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Volume 20 No. 45

In Depth

Leagues and conferences can thank competing television networks for making the current sports media rights marketplace so vibrant. Now, rights holders are keeping an eye on digital media companies to see if they will help push sports rights increases even higher.

With CBS, ESPN, Fox, NBC and Turner — among others — looking to program all of their channels, the cost of sports rights has doubled or tripled over the past five years. Many industry executives don’t believe the television industry can sustain those increases.

“The amount of money that the cable industry is paying for rights right now doesn’t make any economic sense for anyone else,” said Brian Bedol, a media industry veteran who now runs Bedrocket Media Ventures.

Much of Google's involvement in sports has been through several sports-specific YouTube channels.
“It’s likely that bubble is going to burst and, at a certain point, those that are overpaying for rights — as almost always happens — are going to retrench and say it’s not worth what they’re spending and it’s not achieving the objectives that they’re going after. Then the pendulum swings entirely the other way.”

That’s where digital media companies could come into play. Sports leagues and college conferences are keeping a close eye on companies like Apple, Google and Microsoft, gauging their potential interest in sports rights and how any moves could keep that bubble from blowing up.

At an industry conference in March, four longtime media executives pointed to these companies’ interest in sports rights as one of the industry’s most important story lines over the next 12 months.

If the companies get aggressive about picking up premier sports rights, the current level of sports rights fees will continue to increase, leagues believe.

But that’s a big “if.” Those companies have showed little inclination to bid on live sports rights so far, even though they have stayed on the periphery of these conversations.

Companies like Apple, Google and Microsoft kicked the tires on a digital package from the Pac-12 Conference last year that mainly would include live non-marquee sports. But even though the conference carved out a digital rights package, it hasn’t yet agreed to a deal.

Digital media companies also weren’t close to nabbing the other big rights deals signed last year, from the NFL and NHL to the Olympics and World Cup.

Even the most optimistic executives believe these companies still are many years away from really competing for rights.

Networks tying up rights

First, networks are tying up rights for at least a decade, meaning that rights simply aren’t available, and digital rights are big components of those deals. Olympic rights are tied up through 2020; the NHL’s media deal runs through 2021; and the NFL and World Cup’s deals run through 2022.

Secondly, distributors and networks are adopting a TV Everywhere approach that makes digital rights even more

valuable. This makes sure that only authenticated cable and satellite subscribers can watch live sports online.

Cable and satellite operators pay sports channels a lot of money in license fees; in turn, channels pay leagues and conferences a lot of money for those rights. For the most part, rights holders are conscious about not upsetting that system, making digital rights fees prohibitively expensive.

“Rights fees drive the engine of a lot of sports leagues,” said Gary Stevenson, president of Pac-12 Enterprises. “Will sports leagues forgo rights fees because of a promise down the road? I don’t think that’s going to happen.”

Thirdly, digital media companies have said that they aren’t interested in getting into bidding wars for digital rights. For example, the head of YouTube’s sports content, Claude Ruibal, told SportsBusiness Journal that Google is not likely to bid on expensive live sports rights any time soon, opting to concentrate on smaller, niche sports, like action sports.
Late last year, YouTube launched seven sports channels focused mainly on niche sports.

Bedrocket’s Bedol operates several of those channels, including one in partnership with MLS, Kick TV. The channel is designed to supplement live game programming, not replace it.

“Because of the cost of rights, we’re not right now with Kick TV looking to be in the rights space, live-game business,” Bedol said. “I don’t want to say that we’ll never be in the rights business. But if we can build a regular user base of people around the world who love soccer, whether we control the rights ourselves or not, we can probably be a pretty good point of entry for those who do.”

That describes how most leagues view the digital media space these days. They view deals with companies like Apple and Google more as marketing partnerships than anything else. The NFL, for example, distributes highlights and NFL Films programming via Apple’s iTunes. It syndicates content to sites like Yahoo.

But the league is a long way from cutting a digital media deal for live games.

“I don’t think they’ve matured enough as a platform or a business model to do that yet,” said Brian Rolapp, COO of NFL Media. “We can’t take the NFC package, like we did in the early 1990s, and give it to Google if they’re going to use Internet distribution because we’re not convinced that the medium can hold off the concurrent usage necessary for everybody to watch a Packers-Bears game.”

Spotting some openings

Regardless, the NFL’s rights are tied up for a decade anyway. On the other hand, a league that will be negotiating its media rights in the next two years — MLS — is taking a closer look at how these platforms will develop in the next few years.

MLS will be negotiating its media rights in the next two years and is taking a close look at the various media platforms in play.
Photo by: Getty Images
MLS President Mark Abbott said the league is keeping its options open and could envision carving out a package that would be available to a digital media platform, like Microsoft’s Xbox or Google.

“It’s too early to know,” Abbott said. “There have been statements in the market that they are very interested. Clearly it is a possibility.”

MLS currently makes its out-of-market package, MLS Live, available via Apple, Roku and Panasonic. It’s among the only leagues that does not authenticate users to ensure that they are cable or satellite subscribers.

“Mobile is an increasingly impactful part of the market for us,” Abbott said.

The NBA has a different strategy. Its media deals with ESPN and Turner end in 2016, and its executive vice president of business affairs and general counsel, Bill Koenig, said he is monitoring the marketplace.

