John Ourand (SBJ) reported on Tuesday morning that DAZN has begun informing sports leagues and federations that it will not be making rights fees payments as contracted for games that have been postponed/cancelled or “content that has not been delivered” during the sports hiatus. The OTT service also told its league partners that payments owed for future games/seasons will be deferred until a time-frame for resuming play can be set. In a letter to employees CEO Simon Denyer explained that declining revenues resulting from the sports shutdown is forcing the company to “drastically reduce many elements of [its] cost base” (including the furlough of an unspecified number of employees). The news comes less than one month after DAZN announced plans to expand into 200+ countries and territories.
Howie Long-Short: At least one of DAZN’s league partners believes the sports-centric streaming service has “taken a position that they probably do not have the right to legally defend.” Someone well informed of a major U.S. sports league’s legal position said his/her league’s attorneys maintain the company is responsible for making payments as scheduled. He/she made it a point to note that “none of the league’s other broadcast partners, who have similar agreements, have taken the same hardline approach [insisting they are entitled to forego payments].”
Historically speaking, domestic media partners have honored their contractual obligations with the U.S. pro sports leagues and continued to make payments as scheduled during work stoppages (think: strikes, lock-outs). One high-profile sports media consultant explained that “typically it’s been a three-link value chain (distributor, channel and content provider), where risk is diversified and everyone is incentivized to work together because there is always a next season. In this case however, DAZN, as a stand-alone digital streaming platform, is both the producer of the content as well and the distributor so they’ve assumed more risk. It’s also likely that they have specific remedies in their contracts with content owners for lost event inventory, meaning that any attempt to claim a Force Majeure will probably be difficult.”
Another reason broadcast networks tend to honor their contracts is because “the effort needed to break a contract and the resulting blowback [from doing so] often does more material damage to the company than honoring or adjusting the existing agreement(s) would.” Chris Lencheski, a private equity executive and the former CEO of the commercial rights and analytics arm of Comcast-Spectacor, added that in his experience “the leagues and their owners have long memories and these difficult situations often reveals the values.” In other words, if DAZN moves forward with its plan to stiff the same rights holders it relies on for programming, the company is planning its own funeral. Our media consultant source agreed. “If you’re a Tier-one league, how could you partner with DAZN after they’ve already shown a willingness to break deals?”
There’s no reason to believe any other broadcast companies will follow DAZN’s lead. Lencheski said that “most, if not all, of the North American networks are working under the presumption that at some point, [the sports industry] will come out of [this temporary pause]. While each is preparing for the possibility of a new normal, they’re doing it in tandem with their league partners to ensure that all parties make it through this situation together.” DAZN’s decision to go another route indicates the privately held company may be having leverage and liquidity issues. The league insider we spoke to said the streaming service never approached his/her league about reworking its agreement.
Taking a position that the company won’t pay for games not played may obviously change DAZN’s trajectory with the leagues, it’s also highly likely to accelerate churn and add unneeded difficulties to the company’s future customer acquisition efforts.
DAZN doesn’t hold any exclusive live rights to the big four leagues in the U.S., so the exposure is bound to be minimal for domestic team owners (their deal with MLB is worth +/- $100 million/year). But that won’t be the case overseas, where the company is spending north of $1 billion/year on live rights.
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