ESPN to Pay $1.5 Billion for UFC Broadcast Rights

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Just two weeks after ESPN agreed to purchase the rights to broadcast 15 UFC events annually for $750 million, the company acquired exclusive linear broadcast rights to the MMA promotion’s cable television package. The newly signed deal, worth $150 million annually, will give fans 27 additional fight cards each year (consisting of 10 new linear cards, 12 PPV prelims on linear, and five new OTT cards); meaning ESPN will pay a staggering $1.5 billion to carry 210 UFC events over the next five years. Earlier this week, ESPN President Jimmy Pitaro called the UFC an “ascendant property”, while touting its young and diverse fan base. It must be noted that despite the $300 million ESPN will pay UFC annually, UFC will retain the rights to its 12 annual PPV events (i.e. their best content). 

Howie Long-ShortWe told you that once the WWE SmackDown Live deal with FOX was completed, UFC’s linear broadcast offering would be the next set of sports rights to fall. What we didn’t project was ESPN (DIS) acquiring them after spending $150 million per year on digital rights for ESPN+ and hearing that Fox Sports had increased its bid to $175 million/year for the package (up from $165 million). UFC may have left some money on the table to do this deal. Experts projected the linear package to draw $200 million and several networks (i.e. Turner, NBC, Fox Sports) reportedly had interest.

$1.5 billion for UFC cards between fighters no one has ever heard of (yes, that’s a bit of hyperbole) does not sound like a great investment. The UFC lacks mainstream star power to begin with and naturally the promotion places its biggest stars on PPV cards (which they’ll retain); meaning the cards appearing on ESPN & ESPN+ won’t include Connor McGregor (or any other mega star) anytime soon. Did I mention Fox Sports’ ratings for UFC events declined double digits in 2017?

Need reasons to believe ESPN made a wise investment? UFC has the youngest fan base in sports (median age 40). Males aged 18 to 34 are particularly valuable to advertisers and at $150 million annually the package is still cheaper than what NBCUniversal and FOX will pay for RAW and SmackDown Live.

Fan Marino: I’m certainly not surprised that WWE content is valued more than UFC content, as WWE has a far better business model. WWE stars headline tentpole events (like WrestleMania) and more than 500 other shows each year, so fans get to see their favorite Superstars on a weekly basis. UFC’s biggest names might fight twice a year and are always one fight away from never headlining another event, either because they’ve lost their sense of invincibility (see: Rousey) or because they’ve made so much money that getting punched in the face for a living no longer makes sense (see: McGregor). UFC promotion can also be limited by the outcome of fights, as the best fighters aren’t always marketable (see: Stipe Miocic). You’ll never find WWE in that situation, as career arcs are decided before the Superstars get to the ring.

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Paddy Power Betfair Acquires FanDuel, DraftKings Launches Sports Betting Marketing Campaign

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Paddy Power Betfair (PPB) has acquired FanDuel (pending final regulatory approval) with the intention of competing in the legalized U.S. sports betting market. The Dublin-based betting operator will bring its modest U.S. assets (worth $612 million) to the table, as well as $158 million in cash; money that will be used to pay down existing FanDuel debt ($76 million) and to fund operations of the new joint business. PPB will merge its U.S. operations with FanDuel’s immediately and will own of 61% of the combined entity; that percentage will increase to 80% after three years and PPB will assume complete control of the company after five years (via call/put options at market price). The newly combined entity now represents “the industry’s largest online business in the U.S.”

Howie Long-Short: This deal came together quickly once legalized sports betting became reality, with news of the deal first reported just a week ago. It’s a good thing that it did, with competitor DraftKings having launched its sports betting marketing campaign (see Fan below). Paddy Power Betfair isn’t collecting DFS companies for sport (they bought DRAFT in ‘17), they’re using M&A to take market share in a sports betting arms race. FanDuel controls 40% of the U.S. DFS market (1.3 million active users) and PPB believes they’ll be able to convert many of those individuals into true sports bettors. The FanDuel brand also brings PPB some value, as the popular gaming operator (in Ireland and U.K.) lacks U.S. name recognition; despite owning the California based horseracing betting business and digital broadcaster TVG and the New Jersey online gaming site Betfair Casino.

It should be noted that PPB’s U.S. operations and FanDuel both lost money in 2017. Together (including expected synergies) it’s expected that they’ll operate at broadly EBITDA breakeven, before investment in sports betting. Paddy Power Betfair trades OTC under the symbol PDYPY. Shares rose 5% (to $61.75) following Wednesday’s announcement and they’re up 17.5% since word of the deal first broke on 5.16.

