Post by QPR Report on Jan 22, 2009 8:04:31 GMT
The Guardian/Owen Gibson - January 22, 2009
Where will the big bucks go when the bubble bursts?The first of a two-part special examining the relationship between pay-TV and sports revenue – and whether it can survive the economic crisis
It is an industry that has exploded in the past two decades, spawning a legion of dependent businesses, transforming the world of sport and making a few key players very rich. The transformation of the upper echelons of English football, and the "prune juice" economics that led to millions then flowing into the accounts of players and their agents, has been fuelled by television money. So too, to a lesser degree, the fortunes of other sports that have followed in its wake.
The symbiotic relationship between Rupert Murdoch's pay-TV broadcaster Sky and the Premier League has been the best example of the way in which media and sport have mutually benefited. Before the technological advances that spawned first multichannel television, then widespread internet take-up, the domestic market for sports rights was limited to two players. It was the emergence of Sky and its equivalents around the world, and the willingness of consumers to pay subscription fees to watch ever more sport, that kick-started the boom that has lasted until now.
But neither pay-TV nor the sports rights market has ever known a recession. The sharp-suited legions of sports sponsorship experts, rights consultants and marketing executives have been sounding uneasy for the first time. Some fear the consequences of the current downturn are likely to make the brief deflation of the sports-rights bubble at the beginning of this decade, when the World Cup rights holder Kirch and ITV Digital went under, look like a minor blip.
At two big sports industry conferences in London at the end of last year the usually bullish rhetoric about expanding into new markets and on to new platforms was replaced by nervous contemplation of how sport might ride out the recession. And, canvassing opinion among more than a dozen experts involved on both sides of the fence, a picture of an industry at a crossroads has emerged.
The major unknown factor is just what the global economic crisis might do to the media companies that have driven up prices. Advertising revenues have plummeted and some analysts are gloomy about what the collapse in consumer spending might do to pay-TV companies such as Sky and Setanta.
Last month, analysts at HSBC said Sky would find 2009 "challenging" as "revenue growth [will] slow and margins [will] face pressure". The most desirable contracts, including the English Premier League (see panel) and new cricket competitions coming out of India, hope they will be insulated – because they drive businesses and offer tangible returns, they are gambling on the broadcasters not being able to afford to be without them.
But it is the layer of sports immediately below that, particularly those that have not already secured long-term agreements, who will feel the chill. The biggest sports may maintain most of their value and so-called minority sport has never relied on television revenue to any great extent. It is those in the middle who will be squeezed. Senior sports broadcasting executives point to horse racing, currently embroiled in tortuous negotiations with the BBC and Channel 4 over its future on terrestrial television, as an example of the collapse in value for those sports that do not have the muscle or the benefit of a cohesive, far-sighted administrator.
In the short term most large sports are comparatively well placed in that one of their major revenue streams is insulated for the next two years at least. Dominic Coles, the chief operating officer of the BBC's journalism group, said those sports had been helped by an "extraordinary" couple of years in which a number of factors had combined – including the arrival of Setanta and ITV's decision to pour a large percentage of its programming budget into live football – to fuel a rising market. The Football Association, cricket, rugby, tennis and athletics have all agreed new long-term deals in the past year.
"The sports have benefited from the timing of those negotiations, either by luck or great judgment they have managed to secure rights commitments that have ensured the short-term survival of those sports, despite everything that's going on in the commercial marketplace," said Coles. "As a result, UK sport is in a good position to ride out the recession we're now facing. What happens when those contracts come up for renegotiation depends on where we are in the economic cycle, and where that leaves those sports depends on how prudently they have managed their affairs in the interim."
The trend will be increasingly towards longer-term deals that provide sports with more economic certainty, say those involved, but also give broadcasters a greater say in how sports are scheduled, marketed and structured. ESPN, the US sports giant owned by Disney, is looking to build broadband portals in each sport that allow it to exploit its rights across hundreds of countries in different ways. It has spent the past two years buying up the likes of Cricinfo, Scrum.com and Racing-Live and integrating them with more than 40 television channels around the world.
Similarly grand plans have been floating around since the early days of the dotcom boom but Russell Wolff, the ESPN international vice-president in charge of all its activity outside the US, says technological advances mean it can now be simultaneously more local and more global.
"The ESPN brand is about serving fans and, done right, it will inherently mean lots of different things to different people. We're not scared of it meaning cricket in India and soccer and rugby in Argentina," he said. Like the Sky chief executive, Jeremy Darroch, the Premier League chief Richard Scudamore and the other big beasts who straddle media and sport, Wolff maintains that ESPN is well placed to ride out a recession. Yet they cannot all be right.
