s talking replacement while television is still an incredibly powerful medium,” says Brett Hutchins, an associate professor at Monash University’s School of Media, Film and Journalism. At the same time, he notes, “everyone’s positioning themselves for the long game and trying to expand their audiences in new ways.” 

"Everyone’s positioning themselves for the long game and trying to expand their audiences in new ways." Brett Hutchins, Monash University

AFL chief McLachlan is part of this delicate dance, and he expects traditional broadcast and cable to be around for a long time. “I can’t see a time when there are no free-to-air and paid partners,” he says. Nor is he ready to confirm what Demetriou suggested five years ago – that the AFL wants much more control of its own video imagery.

Yet he clearly also sees a future where internet-delivered video matters much more. In that space, he says he is “prepared for a rapidly changing landscape”.

Professional development: Business execution: crafting a business strategy that executes

Show me the money!

Sporting organisations around the world are taking very different approaches to how their content is delivered. Here’s the state of play for some of the major sporting bodies:

US Major League Baseball (MLB)

The main US baseball competition has led the trend toward sports bodies’ control of their sporting content. Its leadership is due in part to an early decision to take over the delivery of its streaming media. In 2000, it set up Major League Baseball Advanced Media (MLBAM), its internet and interactive division. 

MLBAM took the early lead in sports streaming and never gave it up. It turned a profit in only its second year of existence. Now it is considered a global leader in video streaming capability. Last year, it helped HBO handle demand for streams of the Game of Thrones hit series, and took over the streaming of US National Hockey League games.

Meanwhile, its new statistics services feed the addiction of fantasy football obsessives.

MLBAM forecasts 2016 season turnover of US$1.1 billion to US$1.2 billion after 2015 revenues hit US$800 million. The league’s broadcasting rights deal from 2014-2021 is worth US$1.55 billion annually. It’s not unreasonable to suggest that annual MLBAM revenue will overtake this offering before the contract expires. In July, Disney was reported as being willing to spend US$3.5 billion for one-third of the MLBAM operation.

“They’ve benefited by the fact that they were willing to experiment with live streaming far earlier than any other leagues,” says Hutchins. “Their point of distinction is that they are now a media production service as well, providing infrastructure for other parts of the entertainment industry like HBO.”

Adds Sherwood: “At the moment, the money that large sporting organisations get from broadcasting is still the most revenue they make, but the MLB experience could provide a window into the future.”

Australian Football League (AFL)

The AFL’s broadcasting deal has the game’s immediate future tied up with the Seven Network, Foxtel and Telstra from 2017 until 2022, with annual revenue of A$418 million passed on to the league. However, analysts such as Hutchins see the AFL pursuing the MLB model and extending its control over content. 

The current media deal doesn’t offer a straightforward big-screen AFL-branded streaming option. In partnership with Telstra, though, the AFL has introduced its own AFL Live Pass, which allows users to watch all games on their mobile devices for A$90 a year. With the right technology, users can also display that video – albeit somewhat crudely – on a television screen. “There are aspects of the MLB offering that are in our Live Pass,” says McLachlan. 

For Telstra, Live Pass helps sell mobile subscriptions; many Telstra mobile users get their subscription free. For the AFL, says Hutchins, Telstra’s involvement helps avoid costly investment in MLBAM-style technical capability.

When pressed for numbers on the partnership’s performance, McLachlan pleads commercial-in-confidence on Telstra’s behalf, but says he’s pleased. 

“The AFL is what I’d call a very good fast follower,” says Hutchins. “They’re strategic in a very intelligent way. They wait to see what’s taking off and then they invest wisely.”

US National Football League (NFL)

The NFL has chosen another path in online media, experimenting with a range of big-name online platform partners. The value of the NFL’s broadcasting rights has increased 12-fold since the mid-1980s, with the latest deal worth about US$6.5 billion annually. 

Online NFL rights remain small by comparison, but everyone expects that to change as the league makes a play for “cord-cutters” – former cable TV subscribers eager to consume the latest digital alternatives. Last year, Yahoo paid a reported US$17 million for online streaming rights to one game. AFL boss McLachlan says that deal “put huge pressure on the networks, and they were worried about it”. 

This year, the NFL granted Twitter rights to stream 10 Thursday night football games in the coming season. Those rights were priced at an attractive US$10 million in total, considered a fraction of the market rate. Before choosing Twitter, the NFL reportedly also spoke to both Facebook and Amazon.

