Fox Sports recently announced a multi-year pact with The Spring League to televise league games. The headline likely flew under the radar, only catching the attention of the most ardent football fans. But a clause within the agreement giving Fox Sports an option to secure an equity interest in the professional football development league/scouting event makes the deal noteworthy, as few TV networks are invested in pro sports properties.
That’s likely the case because media companies haven’t historically had a real opportunity to invest in the bigger leagues. While that’s not likely to change (the price tag to acquire every team within a big four league would be exorbitant), Colin Neville (partner, The Raine Group) believes sports broadcasters should be exploring opportunities to acquire stakes in earlier-stage leagues moving forward. “It’s just logical,” he said. “Rather than renting content at increasingly higher prices every couple of years, [a network] could buy or invest in a sports league and benefit from the equity value appreciation of the [asset] they’re helping to build.”
Our Take: To be clear, networks investing in sports properties is not a new concept. Lee Berke (president/CEO, LHB Sports, Entertainment & Media Inc.) reminds, “ESPN used to own Bassmasters and a large number of the bowl games that appear during bowl week are owned by the company.” The Entertainment and Sports Programming Network is also a partner in the SEC Network, the ACC Network and Texas’ Longhorn Network and NBC was a partial owner in the original XFL.
The rise of OTT streaming technology and the subsequent need for programming has spawned the formation of countless niche sports leagues (and, by proxy, investment opportunities). Michael Rabil (CEO, Premier League Lacrosse) said a large challenge that upstart leagues face is the “capital-intensive nature of growing the property in the early years.” So, if a young league can find a strategic investor with the infrastructure to help reduce its cost burden (in addition to any capital the investor brings), it should be an easy decision to align with a network.
Broadcasters can also provide immense value from an exposure standpoint—if they are engaged in the sports property’s success. “If [a network] is an investor in the league, they’re going to be more willing to provide promotion [across their platforms] and other complementary resources,” Rabil said. Having a major network as an investor also lends credibility to an upstart league (which is valuable for selling sponsorships, among other perks). Of course, if the network is investing in a limited capacity, the sports property will want to ensure future broadcast rights deals remain at arm’s length.
From a network POV, investing in sports leagues looks to be a risk worth taking. As the competition for eyeballs continues to increase, the desire for content that moves the needle is greater than ever, and we’ve seen that live sports can still draw the masses. “Not only would [ownership of a league] give the network valuable content, but it would provide the company with some control over the business—and some control over [future] rights fees,” Berke explained. An equity stake would also allow the network to participate in the upside should the league take off.
It’s important to note a network doesn’t need to own a sports league outright to reap those benefits. Berke says a limited stake would suffice because “what [the network] really wants is a seat at the table. If they’re going to commit to [a sports property], they want to make sure it’s managed in a way they see fit.” They’ll also want to maintain a first look at retaining broadcast rights, which they should receive (whether it’s contractually obligated or not) as a shareholder.
There are cases where owning a sports property outright makes the most sense. “The UFC is one that comes to mind,” said Neville. “Knowing what we know now about the rights deal [with ESPN], the big media companies could have owned the property, controlling the business and all of the revenue streams that come along with it.” Instead, ESPN will pay $300 million a year ($1.5 billion over 5 years) solely for the broadcast rights. “For the value of those rights over  years, [ESPN] could have owned the entire league, never paid rights fees again and controlled all the content,” Neville continued. Endeavor paid $4.2 billion for the entirety of the MMA promotion in 2016. For what it’s worth, Raine Group is an investor in the PLL.
Looking ahead, it’s reasonable to believe more broadcast platforms will invest in sports properties. But it’s unlikely to be the traditional linear players striking the deals. Berke suggested we would more likely “see some of the digital platforms and streamers getting involved in these sorts of investments.” That’s because the digital players have more ways to monetize live rights than the linear outlets do (like tying programming to retail). As upstarts within the sports broadcasting space, the digital companies are also more likely to be willing to take the risk of investing in an emerging league—like the World Surf League, which is currently exploring the concept of an investment/partnership with a media company. Considering the importance of live sports to the linear players, the digital companies may have no other choice if they desire exclusive live rights to sporting events.
Then again, there is an argument to be made that the linear networks are already spending billions of dollars a year on original programming—some of which will resonate and a lot that won’t—and thus an investment in a sports league is actually a relatively low-risk play for them. As Rabil noted, sports already have a product/market fit: “A network doesn’t have to pump meaningful production dollars hoping the pilot or first two seasons are going to stick. You can make a bet on people watching sports that you can’t on a new TV show.” Unlike a TV show, pro sports properties can also sell tickets and generate gate receipts in addition to any advertising revenues they generate.
Costs aside, it’s not feasible for networks to buy into one of the big four leagues, since those leagues are comprised of individual franchises; the league is really just a pass-through. But Rabil says the “outsized value” is gained by betting on sports properties in their early stages, anyway. “If NBC or CBS could have owned a piece of the NFL 40 years ago, I’m willing to wager they would have done it [in hindsight]—it would be way cheaper than renting [the rights] out at today’s value.”