In 2020, a global pandemic shut down professional sports entirely. Millions have lost jobs and nearly 100,000 businesses have closed. Yet pro sports have demonstrated their resilience during these difficult times. With fans stuck at home, critical revenue was lost due to unsold tickets and merchandise, stadium parking and concessions were non-existent, and broadcast viewership was mostly down year-over-year, yet the world’s top sports franchises are worth more this year compared to last.
How? The increased value proposition of live sports on network television and streaming services.
Despite a decade’s worth of steady decline in cable television subscriptions thanks to cord-cutting, networks are continuing to pay increased rights fees for pro sports properties. For example, although U.S. households with cable TV subscriptions are down by almost 20 million since 2010, media rights fees for the NFL, NBA, NHL and MLS have increased year-over-year, with the next wave of renegotiations set for 2021.
The evolution of cable networks reveals the story behind why live sports are better positioned than any other program on television. More than any other form of programming, live sports impact revenue in the three major ways networks monetize:
- Advertising: Networks sell commercial inventory against their developed and owned original shows, cable news programs and live sports. These arrive in the form of 30- and 60-second commercials referred to as “spots and dots,” as well as in-game features like the PLL Halftime Show, which is presented by Progressive Insurance. Each form of advertising can be assigned a cost-per-impression (CPM), which designates a monetary value per thousand viewers.
- Affiliate fees from the multichannel video programming distributors (cable providers): Perhaps more recognizable as Comcast, Cox, DirecTV and DISH, these MVPDs pay the networks carriage fees per month, per subscriber. That way, when end consumers subscribe to a cable package, they get access to NBC, CBS, ABC, FOX, ESPN and more.
- Subscription Video On Demand: When Reed Hastings famously said Netflix wasn’t going to invest in live sports, the cable network heads exhaled, then asked themselves why they weren’t launching their own direct-to-consumer products that did feature live sports content. Born out of this new category of streaming were platforms like ESPN+, Disney+, Peacock, and CBS All Access. And to the surprise of entertainment execs who originally viewed these platforms as a home for episodic programming, live sports have demonstrated the ability to generate new paid subscribers for games available exclusively on the service.
Advertisers are flocking to spend against live sports. Ever since the debut of The Sopranos on HBO and the advent of on-demand technology, we’ve seen both a swing in preference for subscription programming over cable, and a viewing habit of fast-forwarding through commercials. Advertisers have since been scrambling to figure out where to place their dollars.
As a firewall against commercial-free programming, live sports have baked-in commercial breaks between quarters and during timeouts, penalties, challenges and reviews. Naturally, there are a number of ways advertisers can get involved organically, and they can count on watch time for their 30- and 60-second spots, since a sports fan often doesn’t want to miss the play coming out of the break.
With an estimated $72 billion to be spent on television advertising in the U.S. in 2020, advertisers are looking to be placed where appointment viewers are. They’re looking for a place with a targeted demographic, during a certain time of year, with a high level of engagement, and what we qualify in sports as brand loyalty. Sports are almost exclusively consumed live. Live, because your hometown is watching and cheering. Live, because being a part of the social media chatter leads to a sense of relevance and belonging. Live, because the betting markets require your immediate attention. And live, most importantly, because sports are the single most exciting form of original programming. No writers. No outcome certainty. Nobody knows who will win. That’s more attractive to advertisers. It’s more attractive to cable providers who often pay a higher carriage fee to guarantee the NFL ticket or next year’s Olympics. And it’s more attractive to subscribers who care deeply about their team, even if the English Premier League matches are exclusively available on Peacock and they have to come out-of-pocket for an additional $5 a month.
This is why sports are so valuable to networks. They are the only form of appointment viewing left.
The sports media ecosystem has certainly changed. Fear not the cord-cutters. Embrace the evolution of streaming. Recognize that media rights are now a combination of live broadcast and cable TV, with games streamed and available exclusively on a paired SVOD service. Also recognize that social media isn’t retracting overall viewership—it’s adding to it. However, those who can’t figure out how to qualify and quantify the increased consumption of game highlights and in-feed posts across social will be left behind.
And despite the recent economic deficits and near-term challenges that pro sports face due to the pandemic, teams and leagues are only building a stronger case for increased enterprise value—where media rights and advertising will continue to lead the charge.
Paul Rabil co-founded the Premier Lacrosse League in 2018 with his brother, Mike, and also plays midfield for the PLL’s Atlas club. In addition to two NCAA titles, he has been named Major League Lacrosse MVP twice and once by the World Lacrosse Championship, the latter for which he has received three All-Tournament Team selections. The athlete-entrepreneur’s activities also include the podcast Suiting Up with Paul Rabil, the experiential camp Rabil Overnight, VC firm Rabil Ventures and The Paul Rabil Foundation, which helps children who have learning differences.
