As sports content and fan experiences evolve, who scores?

As sports content and fan experiences evolve, who scores?

The Delta Perspective

Authors:
Andrew Snead - Senior Managing Director
Feroz Khan - Engagement Manager
Sara Bagby - Senior Consultant



As sports content and fan experiences evolve, who scores?

Live sports has been the last line of defense against cord cutting for the cable industry and a major source of value generation for broadcasters and leagues alike. But things are changing.

As technology evolves and media consumption and expectations continue to shift, there is a clear need to rethink distribution, engagement and monetization models. Covid aside, fans are distracted and seeking new experiences. The recent NFL content rights round may suggest all is well. It’s possibly the last of its type, reflecting the desire of leagues to maximize short term revenue.

5G, multi-access edge compute (MEC) and augmented reality are radically changing the art of the possible, both within the arena and beyond. The 2nd screen has become a core part of the viewing experience whilst the legalization of sports betting and the rapid growth in eSports are bringing new dimensions to that experience (and attracting a new generation of fan).

Covid created a perfect storm for sports viewership and ratings in 2020; seasons and finals were heavily disrupted, games were played without live audiences, many of us were distracted by an enforced work (and school) from home reality and sadly, in some cases, more devastating challenges. As a consequence, viewership declined across all major leagues and unsurprisingly, cord-cutting accelerated whilst on-demand streaming grew by 74%.

As schedules return to normal, the need to (re)capture fan attention has never been greater – lose fans for a season and you may get them back, lose them for two and they’re possibly gone for good. New actors are entering the playing field (e.g. Fan Controlled Football) offering more engaging and interactive experiences. Are leagues and distributors alive to the need for change? Time is ticking and there will undoubtedly be new winners and losers. Who will be on the right side of change? 

Below we outline some of the prevailing trends and opportunities for leagues, clubs, distributors and partners to consider as they seek to navigate the road ahead. 

Sports media consumption is shifting at a concerning rate

As Millennials and Gen Z’s overtake Boomers and Gen X, they remain highly engaged in sports ...

Figure 1: Fan Engagement


 

... but have significantly different consumption patterns. 

As of 2020, ~32 million households have ‘cut the cord’ and this is expected to increase to ~47m by 2024, a CAGR in excess of 110%.

Figure 2: Households (Millions)


Accelerated cord-cutting and new generational preferences mean live sports no longer offer traditional cable providers the same security as OTT players, such as Amazon, compete for rights with scaled platforms and alternative monetization models.

New experiences are emerging, but are leagues moving quickly enough? 

Gen Z media consumption is dynamic, social, and digital and their sports consumption preferences are shifting too. They demand a new type of experience.  

The opportunity to deliver immersive, interactive and social experiences via augmented reality (AR) mixed reality (MR) within 5G arenas is very real and some leagues have started to experiment, as teased by the NFL Super Bowl app (enabled by Verizon) that allowed fans to access AR overlays of big plays, real time stats, playbacks and key moments. 


 

Equally, the NBA partnered with Oculus to deliver virtual reality (VR) experiences with Ryot making live games from the NBA’s restart available to subscribers of their League Pass over-the-top (OTT) service. 


 

But in truth, the pace at which leagues (and their partners) are transforming fan experiences is too slow. Yes, 5G and MEC are new technologies and stadium deployments take time. Device adoption is also a consideration. However, many more interesting (but less immersive) experiences could have been delivered without 5G. More could have been done over the last couple of seasons to evolve the experience and looking forward, leagues, clubs and their partners need to focus on accelerating the deployment of next-generation stadium infrastructure. This is key. 

Sports is social at its core and sharing experiences will remain key

Sports viewership is a social experience. It always has been and always will be. Fans want the ability to share their favorite sports content with friends, family and communities. Leagues have started incorporating social features into their apps - in Q4 2020, Verizon and the NFL have launched an option for viewers to co-watch their favorite games with friends and family, allowing fans to watch together while maintaining social distance. 


 

The opportunity and challenge for leagues and content rights owners is to deliver immersive and interactive experiences to fans whilst allowing them to capture and share those experiences easily. 

Formats need to be reinvented and present the greatest challenge

Fan attention span is shortening, and most fans want options. Whilst many are happy to watch a full day of games on a Sunday, others prefer the abridged version, the last 90 minutes, or even just the highlights. Over 70% of viewers use a second screen while watching sports, switching between various forms of content. The NBA has been a leader in this space by offering various formats within their league app to suit fan needs and boost their direct-to-consumer (D2C) revenue. 

However, a more fundamental question remains. Can the full format survive? In a world where attention spans are shortening and competition for our attention is increasing, will there be sufficient appetite for a 3.5h NFL game or even a 90-minute soccer match? Perhaps the combination of viewing options and more interactive experiences will suffice but adapting formats targets the very core of the sport and will undoubtedly be met with resistance from traditionalists, putting aside the 2nd order impact on business models and revenue streams. 

Irrespective, there is no getting away from the need to at least evolve if not transform formats and leagues need to get on the front foot.

Betting and gaming are big money, but who wins?

As sports betting is legalized state by state, fantasy extends across leagues and gaming continues to grow. Those who can capture and engage fans at the intersection of these plays will win big. Fantasy and betting fans are the most engaged, are 2X more likely to own a 5G device and have higher household incomes, making them attractive targets for sports media and marketers alike. Streaming highlights, live games, dynamic social features and new betting and match-up formats will be key to winning in this space.  Sports betting alone is forecasted to be to ~$14b in 2024.


