Coyotes Taking ‘Holistic’ Approach to Local Broadcast Rights, Revenue

Coyotes Taking ‘Holistic’ Approach to Local Broadcast Rights, Revenue

The Arizona Coyotes recently announced a multi-year television deal with Scripps Sports. The E.W. Scripps Company (NASDAQ: SPP) will deliver all the team’s non-nationally televised games to fans in Arizona, and parts of Utah, via an over-the-air HD broadcast channel.

The NHL club needed a new local linear distribution partner after Diamond Sports Group (DSG) relinquished control of its broadcast rights as part of ongoing bankruptcy proceedings. The Yotes believes it found one that meets several objectives.

“Not only is the move to broadcast super-serving the existing fan base, and obviously increasing the team’s footprint,” there is an expectation the unconventional media model will lead to progress throughout the remainder of the business more than offsetting lost rights fee revenues, Xavier A. Gutierrez (president and CEO, Arizona Coyotes) said.

“We needed to reframe the conversation. We needed to think about broadcast partnerships more holistically. For us, increasing reach and engagement, and doing new content and different ways of storytelling, all that plays into total revenue growth and new opportunities.”

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The NHL league office began convening with teams tied up with Diamond Sports Group earlier this year.

“There was a concern that Bally’s might stop producing games before [last] season ended,” Gutierrez said. “So, we had a fire drill about the league producing games or us producing games.”

Neither ended up having to. Diamond honored its contract with the Coyotes. But the team saw the writing on the wall. That writing became bigger/bolder/brighter once the Suns and Diamondbacks parted ways with Bally Sports Arizona.

The Coyotes still had multiple years left on their deal with the DSG owned RSN, and were committed to honoring the pact. However, the franchise began exploring alternative distribution channels in the event a pivot was needed.

Gutierrez said the media fractionalization that has occurred over the last 18 months left the club with “many options and a number of interested parties.”

It’s not clear who those parties were. There is no other RSN in the market and the team declined to cite names.

“Overall, this was the best deal they could get without launching their own tiered RSN, which is still an option,” media rights consultant Patrick Crakes said.

The club was looking for three traits in a distribution partner.

The first was reach. Coyotes owner Alex Meruelo wanted to ensure that fans, and ‘fans in waiting’, could watch as many games as possible.

Previously, “we were dealing with an RSN whose household [distribution] numbers were shrinking, and thus the number of people who could watch our games, engage with our team, and hear our stories as we invested in the team and rebuilt the foundation of a winner, were low and declining,” Gutierrez said.

It’s just not certain how much greater the team’s effective reach will be.

While the broadcast channel has a signal that will reach upwards of three million households across Arizona, Utah, and New Mexico (Scripps does not have an affiliate in that market), “most folks who watch broadcast TV watch via a Pay TV bundle,” Crakes said. “And nationally, there’s about 35 million broadband only TV homes in the U.S. So, directionally, one-third of the three million won’t be able to see the new broadcast affiliate.”

The second was a commitment to sports, and the partnership.

“We wanted to see resources, people, and a vision beyond doing a deal in just one market,” Gutierrez said.

Scripps has ambitions of building out a national sports network (see: WNBA rights). It also has a local broadcast partnership with the Vegas Golden Knights.

And “not just showing our games,” Gutierrez added. The team sought a broadcast partner that would “leverage all of its media platforms, all of its outlets [to showcase the product].”

Scripps has both an ABC and CW affiliate in the Phoenix market. The company should be incentivized to help the team grow revenues, ratings, and fan engagement (including attendance).

Meruelo also wanted to align with a strong and recognizable brand within the state of Arizona.

“[The Coyotes] really needed a partner who has the trust and credibility in our market to help people find the [digital sub] channel, to promote and market the product, and ensure that people are supportive of the changes we’re making,” Gutierrez said.

Remember, this is an organization that has been challenged in the Phoenix market for many years (see: current stadium situation), and now games are moving to ‘the Antenna TV network’ (Channel 15.2). It’s reasonable to assume most fans will need some education on how to find them.

“There is a plan in place to evolve from that [HD OTA channel] in future years,” Gutierrez said.

It quickly became evident to the club that Scripps was the right distribution partner.

“We know this new more holistic partnership will have a material financial benefit to us," Gutierrez said.

The question is how soon.

The Coyotes declined to discuss the financial terms of the Scripps deal or its financial projections.

However, Gutierrez acknowledged that retransmission fees figured into the company’s decision to align with the OTA broadcaster.

It came down to “all the avenues where revenue can potentially come from,” he said.

It’s not certain “Scripps will get any,” Crakes said. “And if they do, when or how much [the company will receive].”

The team hopes having an expanded footprint and more engaged fan base will spur top line growth too.

“We were in a shrinking household situation. We were having less and less viewership, and less and less opportunity for compelling content that could help drive ticket sales, merchandise sales, and connectivity with our corporate partner brands,” Gutierrez said.

But those revenues will likely only come if Scripps and the team leverage the various resources at their disposal and continue to invest in the marketing and promotion of team content.

“One of the things that was really important to Alex was that Scripps would commit to giving away free Tablo antennas,” Gutierrez said.

They’ll be distributed in the weeks ahead.

The team is going to take over production responsibilities moving forward.

“Not just [of the] games, but [of] other compelling content too,” Gutierrez said.

Meruelo is investing ‘multiple millions’ of dollars to stand up and operate the Coyotes production facility. That does not include any short-term losses that may be incurred as the team transitions to a new local distribution model.

But that’s OK with the club owner. He wants the franchise to be seen as a ‘best in class organization’ off the ice and believes a content studio can help ensure those stories are captured and told.

“We’ve been willing to make the financial commitment to utilize this as a transition and inflection point, to not only show our games but build customized, bespoke and premium content,” Gutierrez said.

Of course, it’s an area he has some expertise in too.

The Meruelo Group owns radio and TV production facilities.

“Meruelo Media is one of the largest minority owned media companies in Los Angeles,” Gutierrez said.

The Coyotes intend to announce a direct-to-consumer solution later this season. Once the club has game production and operations down, it will turn focus to streaming.

“Everyone is fully aware of the increased cord cutting, the increased shift to broadband-only that obviously necessitates some sort of D2C solution,” Gutierrez said.

But it’s hard to imagine any sort of scale coming from the ‘stream and beam’ approach.

“It has to be priced unbundled because Scripps is looking to get something in retrans for distributors,” he said.

The team’s move ‘back to the future’ has been positively received in the local market. It remains to be seen if the ‘holistic approach’ pans out financially. Other clubs in challenged RSN markets will certainly be watching.

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