The NBA has deals with Apple TV, Xbox, Roku and Google for non-live game content. Subscribers can get the NBA’s out-of-market League Pass package through these platforms, but they have to be authenticated as cable or satellite subscribers.

“There may be some kind of traditional over-the-top opportunities, but I think they’re realizing that to get some of the premium content and television programming, they’re going to have to work within a TV Everywhere construct,”
Koenig said. “We’re very happy with a TV Everywhere-type of model where authentication through the distributors will determine who gets our games. I anticipate the current approach being in place for many, many years.”

That’s the same view held by Bedol, who believes the digital media companies will make inroads with sports rights eventually.

“Today, because of the dual-revenue streams of cable, you’ve got a huge competitive advantage because effectively you’ve got subscribers who are subsidizing rights fees,” Bedol said. “I think it’s going to be a long time before you see someone come along in an entrepreneurial way who has the bankroll to take on that establishment.”

Turnkey Sports Poll
The following are results of the Turnkey Sports Poll taken in April. The survey covered more than 1,100 senior-level sports industry executives spanning professional and college sports.
So far, how would you grade NBC's efforts to rebrand Versus into the NBC Sports Network?
A 8%
B 36%
C 32%
D 11%
F 4%
Not sure / No response 9%
Which of the following best reflects your opinion on how mobile technology will affect TV ratings for live sporting events over the next five years? Over the next five years mobile technology will ...
Lead to a drop in TV ratings 33%
Have no effect on TV ratings 41%
Lead to a gain in TV ratings 23%
Not sure / No response 3%
Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit
Like a Fox?

Why are so many people counting on big digital media companies to make a play for sports rights? Call it the Fox effect. Rights holders believe that Fox’s success comes from its decision to pick up the NFL’s NFC package in 1994.

“What Fox did from a business strategy standpoint was to invest a lot of money in buying rights that they knew could drive a platform,” Rolapp said. “I know our content can drive platforms.”

While Fox Sports Chairman David Hill said the NFL is powerful enough programming to drive platforms, he said digital media companies would be foolish if they used the Fox model.

“A number of people say it’s what Fox did. That’s totally incorrect,” he said. “When Fox started, 100 percent of the television channels in this country could switch on with a pair of rabbit ears and watch the National Football League. It is a totally different playing field now with Apple or Google or YouTube. If a sport was silly enough to succumb to the lure of major dollars, they would immediately be trivialized because where would the bulk of their audience find it? There is no comparison between a network and a Google or an Apple.”

Still, most believe it’s inevitable that big digital media companies will start to invest in sports rights.

“In my view, at some point in the not-too-distant future, one or more of these digital distribution platforms is going to make a significant bet on live sports,” said Chris Bevilacqua, co-founder of Bevilacqua Helfant Ventures, a New York-based sports and media advisory and investment firm.

Bedol agreed, though he said it would take a while before a digital media company is willing to risk a lot on sports media rights.

“I don’t see anyone who — at least right now — has indicated that they’re about to place that big bet,” he said. “But I do think that, historically, sports have been used to gain big competitive advantages when new technologies enter the marketplace. I expect that eventually you’ll see someone on the Internet try to take that chance.”

For now, leagues and conferences seem content to use the digital media companies as marketing vehicles. And the digital media companies seem content to use highlights and other sports content as an inexpensive way to program their various platforms.

All eyes in the sports media industry are studying signs for when that position starts to change.

To date, none of the big digital players have been close to cutting a deal for live sports rights, but leagues continue to watch them closely. These are the five players most frequently discussed as potential bidders.

Part of the reason that most executives are looking at Google is because the company already has started dabbling in sports. Virtually every league and most TV networks have some sort of sports channel on Google’s YouTube. With a market cap of close to $200 billion, leagues are hopeful that the company will become more interested in competing for mainstream digital rights. Said NFL Media COO Brian Rolapp: “YouTube and Google still have huge reach when it comes to the Internet.”

Leagues and networks already have business relationships with Apple for various apps, from which several leagues make their out-of-market game packages available. Apple also has deep pockets, with a market cap of more than $520 billion, but its pay-per-view business model is not conducive to the mass audiences that watch live sports. Said the NFL’s Rolapp: “Apple has built an outstanding cross-platform commerce platform.”

Around 40 million people subscribe to Xbox Live, making it, effectively, the biggest multichannel video provider in the country. “That’s a pretty big installed base right there,” said NBA Executive Vice President Bill Koenig. Xbox Live users have access to sports like ESPN3, plus deals with various leagues for highlight rights. Said the NFL’s Rolapp: “The Xbox essentially could be a video delivery to your home with a lot more processing power than your set-top box, so you could do more interactive things. … Microsoft needs to decide what kind of content they are going to deliver, if they’re going to be a complement to pay-TV or are they going to compete with it.”

Around 26 million people stream Netflix content to their home, a number that intrigues rights holders. “Netflix is a big player with a globally available distribution platform,” said Bedrocket Media Ventures CEO Brian Bedol. “So far, though, they haven’t shown any inclination to being interested in sports.”

It’s impossible to ignore the sheer number of people who use Facebook: 901 million people per month, including 526 million people every day. Earlier this spring, ESPN made college games available on Facebook via ESPN3. Leagues are keeping a watchful eye to see if Facebook will try to acquire more rights. Said the NBA’s Koenig: “We put content on Facebook to help push people toward our other content platforms. Facebook is today our No. 2 referral to”