Monetising Fan Engagement
Victor Font - Co-founder & Group CEO
Sam Evans - Partner
The Burning Platform
For sports organizations, the increased competition for sports TV rights belies the outlook for the traditional commercial model. While there are still opportunities for growth through internationalisation, the core revenue model is maturing. Costs continue to increase because of rising player transfer fees and wages in football or technical requirements as is the case for motorsports creating necessity for sports organisations to increase revenues to reduce the financial gap and ensure profitability. Transfer fees in the English Premier League have almost doubled to €1.8 billion between 2013 and 2017, while salaries in Formula 1 Racing have risen 114% in the past 5 years. This is even more important as organising bodies are increasingly focused on the concept of ‘financial fair play’.
Increasing commercial revenues in this context is not straightforward. The traditional sponsorship model of attaching a brand to a sports team, like a corporate logo on a jersey or car, is waning quickly. Sponsors are increasingly searching for highly-engaged fans that can relate their favourite team with their brand through measurable commercial mechanisms that demonstrate a return on investment.
The Metric: Commercial Revenue per fan
To address this shifting model and potential revenue stagnation or declines from traditional commercial approaches, sports organisations need to boost revenues by engaging their fan base. Thinking of a smartphone as an internet connected screen, sports organisations have the potential to engage and monetise their fan bases globally. Sports teams are highly successful at building passion and loyalty with their fans, but there is a gap when it comes to the ability to monetise that engagement.
To understand both the current performance and the future potential of monetising an international fan base, sports organisations should track a new metric – Commercial Revenue per Fan. This is currently a metric that very few sports organisations actively track yet is becoming prevalent in digital business models where companies such as Facebook and Snap publicly report revenue per active user per quarter in their investor briefings.
Exhibit 1 shows that if we compare revenue per fan across sports, we see that U.S. baseball (c. $31 per fan per year) and NFL (c. $24 per fan) is significantly higher than European football and NBA teams (c. $6 per fan) or even Formula 1 (c. $3 per fan).
There’s a difference between non-U.S. and U.S. teams because U.S. teams usually offer a more continuous fan experience, have developed a richer suite of digital content assets, like Apps, exclusive video content and gaming, or have developed in-market fan engagement experiences. For example, as shown in Exhibit 2, Real Madrid have used live engagement and developed a ‘travelling museum’, which will visit 14 cities, while F1 hosts fan events and Ferrari has created a theme park in Abu Dhabi. Elsewhere, there are plans for Lionel Messi to open similar in China in 2020 and football clubs are increasingly utilising pre-season tours.
Exhibit 1: Measuring Fan Engagement - Commercial Revenue per Fan
Exhibit 2: Examples of Sports Organisations Embracing Live Fan Experiences
Monetising Fan Engagement: A Four-Step Process
The first step is to identify and segment the fan base. Within this, every sports team must ask itself ‘how do I define a fan’? Looking across sports it is evident there is no consistent definition. For example, some teams rely on social media metrics, others on survey poll results. Effective identification, measurement and segmentation of the fan base is critical and only by undertaking this can teams effectively take the next steps in monetisation.
The second step is to reach fans. It is important to have authentic ways of reaching a global fan base that allow for an on-going engagement beyond a match or race. Technologies such as mobile and IP distribution are highly relevant as they can stream content in an ‘anywhere, anytime, any device’ environment and allow for a two-way engagement between the team and a fan. Smartphones offer an internet connected screen in the pocket of a fan globally and can be truly transformational for how a sports organisation can directly reach a fan continents away from where they play. As mobile data prices fall and fixed fiber networks become more pervasive, the pertinence of mobile and IP will only increase further.
The third step is engagement. Fans are changing how they watch their teams perform and engage with them throughout a season or tournament. Sports content is no longer constrained to a live event with all rights controlled by a single pay-TV provider. Mobile and IP have facilitated the emergence of new content categories such as short form, interactive, online magazine, virtual reality and gaming, while the rise of OTT content platforms creates opportunities for premium episodic content. Moreover, fans want to be increasingly connected with their team both on the day of the event and throughout the year. Teams must provide continuous access to content across platforms to ensure fans feel connected to the team. Many have the existing assets and capability to do this, but it has yet not been part of their business that they exploit. Sports organisations sit on significant content assets which can be exploited outside of the rights held by broadcasters. These can range from utilising content captured outside the ‘live event’ – like behind the scenes in the team’s operation or using team personnel to create new content series. It is critical that sports organisations evaluate their existing and potential content ‘asset base’ to assess what value they can create and the requirements to do so.
Several sports organisations are actively developing their digital and physical content propositions, though these are at an early stage of commercial development in building the ‘fan monetisation’ model that’s so critical for sports organisations. For example, the NFL’s Minnesota Vikings have developed a series of ‘Vikings VR 360°’ videos of stadium events and matches. Fans can see their home matches and events with a more realistic perspective. There is also additional content like interviews with the players and some exclusive videos such as pre- and post-match VR videos. They also redesigned their museum, renaming it ‘The Vikings Voyage’, where fans can enjoy with new interactive and VR activities to test their skills (e.g. catch and ball throwing, jumping and running speed). Fan results are tracked through a RFID bracelet and they can compare their results with those from friends, family and even the team’s players. Another example is the Manchester United-Uber partnership ‘Destination Uber’ where they created a fan engagement experience in Bangalore that includes live match broadcasts, interactive challenges and a VR experience that lets fans ‘experience’ being inside Old Trafford stadium.