 

But who will capture this value? Many different actors are vying for the same revenue pools and the overlay between live 5G interactive content and real time data offers up some very interesting opportunities. Partnerships will be key and there is a window of opportunity for players to position themselves by establishing scaled platforms. History suggests the more traditional ones are likely to drag their feet and get out-maneuvered. 

Figure 3: Economic Impact of Legalized Sports Betting (Bn USD) 


 

Fans are seeking greater on-field involvement. Peripheral fad or the future? 

Leveraging the success of e-Sports and fantasy sports, offering fans the opportunity to participate in live sports is another form of experience that is capturing attention, particularly amongst the younger demographic. Companies like FANchise (backed by major corporate partners Endeavour/IMG and Amazon Twitch) allow fans to use their proprietary technology to make real time, crowd-sourced decisions that directly impact the team including picking the logo and mascot, setting the lineup, calling the plays and even choosing the cheerleaders in Fan Controlled Football (FCF), a new professional football league kicking off in 2021.

Should major leagues be concerned? It’s possible such formats remain peripheral and fail to build sufficient scale to harm the major leagues but equally, they represent the future and reinforce the need for both progressive thinking and adaptation of the experience. 


 

Distribution is changing and leagues need to have a very clear Direct-to-Consumer (D2C) strategy

Given the live nature of sports, it’s always been premium content in the US household. However, the current linear distribution model is under threat. Digital players are becoming relevant content right buyers (e.g. Amazon’s Thursday Night Football rights) and linear players are having to reconsider the premium they attach to live sports as they begin to unbundle their packages. 

Most importantly, leagues need to evaluate their approach to D2C for next-gen fan experiences, balancing the likely downside impact to near term content deal revenue (if they withhold the rights to certain content experiences) with the opportunity to build long-standing fan engagement and monetization potential via a D2C platform.

Not all sports were created equal and not all leagues could generate sufficient D2C revenue to offset linear rights downside if a hard switch strategy was deployed. Scale is everything and fans willingness to pay healthy OTT subscription revenues is also not what some had hoped (and ad-based models are yet to be proven). However, a glide path is needed and leagues (and their partners) have the opportunity to build a platform for the future, in parallel to slicing and dicing near term linear rights. Furthermore, leagues can choose to integrate some of the next-generation experiences into distribution deals, creating a harmonized D2C and partner distribution model. 

This requires a rethink on how to categorize and value content rights (e.g. the rights for helmet mounted player cams) and creates an opportunity for leagues to have their cake and eat it, especially given some traditional distributors do not ascribe significant value to the more peripheral digital rights (…yet). 

Some European football leagues are offering D2C platforms in conjunction with their traditional distribution platforms. Stateside, the NBA has commenced talks with Microsoft to create a D2C platform to broadcast games, provide on-demand, personalized content and package these with other NBA products and services. Instead of severing ties with broadcasters to build a competing service, the league plans to leverage the Pay-TV sports bundles by integrating its new offering into channels led by its existing partners. It doesn’t need to be an either, or decision. 

Thought needs to be given to monetization models and opportunities to tier both experiences and the premium fans pay for them whether that be via layered subscription offers (with premium opt-ins) or ad-funded models. Adjacency revenue streams, such as betting, gaming and merchandise can also bring additional dimensions to monetizing fans. If Manchester United was able to generate just $2 from each fan globally, their revenues would more than double.

Final Score: Winners and Losers 

We’re on the cusp of significant change across the sports industry. Technology is not only enabling new and more engaging fan experiences but opening up the possibility of new formats and flavors. Some of the changes will not be welcomed by all (e.g. an alternative to the 90 minute soccer format). New ventures and parallel leagues are already being created and we’ll see increasing fusion between physical and digital. 

Power and revenue will be redistributed and those who resist change risk losing fans and relevance. 

Leagues that get savvy about digital experiences, direct-to-consumer distribution options (and how to balance with traditional distribution) and the need for new pricing models for content rights stand to gain. Leagues who resist change in their bid to preserve the status quo may optimize the short term but stand to lose long-term.

The larger clubs and teams of the major leagues stand to gain power as fans seek connection and engagement with athletes and home arenas offer new and exciting live experiences (in many cases, delivered via private networks). It’s not yet clear how much fans will be willing to pay for more advanced interactive experiences but the larger European soccer clubs are already salivating at the prospect of breaking away from domestic leagues to form their own super league where they can control content distribution and monetization. The $1BN game is not a fanciful prospect. Smaller clubs and leagues risk being left behind. 

Linear cable players will continue to wield significant power in the near term due to their reach and the fundamental economics of content rights, yet their ability and appetite to pay escalating premiums will diminish as traditional viewers continue to break the bundle and the generation of ‘chord nevers’ grow. Equally, digital platforms (such as Amazon) operate an entirely different business model and have even greater scale and cross-subsidization monetization potential as they continue their quest to deepen engagement and mind share. It’s hard to believe they will not capture an increasing proportion of value as they focus on the second screen experience and associated personalization and data monetization opportunity. 

Fans will stop paying for average, off the shelf, linear experiences – standard game broadcasts will become background noise to social and immersive experiences. Diehard fans will seek out highly immersive experiences and more ways to engage if they are going to fork out a subscription fee, and all fans will expect their platforms to be compatible; fantasy platforms will push to social and betting, players and coaches will connect with fans digitally, premium streaming subscriptions will unlock stadium experiences. 

Keep your eye on the fan. The end game in sports media has been, and always will be, fan engagement. 

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Delta Partners - TMT Advisory and Investment