Twitter is now in sales mode, with hopes of fetching US$50 million in total advertising revenue from the games. Already Budweiser, Sony Pictures, Bank of America and Nestlé have flagged an interest.

"There is now a delicate dance between all the players involved in sports media. They cooperate, they partner and they compete ..."

“We are still very much in the experimental stage,” says Hutchins. “Twitter has purchased these rights, perhaps with a promise that they’d like to become a long-term partner, but the NFL will have to give them a chance to work out how to sell the advertising packages. They’re trying to establish a scalable business model.”

Netball Australia

Netball’s media path shows the gap between the likes of the AFL and “second-tier” sports that want to build their viewer bases with free-to-air broadcast exposure. Netball effectively paid the Ten Network to air matches in Australia in 2015.

Now it has a new deal with the Nine Network to broadcast two live games and two delayed games a week in 2017, with Telstra TV streaming the remaining two live games. All games will be available live on a mobile app. 

“The main game for them is to get as many eyeballs watching their sport, which is why free-to-air matters so much,” says Hutchins. “That then accesses sponsors and advertisers, which facilitates the building of resources.” 

Hutchins believes Netball Australia “has done a pretty good job off a limited resource base compared to some of the other leagues”.

English Premier League (EPL)

The EPL is the world’s most valuable soccer competition and a hot global entertainment property; its new A$14.2 billion three-year TV deal kicks off this season. 

Some rival European leagues, such as Spain’s LaLiga, see online content as a way to end the EPL’s dominance. In May, LaLiga became the first European football league to live-stream a match to Facebook.

The AFL writes its own narrative

The Australian Football League (AFL) took a big new step in control of its content in 2012 when it established its own media unit to push out AFL-related news and analysis, competing with commercial media sites. 

It set up a digital infrastructure to centralise its service, build an audience, provide content for each of the 18 clubs, generate advertising revenue, feed the hungry 24/7 news cycle and, in most cases, control the narrative. 

On internal measures, the league believes it is reaching and engaging with its audience.

For CEO Gillon McLachlan, that has been a huge investment with a powerful payoff. “We’re thrilled with the numbers in our digital space,” he says. “The latest Nielsen numbers gave us a unique monthly audience of 3.9 million; second biggest was the ESPN network with 2.8 [million].”

Monash University’s Brett Hutchins says AFL Media has been the AFL’s biggest investment in digital media. Employing more than 100 people, the unit has its critics. Can they report rigorously on the more controversial aspects of the game, the administration and the AFL brand itself? 

“We run a credible news service and our audience numbers reflect that,” says McLachlan. “They’re treated like every other media player ... we think we walk that tightrope reasonably well.” 

La Trobe University’s Merryn Sherwood says the operation employs some news-breaking journalists. On the other hand, she adds, “there are probably occasions where they’ve known more of the story, but haven’t broken it”.

Paying attention ... in short bursts

The way that younger generations watch sport is revelatory for media strategists.Research firm Childwise says in its 2016 Monitor Report that five- to 15-year-olds in the UK spend an average three hours a day on the internet and 2.1 hours watching television. If they do switch on a TV, a handheld device is never too far away.

Former management consultant John West noticed his own children tended to watch sport in bite-sized pieces rather than parking themselves on the couch to catch a whole game. His observations led to the launch of US online trailblazer Whistle Sports in 2014.

Today, the Whistle Sports network includes almost 350 YouTube channels with nearly 50 million subscribers. Featuring footage of trick shots, compilations, fails, pranks and parodies from a cast of knowns and unknowns, Whistle Sports’ content is tailor-made for youngsters short on attention span.

In a 2015 study commissioned by the company, 64 per cent of 13- to 24-year-olds listed YouTube as their go-to platform for sports-related video content. Just 42 per cent chose cable TV network ESPN.

The AFL is taking notice. “Total viewing minutes are up, but they’re across different platforms,” says AFL CEO Gillon McLachlan, noting that television numbers are trending down. “Children watch fewer minutes continuously, and international athletes are just as ‘touchable’ as [AFL players] Nick Riewoldt and Scott Pendlebury. 

“How we distribute content to different segments is clearly on our mind.”

Related: In the battle for online TV streaming, who will reign supreme?

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September 2016
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