Will they spend?
All of the TV networks — CBS, ESPN, Fox, NBC, Turner Sports — lined up when the PGA of America started negotiations for the PGA Championship two years ago.
But the digital media companies that the sports business hopes will start making big financial bets in sports media essentially were nowhere to be found.
The PGA of America ended up signing a deal last week with two legacy media companies, CBS and ESPN, that will last until 2030.
“They kicked the tires,” said PGA of America CEO Seth Waugh of digital and tech companies Amazon, Facebook, Twitter and others. “It’s still too early for them.”
Some sports business executives are starting to wonder if the time ever will be right. For the better part of a decade, league and conference executives have viewed digital media companies as insurance to keep their media rights fees growing at a rapid clip. As TV networks dealt with shrinking subscriber bases, league executives had been courting digital media companies and their deep pockets. The theory is that their presence at the negotiating table would keep the TV networks honest.
A lot can happen between now and 2021, the year when media rights deals for Major League Baseball, the NHL and “Monday Night Football” expire. These tech companies have a reputation for being nimbler than legacy media companies and could change their sports strategy quickly. All it takes is one senior executive to decide to pursue a sports-centric strategy.
But league and network executives have taken notice of the lack of serious bids these financial power players have made in the U.S. market so far.
It is not just the PGA of America’s negotiations. Earlier this spring, the WWE signed traditional media deals with Fox and NBC, and the UFC signed one with ESPN. After showing initial interest in picking up those packages, Facebook and Amazon never came close to cutting a deal with either group.
It was the same story last fall when Amazon and Perform Group, which owns DAZN, showed initial interest in picking up rights to Formula One. Neither company came close to sealing a deal, and the racing circuit took its media rights to ESPN.
Amazon, Facebook, Twitter and YouTube have made sports investments in the United States. But they view those investments more as market tests than full-blown business strategies.
Amazon holds the global digital rights to “Thursday Night Football” for a reported $65 million per year, though sources say most of that fee is made up of marketing expenses. Facebook signed a deal to carry 25 weekday afternoon baseball games exclusively, Twitter has live MLB and MLS games and YouTube has cut several local streaming deals with MLS teams.
But executives with those companies freely concede that they consider those deals as experiments to see if they can develop profitable sports strategies.
It’s the other big technology companies that have caused angst.
Take Apple, for example. The company is flush with cash and has tremendous reach, as evidenced by its 1.3 billion devices worldwide. Plus the Apple executive that oversees content, Senior Vice President Eddy Cue, is a big sports fan who is regularly seen at Golden State Warriors games.
Even though Apple has committed more than $1 billion to produce entertainment content, it is not even kicking the tires on sports rights, according to several executives surprised at the lack of interest.
Netflix is another one that has said it will not pursue sports rights even though it is spending up to $8 billion on original content.
“I’m not sure that they even know what their plan is for 2021,” said CBS Sports Chairman Sean McManus. “It’s a huge question mark.”
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It appears to be a big question mark even inside those companies. Executives see the effect live sports have on their users — creating more engagement and more time spent on the service. A question is whether the companies need exclusive access to those games, which means they would pay more.
While exclusivity is the norm on TV, Twitter has found that simulcasts tend to work just as well.
“The key thing we learned from ‘Thursday Night Football’ in 2016 was the more live, the more premium, the more rich content that we bring onto a platform, the more engaged our users are and the more they’ll stick around and tweet,” said TJ Adeshola, Twitter’s head of U.S. sports. “To us, that is a priority.”
Similarly, Facebook is testing several different business models to see which ones work, said Peter Hutton, head of live sports. It cut exclusive deals for 25 MLB games in the U.S., the Copa Libertadores soccer tournament in South America and La Liga games in India. It has partnered with broadcasters like CBS for Conference USA games and Univision for Mexican football games. It has worked with WWE on a live show, simulcast 10 Chicago Cubs games and carried shows like Tom Brady’s “Tom vs Time” and Shaquille O’Neal’s “Big Chicken Shaq.”
“We’ve made a few experiments in different countries, around different sports and with different types of content,” Hutton said. “It’s important that we look at a range of possibilities to see what fits best with us as a platform. We need to really focus on executing those and genuinely looking and learning from lessons. It’s very easy to leap into things. That’s not what we’re trying to do.”
Of course, that testing led to some problems because of the complexities of producing live sports. During this year’s U.S. Open, British users complained about Amazon’s production, particularly picture and sound quality. Early in Facebook’s MLB deal, viewers complained about picture quality and buffering issues.
Octagon’s Dan Cohen suggested that these new players may bet on sports internationally, where there’s not as much competition, pointing to Facebook’s deal with Copa Libertadores soccer tournament as an example of a cost-effective sports experiment.
“Facebook can figure it out where it’s less expensive and it can still draw people in,” said Cohen, Octagon’s senior vice president of global media rights consulting. “It wants to get content that is still relevant in the markets in which it plays, but it’s going to cost a lot less to test out products and strategy and a revenue model behind all of it. … Getting 20 meaningless games from MLB is not going to push the envelope to test their business models and their business products far along enough to make them a serious bidder in 2021.”
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Legacy media companies have been developing pitches that emphasize their reach. Digital viewership tends to be a fraction of their TV counterparts. “Thursday Night Football” provides a good example. Through Week 4, Fox averaged 13.9 million viewers on television. Digital viewership, which includes Amazon, has averaged 326,000.
“The challenge of the social media companies is that their metric for success is not the same metric as cable and broadcast television,” said Charlie Ebersol, CEO and co-founder of the Alliance of American Football, an eight-team professional league set to launch in 2019. “Their ultimate goal isn’t necessarily aggregation. … When they look at something like carrying an NFL or NBA or MLB package, they are much more interested in figuring out what the engagement translates to than they are in figuring they can get 100 million people to watch something at the same time.”
Still, league executives hold out hope that these media companies will discover the power of live sports by 2021.
“Had this been a couple of years from now, they may have had a more aggressive and informed bid,” the PGA of America’s Waugh said. “I’d be surprised if you don’t see them show up soon in these negotiations.”
Speaking at an event in New York before the NFL season kicked off, Brian Rolapp, the NFL’s executive vice president of media, sounded confident that the digital media companies will become more aggressive.
“Will the world look different by 2021 or 2022? Probably,” he said. “Money is not an issue for these guys.”