As Technology Advances, MLB Blackouts Impacting Fewer Fans

MLB

With 18 of 30 Major League Baseball teams experiencing a YoY attendance decline, many are asking what the league can do to stop the slide and spark a return to the ballpark. Alleviating the friction that prevents fans from watching league games seems like a reasonable place to start, but defined home markets and existing local broadcast deals complicate the matter. There is hope on the horizon though. With technology continuing to improve, young fans gravitating towards players over teams and MLB considering reallocating digital media rights to its teams (as opposed to the RSNs), it’s possible if not likely that the future will be one in which fans willing to pay for games “on demand” have that option.

Howie Long-Short: Major League Baseball’s blackout policy is in place to promote competitive balance. While the league sells national broadcast and distribution rights and those revenues are split evenly amongst its teams, the clubs retain 100% of local broadcast revenues. If defined home territories didn’t exist, the league’s most popular franchises [and the RSNs they play on] would appear on TV sets across the country, while the remainder of the league’s teams would struggle to even gain carriage in their local markets; and needless to say, it’s difficult for a team to build a local following if the games aren’t being broadcast on television.

With several operators in each MLB market, the RSN distributing the home team’s rights must strike deals with multiple carriers (if all fans in-market are to have access to the games). If the RSN and a cable company are unable to come to an agreement, the local team’s games aren’t broadcast to that carriers’ subscribers; those same fans also aren’t eligible to watch the home team’s games through MLB.tv or MLB Extra Innings as those services exclusively carry to out-of-market broadcasts. The blackout policy is meant to protect the RSNs – which pay teams exorbitant amounts of money for their local broadcast rights on an exclusive basis – from losing in-market viewers to a national package.

Blackouts were particularly disruptive to baseball fans when cable television companies were the primary method of RSN distribution. As distribution technology has advanced and the reliance on cable has eased, MLB’s blackout policy has had less of an impact on fans. Those who reside in cable blackout zones can now subscribe to a satellite provider like DirecTV (has RSNs with the broadcast rights to 27 of the 29 U.S. based clubs, Phillies and Dodgers excluded) or a virtual MVPD service like YouTube TV (has RSNs with rights to 22 teams’ games) and catch the home team’s games unencumbered by territorial restrictions.

Howard Handler, a former NFL and MLS senior marketing executive (currently operates h2 Advisors), explained that blackouts are the result of your classic “rights seller vs. fan centric” conflict. “Teams, leagues, owners of intellectual property have historically sold media rights to the highest bidder, but now that technology has created the ability for them to go direct-to-consumer I expect leagues to see that during their next round of media rights negotiations the fans’ ability to watch all of the games – for a price – is protected. These entities are in the business of maximizing the value of their rights and you do that by making them available as broadly and expansively as possible. It’s simply not logical to impede the access and engagement of your highest value customers.”

Fan Marino: MLB teams’ home television territories are not defined by a common radius from ballparks, but by a multitude of factors including historic broadcast patterns, team marketing initiatives, geographic location and fan interest – which leads to multiple teams claiming large swathes of the country without a local franchise. No state makes it more difficult for fans to watch MLB games than Iowa, where the Brewers, Cardinals, Royals, Cubs, Twins & White Sox all stake a claim to the market. With cable operators in the Hawkeye state unlikely to carry the RSNs that broadcast those teams’ games and blackout rules preventing the games from being shown on a national package, fans in Iowa aren’t getting to watch much AL or NL Central ball.

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Sports Betting Expected to Drive Bookmakers to Operate More Like D-T-C Content Businesses

MinuteMedia

Sports media entities are taking varied approaches to capitalizing on legalized sports gambling. Fox Sports recently announced the formation of a JV with The Stars Group (entitled FoxBet) that will facilitate real-money sports wagering, theScore (in partnership with Darby Development) plans to take bets and issue payouts through their online platform and mobile app and both Bleacher Report and ESPN have struck content based partnerships with Caesars Entertainment. While Fox Sports, theScore, B/R and ESPN are all new to the gaming sector, Minute Media (owner of 90min – one of the three most trafficked soccer sites in the world) has had the experience of publishing in established gaming markets (like the U.K.) for some time. Company president Rich Routman explained that regardless of the monetization model that a publisher ultimately chooses, enticing a sports fan to place a wager “starts with content.”

