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Volume 21 No. 26
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MLS gambles on local digital play

Will nontraditional deals pay off?

This year’s most intriguing local media rights deals did not start out as the traditional ones do, but their implications already are quickly changing the way leagues and teams view their local rights.

 

Take YouTube TV’s recent deal with the MLS expansion team LAFC. Executives with MLS, LAFC and YouTube TV were at the tail end of negotiating a jersey sponsorship deal when league executives broached the idea of adding the team’s local media rights to the deal. The deal made sense to YouTube TV executives who are looking to stand out from competitors such as Hulu and DirecTV Now. It made sense for the team, which was not seeing a lot of interest from the regional sports networks in Los Angeles.

What started as a jersey sponsorship deal ended up with YouTube TV becoming the exclusive local home for English-language coverage of the games, marking the first local sports media deal signed by the company. It’s not known how much of the overall three-year, $18 million deal the team allocates to its media rights, but the deal immediately opened eyes among industry insiders for its novelty.

A couple of weeks later, ESPN’s deal to pick up local rights to the Chicago Fire provided another indication of this local digital trend. ESPN sources described the deal to stream around 27 matches per season more as a learning experience and a marketing exercise than a traditional media rights deal. But the three-year deal that puts Fire games on ESPN+ signals that ESPN’s over-the-top service could become a new outlet for local rights. The Fire saw the deal as a way to pick up a rights fee while also getting first mover advantage on a nascent service that ESPN plans to grow.

All eyes have been focused on the national and international deals cut by companies such as Facebook, Amazon and Twitter. But these two deals — plus the Seattle Sounders’ YouTube TV deal, Real Salt Lake’s KSL deal and a fifth team streaming deal that is expected to be finalized in the next few weeks —  prove that digital companies also are prepared to pick up local sports rights.

MLS teams go digital

 

LAFC

Platform: YouTube TV

Term: Multiyear

Rights: Exclusive English-language media partner (all mediums); LAFC retained Spanish-language TV rights — Univision LA

 

Chicago Fire

Platform: ESPN+

Term: 3 years

Rights: Exclusive media partner (all mediums, all languages)

 

Seattle Sounders

Platform: YouTube TV

Term: Multiyear

Rights: Exclusive English-language streaming partner; Seattle retained local TV rights

 

Real Salt Lake

Platform: KSL

Term: Multiyear

Rights: Exclusive English-language streaming partner; Real Salt Lake retained local TV rights

 

Source: MLS

“Everyone is trying to figure out this digital shift,” said Daniel Cohen, Octagon’s senior vice president of media rights consulting. “It’s a petri dish of experimentation to see what works and what doesn’t work.”

For MLS and its teams, these deals were a function of timing. MLS has struggled with its local media presence, both in terms of ratings and revenue. For years, league officials viewed local media rights as one of its biggest growth areas and have put significant resources and time behind developing that revenue stream. Several sources said most MLS teams do not receive traditional linear TV rights fees from regional sports networks, which makes it less risky for these teams to explore alternative outlets. These initial streaming deals pay rights fees to the local clubs, but the payouts still are relatively small and lag behind fees commanded by NHL teams, for example. Plus, the MLS clubs produce all the games and shoulder programming. 

While YouTube and ESPN executives view these deals more as marketing and sponsorship opportunities, MLS executives see them as the future of sports media where digital players coexist with traditional linear TV outlets.

“We’ve spent two or three years cultivating from the league-level relationships with these digital and social and over-the-top platforms, with an eye towards finding more ways to distribute our content to our fans to make sure that we are delivering content anywhere, everywhere, anytime,” said Seth Bacon, the league’s senior vice president of media. “These are not replacement partners. These are different distribution channels that will be part of the mix as we think about where we will be going as a league and where we’re going as a media property.”

The bottom line is that MLS has not seen a windfall of riches from the traditional RSNs, so it is making a bet that these new services will grow. The downside to this strategy is the lack of exposure teams will see in these local markets. In fact, the Fire’s deal with ESPN+ immediately was criticized on a local message board for the limited reach and access to the new service. 

That’s the big question teams have when they decide whether to entrust their local rights to digital companies. Sports Media Advisors CEO Doug Perlman said that today’s marketplace reminds him of the sports media marketplace in the mid- to late-1990s, when leagues and teams were wary of cutting all-consuming deals with cable TV channels because they were not in enough homes at the time.

“The biggest balancing act we do when we negotiate rights deals is figure out the balance between revenue and exposure,” he said. “Most times, the most revenue is coupled with limited exposure. It’s a tradeoff properties have made for decades.”

Octagon’s Cohen agreed. He pointed to team sponsorships that mandate that games need to be in front of the biggest audiences. That would make most teams shy away from exclusive streaming deals today.

It’s not clear yet how many fans will be able to access LAFC, Fire, Sounders or Real Salt Lake games in their home markets.

The trend of sports media moving from linear television to digital is not new. Amazon, Facebook and Twitter, in particular, have cut several high-profile sports rights deals over the past several years. Plus, every sports TV network has an app that streams its programming.

“The distinction between TV and digital is gone,” Perlman said. “Just as we’re seeing companies like Amazon and Facebook acquire national rights, we’ll see various players step up to acquire regional rights.”