Fan Marino: As Howie mentioned, DraftKings introduced its sports betting marketing campaign (billboards etc.) to New Jersey residents this week; noteworthy, if only because they’re yet to announce a land based casino operator as partner (as required by state) and don’t have a proprietary sports betting application ready for use (though, they could operate 3rd party software). We’ve known for a while now that DraftKings intends on pivoting from DFS to sports betting. The company hired a Head of Sportsbook, added +/-300 new employees and opened a new office in Hoboken, N.J. (anticipating they’ll be the first state to legalize) all within the last couple months.

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DAZN Exec Markowski Discusses Unseating ESPN and NFL’s Global Popularity

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U.K. based promoter Matchroom Boxing and Perform Group formed a joint venture, Matchroom Boxing USA, to promote 16 fight cards in the U.S. annually over eight years. Perform Group, which has committed $1 billion to the venture (the largest investment in boxing history), will broadcast the events on its digital streaming service, DAZN. JohnWallStreet had the chance to talk with DAZN SVP Commercial and Partnerships Joe Markowski about the company’s approach to entering the U.S. market, its global ambitions and interest in the NFL overseas.    

JWS: Chief Executive James Rushton said his goal was to make DAZN “the largest and most significant sports broadcaster in the world.” Can that be accomplished without unseating ESPN in the U.S. market?

Joe: I don’t think we would say our ambition is to become the number one sports broadcaster in the U.S. We recognize the maturity of the sports broadcast market here and we realize to “unseat ESPN” would require a significant investment and access to rights which currently are not available on the market. We have a defined set of rights we’re working with and we’re very confident we can establish ourselves using those rights here. 

JWS: I’ve seen DAZN described as “Netflix for Sports”. Please explain the comparison, as I see Netflix as an on-demand service – whereas sports are watched live? 

Joe: It’s an easy way to way to describe OTT, because that’s not a widely-known term among consumers; people have become accustomed to OTT via Netflix. We see it as an easy way to describe our ambitions, which are to be the pre-eminent global broadcaster of sports content via OTT.

JWS: It’s been estimated that there are 10 million boxing fans in the U.S., with 3 million identifying as hardcore fans that spend money on PPV fights. The May 12th Lomachenko/Linares fight that aired on ESPN drew 1 million viewers. Considering those viewers get ESPN with their cable subscription (i.e. it didn’t cost them any additional money to watch), is that the ceiling for subscriptions sold within the first year of the deal?

Joe: We don’t look at it through a 12 month lense, we are making an eight-year long-term commitment here. That is consistent with what we’ve done in other markets. Our primary rights relationships in a market will always be long-term (see: 10-year deal with Japanese soccer league in Japan), sometimes with our hand on the steering wheel – where its’s more than just a broadcast relationship (think: board membership); that’s the case here with Matchroom Boxing USA. Of course, there are KPIs, a CEO and investors to keep happy, but for us the most important metrics are three, five, eight years out.

JWS: For the last 30 years, boxing’s biggest match-ups have occurred on PPV. Your model is based on monthly subscriptions sold. Why does the sport’s business model need to be revamped?

Joe: We see the PPV model as underserving the boxing fan. We recognize PPV costs vary, but we think even at $59.99 that’s inflated for a single night of boxing and we’re going to serve the customer in a very different way. If you look what we did with McGregor/Mayweather, we made that available via our standard rolling monthly subscription mechanism, which includes a free first month. It gives the user affordability and flexibility. From a business model perspective, we want to serve you with enough content, engaging content and a schedule of upcoming content that you see value in and you stick around for it; and our price point, when we announce it in late June/early June, will reflect that. 

JWSThere is a perception that while the NBA is a global game, the NFL lacks a following outside of the U.S. You guys carry NFL games (live) and RedZone in several international markets. Do league games draw viewers? 

Joe: The NFL has done a wonderful job of internationalizing their business. We carry that content in Germany and it does really well for us there. We carry NFL content in Japan. It does well for us there, but I’m not going to pretend it’s a top-tier sport as domestic content trumps it. In Canada, it’s a jewel in our crown; you can make the argument that it’s the number 3 sport there. As a guy coming from London, that market is growing YoY. I can definitely see growth across various metrics as a fan and as a league partner (Perform Group) of theirs, across various European markets. As we scale, we see the NFL as a key partner in markets far away from North America. 

HowiePerform Group is a subsidiary of privately held Access Industries. The sports media company counts The Sports News and Goal among its U.S. publications. While you can’t invest in Perform Group, there is one way to play DAZN; Dentsu, a Japanese advertising firm that trades publicly on the Tokyo Stock Exchange under the symbol (TYO: 4324). In late March, Dentsu invested in DAZN as part of a deal “which made the service available to customers of mobile phone operator NTT Docomo.” No information has been released relating to the size of the investment or the valuation placed on the company.