By way of an example, he points to cricket, probably the fastest changing sport in the world in the wake of the formation of the Indian Premier League and the Twenty20 Champions League. ESPN Star Sports, the Asian joint venture between the Disney-owned broadcaster and Murdoch's Star, paid $1bn over 10 years for the rights to the fledgling Twenty20 Champions League, the start of which was delayed for a year following the terrorist attacks in Mumbai. Meanwhile, ESPN is building its cricket website into a broadband proposition that can reach audiences around the world.
"Cricinfo is core in India and niche in America. It lets you build one thing and do two things with it," says Wolff. As the biggest franchises in world sport – NBA, NFL, Major League Baseball, the Premier League, La Liga – jostle for position in the race to expand into new territories, their global ambitions are starting to align with those of the media companies. Not only do they have an eye on hedging against a downturn in their domestic revenues, but they now realise building global appeal is a long game rather than a short-term fix.
The next logical step is for the biggest media companies to take direct stakes in sports themselves. AEG, the promoter behind the O2 arena in Greenwich, has made no secret of its plan to take equity stakes in sports. Endemol, the independent production giant behind the global success of Big Brother, has launched a sports division that is partly focused on forging partnerships with sporting authorities. Yet the downturn will hit them too.
"What you see from almost all rights holders, particularly the really strategic ones, is a need to maximise their revenue. The best way is to create the products with the greatest appeal," says Wolff. "We get very involved in that from a scheduling perspective, a production perspective."
ESPN is also looking to take a stake in new ventures. It has a 5% interest in the NBA in China, for example. "We'll always look at the opportunity to own the underlying right if we can. It's consistent with what we do on air. We want to build as many franchises as we can," Wolff says.
Even if they are not directly taking their own stakes, increasingly it is television that drives the development of sport. The Premier League's 39th game plan, shelved but far from abandoned, was largely motivated by the need to innovate to maintain television income. Whatever schemes the executives in charge of major sports come up with, though, there is no doubt among those involved at the sharp end that a major reckoning is ultimately on the cards.
"The media market has been driven by an economic boom that was fed by artificial means. Sports should realise they are in no different a position when it comes to how they are going to be impacted – reduced attendances, advertisers and sponsors cutting back marketing budgets," said Coles. "In addition, you've got broadcasters sitting on a smaller amount of discretionary funding to invest in long-term rights – that includes sport."
www.guardian.co.uk/sport/2009/jan/22/owen-gibson-sport-on-tv-economic-crisis
Where will the big bucks go when the bubble bursts?The first of a two-part special examining the relationship between pay-TV and sports revenue – and whether it can survive the economic crisis
It is an industry that has exploded in the past two decades, spawning a legion of dependent businesses, transforming the world of sport and making a few key players very rich. The transformation of the upper echelons of English football, and the "prune juice" economics that led to millions then flowing into the accounts of players and their agents, has been fuelled by television money. So too, to a lesser degree, the fortunes of other sports that have followed in its wake.
The symbiotic relationship between Rupert Murdoch's pay-TV broadcaster Sky and the Premier League has been the best example of the way in which media and sport have mutually benefited. Before the technological advances that spawned first multichannel television, then widespread internet take-up, the domestic market for sports rights was limited to two players. It was the emergence of Sky and its equivalents around the world, and the willingness of consumers to pay subscription fees to watch ever more sport, that kick-started the boom that has lasted until now.
But neither pay-TV nor the sports rights market has ever known a recession. The sharp-suited legions of sports sponsorship experts, rights consultants and marketing executives have been sounding uneasy for the first time. Some fear the consequences of the current downturn are likely to make the brief deflation of the sports-rights bubble at the beginning of this decade, when the World Cup rights holder Kirch and ITV Digital went under, look like a minor blip.
At two big sports industry conferences in London at the end of last year the usually bullish rhetoric about expanding into new markets and on to new platforms was replaced by nervous contemplation of how sport might ride out the recession. And, canvassing opinion among more than a dozen experts involved on both sides of the fence, a picture of an industry at a crossroads has emerged.
The major unknown factor is just what the global economic crisis might do to the media companies that have driven up prices. Advertising revenues have plummeted and some analysts are gloomy about what the collapse in consumer spending might do to pay-TV companies such as Sky and Setanta.
Last month, analysts at HSBC said Sky would find 2009 "challenging" as "revenue growth [will] slow and margins [will] face pressure". The most desirable contracts, including the English Premier League (see panel) and new cricket competitions coming out of India, hope they will be insulated – because they drive businesses and offer tangible returns, they are gambling on the broadcasters not being able to afford to be without them.
