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How Global X became a rare miss for ESPN
Effort shuttered after losing $30 million in just one year
Published October 14, 2013, Page 1
It was a short ride.
The Global X Games, which debuted this year, lost more than $30 million, leaving ESPN executives with no choice but to end the ride early. Two weeks ago, the company issued a press release saying it was canceling future international stops in Barcelona, Spain; Munich; Tignes, France; and Foz do Iguaçu, Brazil, and instead concentrating on two domestic X Games events — going back to what the format was for the X Games from 1997 to 2012.
|Foz do Iguaçu offered a perfect backdrop for TV, but the remote location in Brazil was expensive to reach and contributed to mounting costs.
BMX rider Chad Kagy was about to begin training on the mega-ramp at Camp Woodward two weeks ago when he received a text with the release from his wife. He was stunned.
“We got ourselves geared up to think we had three years [of Global X Games],” Kagy said. “We felt we had to show the world what we were made of and then it was cut after one year. It’s sad.”
The property’s demise highlights a rare failure for ESPN, which declined to make executives available for this story. Action sports observers and sources familiar with Global X Games’ struggles say the property’s failure stemmed from a flawed business plan and poor execution. The company’s sales team struggled to land sponsors, its production team failed to control costs, and the addition of new TV broadcasts created a glut and diluted viewership from an average of 1 million in years past to just 497,000 viewers this year.
“The P&L [profit-and-loss statement] has to be proper when you expand into a new business,” said Steve Astephen, Wasserman Media Group president of action sports and Olympics. “The events were great. ESPN did a great job with the events. The crowd was happy. But you have to build it. That’s a seven-year business plan.”
The birth of Global X Games can be traced to the 2008 Beijing Olympics. John Skipper, then ESPN executive vice president, was attending the Games to determine whether the company should bid on the media rights to future Olympics. The rights fee was expected to be more than $2 billion, for a property that many ESPN executives believed was struggling to attract young viewers.
Skipper began to wonder why ESPN should bid on the Olympics when it had a property of its own, the X Games, with globally appealing sports that did a better job attracting young viewers than the Olympics. Why not take it and create a business model similar to the International Olympic Committee’s, complete with bid cities and global sponsors?
ESPN hired Atlanta-based Helios Partners, which had years of Olympic experience, to advise it on developing a business plan similar to the IOC. They worked together to develop a bid process to select three international host cities and devise a sponsorship-based business model. The budget was set at $100 million, and the idea was for half of Global X Games revenue to come from international sponsors and half to come from domestic sponsors and local organizers.
The X Games had no trouble attracting bids from cities interested in hosting three, new global events. Cities from Chile to Austria submitted letters of interest. In 2012, ESPN awarded three new events to Barcelona, Munich and Foz do Iguaçu. Those locations joined Tignes, Los Angeles and Aspen as the six host cities. But behind the scenes, ESPN was already beginning to run into problems.
The company hoped to find six to eight global sponsors to support the event. ESPN priced deals at $15 million a year, more than three times what action sports sponsors typically paid, and it hit the market with the new offering about 12 months before the first event. The effort was rushed and incomplete. In some pitches, for example, its sales staff couldn’t tell potential sponsors what German network the Munich event would be on because ESPN hadn’t yet cut broadcast deals there, sources said.
The sales team only cut three global deals. Two were with traditional action sports sponsors Red Bull and GoPro, which balked at the $15 million price tag and instead agreed to deals that sources valued at $10 million a year. The third was in the auto category, which Ford and Jeep split, with the former taking four events and the latter taking two. That left ESPN with just three global partners, half of its initial goal.
ESPN had other revenue streams for the event, such as TV syndication, advertising sales, local ticket sales and domestic sponsorships with groups like the U.S. Navy, but people familiar with its business plan said that global sponsorships were supposed to provide at least 50 percent of its $100 million budget for Global X, and it fell short of hitting those numbers.
“You need 24 to 36 months to sell something that big,” Astephen said. “They tried to do it in 12 months. That’s almost impossible. You can get Red Bull money, but to build a global platform like that, it takes more.”
The failure to net enough sponsors put immediate pressure on ESPN to control its costs. The company planned to take a large production crew of more than 700 people to its first Global X event in Foz do Iguaçu. The town, which is near Brazil’s world famous waterfall, offered the perfect backdrop for TV, but it was remote and expensive to reach. In addition to covering airfare and hotel costs for a large production crew, ESPN also increased what it paid athletes to help offset their travel costs.
By that point, ESPN had become concerned enough about costs that its operations manager sent the production team an email discouraging them from filing for overtime pay and encouraging them to buy their own water.
Despite its struggle to control costs, attendance at the new events was strong. More than 115,000 spectators turned out for the inaugural events in Munich and Barcelona, and Tignes, which had hosted X Games before, drew 117,000 spectators (see chart).
But the images being beamed back to the U.S. struggled to draw viewers. The new events expanded the number of hours of X Games coverage from 46 in 2012 to 153 in 2013. The six events averaged 497,000 viewers, less than half the 1 million-plus viewers that X Games averaged before the expansion.
The two domestic X Games, ESPN’s signature action sports events, also saw significant declines. Aspen saw average viewership fall from 1.3 million in 2012 to 1 million in 2013, and Los Angeles saw viewership fall from 1 million in 2011 to 658,000 in 2013.
“What made X Games special was it was once a year,” said Wade Martin, the former president of the Dew Tour and current president of Powdr Enterprises. “They lost some of that.”
In its announcement canceling Global X, ESPN said that it remains committed to action sports and will concentrate on its two domestic X Games in the coming years. But the effects of its decision already are being felt across the industry.
ESPN began laying off X Games staff two weeks ago, and athletes anticipate the loss of TV exposure on ESPN will hurt their negotiations with sponsors.
“I’ve overheard conversations with sponsors that flat out say, ‘If you only have one X Games and one Dew Tour [event] next year, it’s not worth it to us,’” Kagy said. “‘We’ll paint your helmet and give you a travel budget, but without networks giving us TV time, it’s not worth it.’”
Astephen said the situation is less dire than that. Athletes will lose some bonus pay, but he believes the attendance in Barcelona and Munich demonstrated there’s an international demand for these events and someone else will capitalize on that and fill the void being left by ESPN. That will keep sponsors interested and athletes supported, Astephen said.
But Martin said it will take time for that to happen. In the short term, there will be some pain.
“Everyone should be concerned about this,” Martin said. “ESPN put a big effort into [global] action sports, and it didn’t move the needle. That’s a concern for everyone involved in action sports.”