Fan MarinoConsidering NFL, MLB, NBA and NHL rights are tied up into the early part of the 2020s, I asked Joe what else U.S. sports fan can expect to see on the service upon its launch? 

Joe: Our approach to rights acquisition is not going to be in a silo (i.e. fight sports), we’ll make some other announcements soon; this is very much a multi-sport service that will carry premium rights for a number of top-tier sports. Again, we are in this for the long-term; we have engaged and will engage with the big 4. Immediately, you’ll see a broad offering touching on soccer, international sports and domestic content where it’s available.

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“Nike Effect” Working, Shares Sit Just Below All-Time High

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Nike’s (NKE) transformation from wholesaler to mobile-first DTC retailers has been successful (+16% YoY in ’17 vs. overall corporate growth +6% YoY) and the company’s market cap ($118.84 billion) continues to rise as a result, despite recent C-level turnover. Dubbed the “Nike Effect” by CEO Mark Parker, the revamped strategy has NKE focusing on just 40 retailers while prioritizing its direct to consumer sales channels (think: storefronts, nike.com, Nike app, SNKRs app). Nike uses the data collected from its 100 million “members” to create a more personalized/rewarding shopping experience on those channels and to identify underserved demographic groups (think: females). Wedbush analyst Cristopher Svezia recently wrote that he expects Nike’s DTC sales to “push overall sales into positive territory in fiscal 2019.”

Howie Long-Short: Nike decision to control the means of distribution has helped the company alter its image with “sneakerheads”, which soured when the company began to overproduce its most desirable lines (i.e. Jordan). The lack of buzz surrounding the brand contributed to the loss of market share it experienced in 2017 (-1.6% to 32.9%). While limited edition drops make up a small portion of Nike sales (+/- 5%), the enthusiasm generated by the company’s most engaged consumers helps the perception of the brand and leads to mainstream consumer sales.

The “Nike Effect” has been validated by a “significant reversal of trend in North America”, growth in DTC sales and improved international sales (+24% YOY in China, +19% in Middle East and Africa) as the company beat analyst expectations (revenue + 7% to $8.98 billion) in fiscal Q3 ‘18.Shares closed at $71.31 on Tuesday, just below their all-time $72.19.

Unfortunately, Nike’s old brick and mortar partners (think: FL, FINL) have struggled to replace the revenue Nike product generated. FINL reported same store sales declined -7.9% in Q4 ’17, while FL reported same store sales were down -3.7% during that same period. FL will report Q1 ’18 financials on Friday 5.25.

Fan Marino: Limited edition Nike sneakers (including Jordans) are distributed through Nike’s SNKRs app (separate from NIKE app), a digital platform that gamifies (including a virtual queue) the shopping experience for company’s most wanted products. On June 23rd, SNKRs will have one of this summer’s most highly anticipated sneaker drops, the Travis Scott “Cactus Jack” Air Jordan 4. While the shoes will retail for $225, the current asking price on GOAT is $2,015; so, unless you have a lot of cash to burn, make sure to download the app, have your credit card information stored and be ready for the alert at 10a on 6.23.

Fun Fact: Prior to being acquired by NKE (in ’16) and rebranded as SNKRs, the community building and shopping app was named “Virgin Mega” and backed by Richard Branson’s Virgin Group. Financial terms of that deal were not disclosed.

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WWE Gets $1 Billion for SmackDown Live, Shares Up 33% in Last Week

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21st Century Fox (FOXA) has agreed to a 5-year deal worth more than $1 billion for exclusive broadcast rights to WWE’s SmackDown Live show. Effective October 2019, the 6th highest rated original show on cable television will move from USA Network to FOX’s over-the-air TV network. FOXA plans to move the Tuesday night staple to Friday evenings and will continue to broadcast the 2-hour show live. WWE reportedly chose the FOXA bid despite a larger offer, as “new Fox” committed to promoting the show during tentpole sports broadcasts (think: NFL on Sun, NFL on Thurs, MLB, CFB). NBCUniversal, the show’s current rights holder, declined their right to first refusal to negotiate a new contract after deciding to retain WWE Monday Night RAW with a deal worth $240 million annually; that show will continue to air on USA Network. Combined the new deals are worth +/- $445 million annually, a +/- 145% increase on the $180 million/year that the company currently brings in for the 2 prime-time shows.