Howie Long-Short: Minute Media (MM) has found success monetizing legalized sports betting with two distinct strategies. The first is a traditional advertorial or sponsorship based strategy “where MM creates dynamic content in collaboration with the licensee. Native placement. Live odds. All the things one would expect a publisher to do to entice a reader to place a bet on one of its partners’ platforms.”

The other is based on MM serving as the engine [providing both the programming and product technology] behind a bookmaker’s content experience (see: FanDuel’s The Duel’). Routman says that “there’s a strong correlation between an end user consuming sports betting related content on a bookmaker’s website and that individual following through with a wager. There’s a lot less friction in getting a reader to place a bet if they’re already on the platform, it’s much more effective than relying on publishers to drive traffic to a gaming site.” For that reason, Routman believes we’ll see a trend of bookmakers beginning to operate more like direct-to-consumer content businesses.

Routman doesn’t deny that there is an opportunity for publishers to align with licensees and operate sportsbooks (think: FoxBet, theScore) – if the end user is already on their website/app reading about the game, why not allow that individual to place a bet there – but he doesn’t believe that is where “scale comes from. Media companies can drive incremental revenues by enabling betting inside of their existing environments, but when you consider the investments bookmakers are making in advertising and the scale they have in the market – it’s really difficult to compete.”

If bookmakers are going to become content machines and start publishing the best sports betting insights, it’s worth wondering if there’s still a role for the traditional sports media publisher in the space. Routman says that it’s not a concern, that “there will always be a role for media companies to cover sports gambling because regular bettors – the ones actively looking for an edge in data and information – only comprise a small segment of the market. Gaming operators are still going to need the scale that media companies can provide.” 

Fan Marino: While sharps crave analysis from all angles, mainstream sports media publishers seeking to capture the attention of the casual sports bettor need to “go wide, rather than deep. It’s about focusing on the fun forms of wagering like prop bets and futures.” Routman estimates that upwards of 80% of the opportunity for media companies is in “bringing the casual fan into the betting space” because the bettor who has been gambling off-shore likely already has sources for all the insights they require.

The opportunity Routman speaks of is relatively limited today as sports betting remains “inherently local.” But over time, as deregulation occurs, “every major sportsbook operator is going to be competing for market share in every state with legislation on the books; and the path to market share, starts with media companies with scalable audiences.”

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Only Teams, Leagues & Broadcasters Can Prevent Persistent Sports Betting Advertisements

AGA

Last week, the American Gaming Association (AGA) – a trade group representing the interests of the U.S. casino industry – introduced ‘The Responsible Marketing Code for Sports Wagering; a series of guidelines designed to keep operators and suppliers out of government regulator crosshairs. In recent months, multiple foreign governments have begun to crack down on gambling advertisements as addiction rates rise. AGA vice president of public affairs Sara Slane explained that “perception drives policy and if the perception is that the industry is over advertising (see: DFS circa ’15) and it’s leading to problem gambling, then it’s likely to result in arbitrary policies and regulations.” The AGA’s Responsible Marketing Code calls for a ban on advertising in locations where the majority (71.6%) of the audience is too young to gamble. Advertisements in collegiate newspapers and the use of cartoon characters in marketing campaigns is also prohibited.

Howie Long-Short: AGA members were wise to learn from others’ mistakes and to take a proactive approach to self-regulation. Slane says that “one of our takeaways [from following the gaming markets abroad] was that there was this consistent regulatory backlash to overt and persistent advertising and if we want to play the long game on sports betting – which we do – then we need to self-regulate to prevent what’s happened in the U.K., Belgium, Italy and Australia from happening here. Each of those countries has implemented (or is planning to implement) some sort of a ban on gambling advertising.