But it is the layer of sports immediately below that, particularly those that have not already secured long-term agreements, who will feel the chill. The biggest sports may maintain most of their value and so-called minority sport has never relied on television revenue to any great extent. It is those in the middle who will be squeezed. Senior sports broadcasting executives point to horse racing, currently embroiled in tortuous negotiations with the BBC and Channel 4 over its future on terrestrial television, as an example of the collapse in value for those sports that do not have the muscle or the benefit of a cohesive, far-sighted administrator.
In the short term most large sports are comparatively well placed in that one of their major revenue streams is insulated for the next two years at least. Dominic Coles, the chief operating officer of the BBC's journalism group, said those sports had been helped by an "extraordinary" couple of years in which a number of factors had combined – including the arrival of Setanta and ITV's decision to pour a large percentage of its programming budget into live football – to fuel a rising market. The Football Association, cricket, rugby, tennis and athletics have all agreed new long-term deals in the past year.
"The sports have benefited from the timing of those negotiations, either by luck or great judgment they have managed to secure rights commitments that have ensured the short-term survival of those sports, despite everything that's going on in the commercial marketplace," said Coles. "As a result, UK sport is in a good position to ride out the recession we're now facing. What happens when those contracts come up for renegotiation depends on where we are in the economic cycle, and where that leaves those sports depends on how prudently they have managed their affairs in the interim."
The trend will be increasingly towards longer-term deals that provide sports with more economic certainty, say those involved, but also give broadcasters a greater say in how sports are scheduled, marketed and structured. ESPN, the US sports giant owned by Disney, is looking to build broadband portals in each sport that allow it to exploit its rights across hundreds of countries in different ways. It has spent the past two years buying up the likes of Cricinfo, Scrum.com and Racing-Live and integrating them with more than 40 television channels around the world.
Similarly grand plans have been floating around since the early days of the dotcom boom but Russell Wolff, the ESPN international vice-president in charge of all its activity outside the US, says technological advances mean it can now be simultaneously more local and more global.
"The ESPN brand is about serving fans and, done right, it will inherently mean lots of different things to different people. We're not scared of it meaning cricket in India and soccer and rugby in Argentina," he said. Like the Sky chief executive, Jeremy Darroch, the Premier League chief Richard Scudamore and the other big beasts who straddle media and sport, Wolff maintains that ESPN is well placed to ride out a recession. Yet they cannot all be right.
By way of an example, he points to cricket, probably the fastest changing sport in the world in the wake of the formation of the Indian Premier League and the Twenty20 Champions League. ESPN Star Sports, the Asian joint venture between the Disney-owned broadcaster and Murdoch's Star, paid $1bn over 10 years for the rights to the fledgling Twenty20 Champions League, the start of which was delayed for a year following the terrorist attacks in Mumbai. Meanwhile, ESPN is building its cricket website into a broadband proposition that can reach audiences around the world.
"Cricinfo is core in India and niche in America. It lets you build one thing and do two things with it," says Wolff. As the biggest franchises in world sport – NBA, NFL, Major League Baseball, the Premier League, La Liga – jostle for position in the race to expand into new territories, their global ambitions are starting to align with those of the media companies. Not only do they have an eye on hedging against a downturn in their domestic revenues, but they now realise building global appeal is a long game rather than a short-term fix.
The next logical step is for the biggest media companies to take direct stakes in sports themselves. AEG, the promoter behind the O2 arena in Greenwich, has made no secret of its plan to take equity stakes in sports. Endemol, the independent production giant behind the global success of Big Brother, has launched a sports division that is partly focused on forging partnerships with sporting authorities. Yet the downturn will hit them too.
"What you see from almost all rights holders, particularly the really strategic ones, is a need to maximise their revenue. The best way is to create the products with the greatest appeal," says Wolff. "We get very involved in that from a scheduling perspective, a production perspective."
ESPN is also looking to take a stake in new ventures. It has a 5% interest in the NBA in China, for example. "We'll always look at the opportunity to own the underlying right if we can. It's consistent with what we do on air. We want to build as many franchises as we can," Wolff says.
Even if they are not directly taking their own stakes, increasingly it is television that drives the development of sport. The Premier League's 39th game plan, shelved but far from abandoned, was largely motivated by the need to innovate to maintain television income. Whatever schemes the executives in charge of major sports come up with, though, there is no doubt among those involved at the sharp end that a major reckoning is ultimately on the cards.
"The media market has been driven by an economic boom that was fed by artificial means. Sports should realise they are in no different a position when it comes to how they are going to be impacted – reduced attendances, advertisers and sponsors cutting back marketing budgets," said Coles. "In addition, you've got broadcasters sitting on a smaller amount of discretionary funding to invest in long-term rights – that includes sport."
www.guardian.co.uk/sport/2009/jan/22/owen-gibson-sport-on-tv-economic-crisis