Howie Long-Short: We noted in yesterday’s newsletter that Fox was among the favorites to land the WWE franchise and should it do so, was likely to air SmackDown Live on its Big 4 network; so, we weren’t exactly shocked by Monday’s news. The deal’s total value had us doing a double-take though, as earlier reports pegged the show’s value at +/-$110 million/year (up from $30 million/year on deal signed in 2010). WWE shares rose again on Monday, closing +12.5% (at $57.86); the stock is up 33% since last Wednesday’s close (RAW deal broke Thurs.) and a whopping 192% over the last 12 months (from $19.80).

The next shoe to drop is likely to be UFC’s linear cable broadcast package, with 20+ live events. FOXA currently pays $165 million annually for exclusive broadcast rights, but that deal expires in December. While earlier reports indicated that FOXA would let the UFC walk if it successfully acquired WWE rights, it now appears as though the company wants to retain the rights and is willing pay an extra $10 million/year ($175 million) to do so. Of course, it’s no guarantee that will be enough, as industry experts have been expecting the UFC’s deal to fetch $200 million+.

Fan Marino: There is the possibility (if not high probability) that SmackDown Live will outdraw RAW during the deal’s duration. While RAW currently draws 3 million viewers (compared to SmackDown Live’s 2.59 million), SmackDown Live’s pending move to FOX will put the show in 30 million additional homes on a night with far less competition in terms of programming.

For those who don’t follow the WWE, SmackDown Live was historically an inferior product to RAW (even taped at one point). However, a 2016 draft split the company’s talent roster, requiring fans to watch both shows to see all their favorite superstars. Should SmackDown Live begin to outdraw RAW (as we expect), look for some of the promotion’s biggest names (think: Roman Reigns, Ronda Rousey) to join Miz and AJ Styles on the SmackDown Live roster; the WWE will want the opportunity to put forward its best product on its biggest stage (i.e. broadcast television).

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NBCUniversal To Sign Monster Deal for RAW, WWE Shares Skyrocketing

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It’s been reported that NBCUniversal (CMCSA) intends on retaining exclusive broadcast rights to WWE Monday Night Raw with a deal worth +/- $240 million/year. Under the terms of the proposed contract, RAW will remain on USA Network where it’s resided since ’05. WWE will have to find a new home for SmackDown Live though, as NBCUniversal passed on renewing its expiring deal with the franchise. It’s been rumored that the SmackDown Live package could be worth an additional +/- $110 million/year (worth $30 million/year under current deal), with Fox, Amazon Prime and Facebook Live all considered viable landing spots for the Tuesday night show (6th most watched on cable TV).

Howie Long-Short: The outcome of this deal represents best-case scenario for the wrestling promotion. The value of their broadcasts will double (worth $180 million in ’18) and should Fox (FOXA) land SmackDown Live, it’s possible that they would broadcast the show on their over-the-air TV network; had Fox won rights to both shows, it’s likely SmackDown would have been relegated to FS1 (30 million less households). Should SmackDown Live end up on Fox, the show would have the opportunity to beat RAW in the ratings for the first time since the company split the roster in 2002.

The WWE is projecting record revenue in ’18, boosted the company’s deal with the Kingdom of Saudi Arabia (reportedly worth +/- $20 million/year) and with a reduced corporate tax rate, it’s possible (if not likely) the company will set a record for profits too. Combine that rosy outlook with the enthusiasm over the company’s pending TV deals and it explains why shares are up 18% (to $51.42) since Thursday (5.17).

Fan Marino: Hulk Hogan, who has been out of favor with the WWE since ’15 (racist comments), is reportedly in discussions with the promotion about a return. Once the face of the organization, the company was quick to remove all references to the Hulkster following the incident. While purely speculation, WrestleMania 35 (New York City, April ‘19) would seem like an opportune time to bring him back; of course, Hogan and Mr. T faced Rowdy Roddy Piper and Paul “Mr. Wonderful” Orndorff in the main event at WrestleMania I in 1985.

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WHOOP Launches Wearables Subscription Service, Study Shows Wearables Don’t Work

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WHOOP, a health tracking and performance wearables company that sells its device for $500, has introduced a $30/mo. subscription service to reach a wider demographic (i.e. beyond elite athletes) as it pursues international expansion. The service includes the wrist-based wearable device, offers advanced analytics and access to the Whoop community (think: social network for fitness minded). Meant to be worn 24/7 (it’s waterproof), WHOOP collects 5 metrics (think: heart rate, motion, skin conductivity) 100x/second; far more than the average wearable. The company then stores that data on their servers, scrutinizes it and then provides the user with professional quality sleep, recovery and exercise analysis. WHOOP markets the technology as a way for humans to “perform at the highest level” and maintains an impressive list of clientele including; MLB (device approved for game use), the NFL (NFLPA using it to track player recovery) and Duke Men’s basketball.