To be clear, the Responsible Marketing Code was designed to keep attorney generals and state legislatures at bay, not out of concern for the gambling addict. That’s not a criticism of the AGA – it’s unclear if there is even a direct correlation between advertising and problem gambling; and it’s not exactly as if the government’s actions are being done to protect the public. Slane says “the assumptions [governments] use to address this issue are often not even based in science, they’re policies instituted to address the perception of problem gambling. Silly rules like requiring that an ATM machine be at least 20 feet from the casino floor – as if that distance somehow gives problem gamblers the cooling off period needed to restrain themselves from withdrawing more money.”

The Responsible Marketing Code is a start, but there’s currently little in place to prevent AGA members from overstepping its boundaries. Slane said that “the hope is that phase two will add the teeth or the regulatory mechanism needed to review instances where advertising doesn’t fall in line with Association standards and to provide the follow through to bring members back in line.” Some might assume that the bylaws would hamstring AGA members in competition with unscrupulous licensees, but Slane believes that it provides her organization with the opportunity to “go to FTC or FCC and to point out the bad actors in the space that are causing the industry as a whole to be painted in negative brushstrokes.

While all AGA members (operators & licensees) have agreed to abide by the terms of the Responsible Marketing Code, Slane explained that the only way to truly prevent overt and persistent advertising is to get the rights holders to act responsibly. It requires “getting the leagues, teams and broadcast community to take ownership of [the issues causing government intervention]. They’re the ones who are going to have to set frequency limitations because they’re the ones who control the pipes and tubes.”

Those critical of the code say that it doesn’t go far enough as it fails to address television or in-game advertising, but Slane said that “it’s one step at a time and the code can always be updated. Getting the industry to align behind the regulations as is, was not easy. Our members are all competitors and they’re hesitant to do to anything that might put them at a disadvantage. As far as TV is concerned, it’s a non-issue. We’re not at critical mass where you are going to see national ad campaigns. It’s too expensive and the advertising needs to be far more micro targeted.”

Fan Marino: Despite reports to the contrary, AGA members can advertise on college campuses. While advertising in the school paper is off limits, as long as it’s “tasteful and responsible” licensees can market to college students in other parts of campus life. Slane cited UNLV and Nevada (Reno) as proof that the casino industry could successfully work in tandem with administrators.

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MLS “Masquerading as Authentic Soccer”, Growth in Major Markets Stunted

MLS

MLS recently announced plans for another round of expansion (clubs #29 & #30), but while new investors line up for the right to spend $200 million+ to operate a club in a mid-sized market (Sacramento & St. Louis are primed to land clubs #28 and #29), teams in some of the league’s largest media markets continue to struggle; in fact, one club official told The Athletic that MLS’ “biggest expansion projects aren’t in Miami or Nashville, [they’re] in places like Dallas and Chicago.”

The league has achieved relative success in cities like Seattle, Portland and Atlanta, where engaged fan bases have provided a glimpse into what soccer in America could be. But the league remains largely irrelevant in cities like New York, Chicago, Philadelphia, Dallas, Boston, Houston and San Francisco and the challenges those clubs face are not easily solved. Dennis Crowley (co-founder of foursquare and the chairman of Kingston Stockade FC) says that ultimately it comes down “MLS masquerading as authentic soccer when it’s not” and the league’s need to move away from its closed structure.

Howie Long-Short: To understand MLS’ problems Crowley says that you have to look at greater consumer trends. “Millennials and Gen-Zs are looking for authentic experiences, things they can have a real emotional connection to; in ways that don’t feel manufactured. They want to feel a connection to what the product is about and what the brand stands for. When an organization isn’t being honest about a product, customers lose faith in it and eventually abandon the brand (see: Facebook with user data).

Crowley theorizes that MLS’ big market problems are not the result of a lack of soccer fans in the U.S., but from its closed system that eliminates the authenticity he speaks of. “There are plenty of people watching soccer, but they’re watching leagues from around the world and that’s because soccer is treated differently here from an accountability and talent acquisition point of view. MLS’ closed system changes the dynamic of the team spend and the competition; and it’s reflected in the fans interest. When teams are not rewarded for their successes or held accountable for their failures, you get this inauthentic mediocracy.” For those who will be quick to point out that the NFL, MLB, NBA and NHL all operate successfully without promotion/relegation, you must remember that they aren’t competing for the U.S. fans attention as the best leagues in the world within their respective sports.