The final step is monetisation. Engagement of the fans is insufficient and needs to be underpinned by a commercial model. Sports organisations need to understand how to best utilise subscription, advertising and sponsorship, licensing, digital and physical transactions as well as data monetisation. For example, how would a European football team monetise their passionate fans in South East Asia? Different content and distribution models can leverage a range of commercial approaches and understanding how to manage this mix is a key success factor. As an example of a first attempt to build a mixed monetisation approach, Real Madrid’s mobile app offers ticketing, online merchandise purchasing, in-app purchases, personalisation of a digital avatar and access to a paid membership area with exclusive content. Such an offering could form the foundation of a much more comprehensive fan proposition.
Exhibit 3: Case Study: Minnesota Vikings VR Experience
Another option could be creating a personalized news and insights platform based on a licensing fee, like the one NFL offers on Thursday night games to Amazon’s Prime members. Such a model could be developed at club level and drive a commercial model linked to additional revenue streams such as commerce.
As demonstrated in this paper, while several sports teams are undertaking initiatives to monetise their fan base, the significant commercial opportunity arises from the prioritisation, packaging and combination of separate digital and physical propositions to create end-to-end fan engagement. For example, linking mobile-based content with exclusive video and gamified experiences with physical experiences where international fans can truly ‘engage’ with their teams. Based on the addressable value and what has been captured to date, there is no sports team that has truly addressed this opportunity. There are a couple of reasons for this – firstly, while the traditional sports commercial model has been growing, this has not been a priority given the growth from media and sponsorship revenues. Secondly, it is a new business area for sports organisations and they may view their ability to create value as uncertain. Neither of these reasons detract from the significant commercial opportunity at stake.
Exhibit 4: Case Study: Real Madrid Mobile App
The Relevance of Telcos
Sports organisations will need partners to engage and monetise their international fan bases. Telecoms operators can be key partners to work with as beyond the size of their customer base in local markets, there are three primary assets of value:
- Customer data – leading telecoms operators serve 20-40% of their country’s population with a KYC process beyond that of digital platforms. This offers a scale of customer insights unmatched at a local level. This data can be used to build extensive understanding of the fan base to support future proposition development;
- Connectivity and billing – telecoms operators can leverage their network connectivity to support sports organisation’s digital platforms. At present, this is predominantly video but going forward there’s an opportunity for 5G networks to underpin interactive and VR-based sports content. This will be significant and a key use-case for operators to demonstrate their networking capabilities. Additionally, through mobile billing telecom operators have a ready-built monetisation mechanism that can charge for content and allow sports organisations to monetise their fan-base in markets where they don’t have local assets;
- Sales and channel distribution – telecoms operators have extensive ‘on-the-ground’ distribution networks that allow direct access to the fan base. For example, there could be synergies to sell merchandise or digital propositions within retail stores, or to leverage their marketing networks.
The structure of the telecoms market, with operators constrained by their national licences, allows sports organisations to ‘productise’ their propositions and work with a range of non-competing partners across territories. To date, Manchester United is the only sports organisation that has effectively exploited this dynamic. However, as the role of digital content increases along with the sports organisation’s need to increase their fan engagement increases, this is likely to become significantly more common.
Exhibit 5: The Relevance of Sports Organisation – Telco Partnerships
From the telecom operator side, there is an increasing need to differentiate the service proposition and content provides a key opportunity to achieve this. The bifurcation of telco content strategy means that different operators are seeking different forms of content. For example, while converged players who own pay-TV platforms and channels may be seeking exclusive long-form content, mobile-only challenger brands may be seeking a mix of short-form and gaming content, which they can put on a digital portal. Such variance highlights the criticality of sports organisations and telecoms operators working together to create ‘win-win’ commercial propositions and not treating them like a traditional sponsor.
Monetising fan engagement is the next commercial growth opportunity for leading sports organisations. If the power of digital content and innovation for physical fan experiences can be harnessed and a mixed approach to monetisation be developed by taking just $1-2 extra per international fan a season, it could transform the sports business model and the commercial scale of teams. For example, despite having more than 200 million fans globally, FC Barcelona has revenues of $1.1 billion and Manchester United with $760 million despite having stated in previous years that they have at least 650 million fans worldwide. In a pure commercial sense, despite having global brands and significant international appeal these are still mid-size businesses. Through engaging and monetising their fan bases and evolving from B2B to incorporate B2B2C and even B2C approaches these organisations can transform to becoming truly international corporations.
Exhibit 6: Diversification of Telco Content Relevance
Victor is Co-founder and CEO of Delta Partners, a leading specialist global TMT Advisory, Corporate Finance and Investment firm. Victor has led numerous strategic, operational and transformational projects during his more than 20 years of experience. In the past few years, Victor has been identifying and realising significant opportunities at the intersection of the telecoms and digital industries. He received a BSc and an MBA from ESADE in Barcelona and a Program Certificate in International Management from Georgetown University, Washington DC.
Sam is a Partner at Delta Partners, a leading specialist global TMT Advisory, Corporate Finance and Investment firm. Sam has advised mobile operators, content distributors, network infrastructure providers, device vendors and payments networks across North America, Europe, Africa, Middle East and Asia. He has a degree in Philosophy, Politics and Economics from Oxford University
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