Howie Long-Short: WHOOP, a privately held entity, has raised +/- $50 million to date from a series of high profile sports-related investors (and venture funds) including; David Stern (former NBA Commissioner), Durant Company, NFLPA and Russell Okung (Chargers tackle). There is one way to play the company though, Infosys Ltd; an Indian multinational corporation that offers business consulting, IT and outsourcing services. The company invested $3 million dollars in WHOOP’s $15 million Series B round in December ’15. The company trades on the NYSE under the symbol INFY.

Fan Marino: Before you add $30/mo. in recurring expenses to your bottom line, consider the results of a research study conducted by researchers at Bond University in Queensland. The group identified 250,000 health and wellness apps available to the public (only 22 had enough data to review) and found just ONE (Get Happy) had enough evidence to prove its efficacy (many made issue worse). Interestingly, the researchers found that users of MyFitnessPal (has tens of millions of users), the app acquired by Under Armour by $475 million, “showed no significant reduction in weight loss or behaviors around physical activity and diet when compared with those who did not use the app.” If anyone is surprised that counting steps won’t turn you into an Adonis, I’ve got a bridge to sell you.

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Bradley Chubb Discusses the Value of His Name and Likeness

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Panini America is the exclusive trading card partner of the NFL and NFLPA. Denver Broncos 1st round selection Bradley Chubb (#5 overall) was in Los Angeles on Thursday afternoon, at the NFLPA Rookie Premier and found some time to talk with JohnWallStreet about the value of his name and likeness and the marketing deals he’s signed since turning pro.

JWS: Panini digital trading cards enable players to capitalize on draft night excitement. Did having near-instant access to shareable team branded content help you build your social media following in the minutes/hours after the Commissioner called your name?

Bradley: It did, it built it up a lot for me. It helped me build my brand and helped people to see who I was. When the Broncos made the pick, I know everybody wanted to see the card. I feel like when they (Panini) pushed that out, it helped me out a lot; I got like 50,000 followers. 

JWS: You signed a shoe and apparel contract with Adidas. Basketball players tend to begin relationships with sneaker companies on the AAU level. When did you first begin to use Adidas products?

Bradley: I used Adidas all throughout college. NC State was an Adidas school, so that’s when I really started using the brand and fell in love with it. In high school, I had teammates that would wear Adidas but I always had Nike because I got cleats from my brother. He was at Wake Forest (Nike school) and was giving me his extra cleats.

JWS: Baker Mayfield suggested that if you added up all the marketing deals he’s signed since turning pro, that they would be worth $1 million – $2 million. Does the consensus (minus Cleveland) top defensive player in the draft command similar numbers?

Bradley: No, he’s a quarterback (and Heisman winner) – it definitely goes up for him. As a defensive guy, I made a good amount of money; but, I don’t think it was in the millions or anything like that.       

Editor Note: It’s worth pointing out that in addition to Bradley’s Panini America and Adidas (ADDYY) deals, he’s done marketing deals with both Bose and Old Spice (PG).

Howie Long-Short: As a consensus Top 5 pick, Bradley could have hired a contract attorney, negotiated his own rookie contract and saved himself at least 1% (as much as 3%) in agent fees. Chubb said he never considered doing that, explaining he was “more comfortable” going with his brother’s agent; Erik Burkhardt of Select Sports Group. I would have advised against it (see: rookie scale), but Bradley shouldn’t have any financial issues; he’s going to sign a rookie deal with a total contract value +/- $27.5 million.

Fan Marino: Panini’s trading card index (released quarterly) ranks the top-performing football players in the licensed trading card industry, on factors ranging from secondary-market transactions to collectability based on rookie hype and collector speculation. The newest ranking, released on May 16th, has Chubb as the 11th ranked rookie (top 10 were offensive players); behind 2nd round pick Nick Chubb (his cousin, Browns) and 3rd round pick Mason Rudolph (Steelers). I asked Bradley, if he were to win NFL defensive rookie of the year, how high does he think he could reach on the list?

Bradley: “Pretty high. It just depends on if I go out there and handle business. I mean, it’s good to say all this stuff before the season – if I just go out there and focus on what is important, all the stuff like this (the accolades) will come later.”

Fan: Bigger deal for you? Meeting Von Miller or John Elway?

Bradley: Definitely, John Elway. I met him at the combine and I was star struck.

Looking for Chubb’s rookie card? You can get Panini’s NFL trading card products online at iCollectPanini.com, hobby shops nationwide and retailers including Walmart and Target.

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