Short of moving to an open system, increasing spending so that teams could attract the world’s best players would seem like the quickest way to solve many of MLS’ attendance and television viewership problems. As Crowley said, “I don’t believe that the issues clubs like NYCFC or Chicago Fire face are because New York or Chicago are bad soccer markets. If Ronaldo decided he wanted to play for NYCFC, they would sell out every game.” That may be true, but acquiring high priced international talent in their prime isn’t feasible – never mind sustainable – for a league where less than 1/3 of the teams are operating at a profit and no team posted an operating profit greater than $6 million last season.

Building soccer specific venues in convenient locations has helped to turn D.C. United and Sporting Kansas City around, so it’s reasonable to assume that clubs like NYCFC and New England Revolution would benefit from a change in venue. But franchises like the New York Red Bulls, Houston Dynamo and San Jose Earthquakes have built new stadiums in easy to get to locales and continue to struggle to draw fans. Building a new home isn’t a magic elixir.

Crowley suggested that MLS clubs struggle for many of the same reasons that spring football leagues have historically failed. Their teams are competing with a handful of established pro franchises within each market. There’s no natural fan affinity to the teams as there is with college sports. The league lacks the history and tradition of big four sports. The best players in the world are playing in other leagues and the weather is sub-optimal (in many cities) for the first 3 months of the season. Unfortunately, those aren’t issues that a new stadium is going to fix.

Fan Marino: Relocation would seem like a possibility for clubs in big markets that can’t get on track, but one long-time TV executive told me that NYCFC and Chicago Fire need to stay put because “it’s important for MLS to have a presence in top media markets like NY and Chicago; and the league certainly would want to avoid the embarrassment of pulling out of those cities.” It was his belief that the league can and should absorb the losses those teams incur to keep clubs in the biggest U.S. markets.

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Early Entrants: Vol. IX -Showtime Boxing On The Ropes

ShowtimeBoxing

Editor Note: Early Entrants is a bi-weekly series of sports business “rumblings” before the news breaks.

Showtime Boxing On The Ropes

HBO’s decision to exit the boxing business left Showtime as the sole premium cable channel invested in the sport, but whispers that they too are on bought time are getting louder and as one industry insider told us “at some point somebody above Stephen Espinoza is going to pull the plug because it doesn’t make sense to be spending $30 million, $40 million, $50 million/year on a sport and sit third on the totem pole (behind ESPN & DAZN). I don’t believe a lot of subscribers would turn off Showtime if they stopped doing boxing.”

The ratings from last night’s (5.18) Wilder-Breazeale fight (not yet released at time of print) could go a long way towards making that decision for the network. As reported in Friday’s (5.17) newsletter, Showtime is paying a record licensing fee to broadcast the bout. The network needs to draw 1 million viewers for the show to be considered a success; “if it does just 700,000 or 800,000 homes, it’s going to be embarrassing from a business standpoint.”

Disney Increasing Stake in DraftKings

Fox Sports’ decision to align with The Stars Group and form a JV (entitled Fox Bet) to facilitate “real money sports wagering” would seem to put Murdoch & Co. in direct competition with DraftKings – a company they invested in back in July ’15. The potential conflict of interest is unlikely to still be an issue though by the time Fox Bet rolls out their apps late in Q3. One well-connected insider tells us that Fox Sports’ stake in the DFS turned sports betting outfit “is going to or went to Disney.” Of course, Disney was already a minority shareholder in DraftKings having invested $250 million into the company back in April ’15.

Saudi Kingdom Planning to Launch State-Owned, Multi-Territory Sports Network

With U.S. and U.K. officials intensifying their pressure on the Saudi Kingdom to protect intellectual property rights holders and to shut down the pirate broadcaster ‘BeoutQ’ (owned by the Saudi satellite provider Arabsat), rumors are circulating that the Saudi government has plans to launch their own multi-territory sports network. A state-owned channel would give the Saudi government the motivation to take aim at BeoutQ – which would appease the greater international community – while providing a viable alternative for sports properties (like F1, which was dropped in MENA in protest of BeoutQ) in a middle-eastern market that’s been monopolized by beIN.

Premier Boxing Champions For Sale

As noted on Friday (5.18), the prevailing thought amongst boxing insiders is that it was Al Haymon who invested at least $10M into last night’s Wilder-Breazeale fight to keep Deontay on his side of the street. The belief is that Premier Boxing Champions is for sale (or that Haymon is raising capital) and that he needs the heavyweight champion to pull down the highest multiple. There’s been speculation that Endeavor would have interest in PBC, but that seems unlikely. As one boxing insider told us “Haymon’s fighters may not fight often, but he’s paid them through the roof; Endeavor is not going to buy something with a model diametrically opposed to their MMA business.” FYI:Nearly half (41%) of the UFC’s +/- 500 fighters earn less than $45,000/year.

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Showtime Broadcasting Wilder-Breazeale, Questions Remain About Who’s Investing in Fight

Wilder-Breazeale

Deontay Wilder will defend his WBC world heavyweight championship against Dominic “Trouble” Breazeale tomorrow night (May 18) live on Showtime. The decision to broadcast the fight on premium cable was a surprise to many – Fox Sports boxing insider Mike Coppinger wrote on March 7th that “Top Rank offered Wilder $12.5 million, and PBC had to contend with the eight-figure payday, necessitating PPV”- but Showtime Sports president Stephen Espinoza explained on March 19th that it was Wilder’s “loyalty” to the network and his insistence that the fight be available “without the high price tag” that drove the change in plans. The sports-centric streaming service DAZN was also reported to have an interest in carrying Saturday night’s bout. It’s been said that the OTT provider offered Wilder $20 million to fight Breazeale as part of lucrative 3 fight ($100 million) or 4 fight ($120 million) pacts that would have included a pair of bouts against WBA, IBF and WBO champion Anthony Joshua.

Howie Long-Short: Wilder’s decision to fight on Showtime tomorrow night means that he’s risking generational money. Sure, by not signing with DAZN he may be a network free agent (more on that in a bit) and with potentially lucrative fights against Joshua and lineal champion Tyson Fury on the horizon there’s value in that (exclusive deals between fighters and broadcast platforms often get in the way of big fights being made); PPV fights against competition of that caliber could net the American heavyweight more than he would have earned under the terms of the deal with the OTT provider. But those fights (and the dollars that come with them) are only a possibility if Wilder beats Breazeale (he’s a -$1,000 favorite) and fight fans know that a single punch can alter even the best of plans.

Even if you believe that Wilder was right to bet on himself and walk away from the DAZN deal, I’m struggling to grasp the logic behind airing the fight on Showtime. Wilder fights under the banner of Al Haymon’s Premier Boxing Champions brand which has broadcast deals in place with both Fox Sports and Showtime. If the fight wasn’t going to air on PPV, why not place it on the Fox network and maximize its (and Wilder’s) exposure? Fox is available is in +/- 120 million homes, Showtime is available in +/- 30 million.

Coppinger said that Wilder’s $12.5 million purse would have pushed the fight out of Showtime’s budget and it’s believed that the heavyweight champion was able to parlay the DAZN meeting into a bigger payday (in the neighborhood of the $20 million offered by John Skipper & Co.), so it’s certainly worth wondering how the fight landed on premium cable. Considering Showtime had NEVER paid out a licensing fee even close to that figure for a live fight airing on the cable network, even if the company is paying a record fee there remains a $10 million to $15 million shortfall.

Whoever is investing $10 million+ into this fight isn’t doing it to turn a profit on Saturday night because as one industry insider explained, “there is no economic route to breaking even on this fight”, so there must be a longer-term plan in place. Multiple sources told JohnWallStreet that they believe Al Haymon is bankrolling the fight to keep Deontay on his side of the street. The prevailing thought is that Premier Boxing Champions may be for sale (or raising capital) and that Haymon needs his heavyweight champion – arguably his greatest asset – to pull down the highest multiple. Of course, that would also mean Wilder isn’t a broadcast free-agent at all – he’s tied to PBC.

Fan Marino: While fans are clamoring for Wilder vs. Fury II or Wilder vs. Joshua and Deontay’s status as a network free-agent makes those fights logistically feasible, I’m hearing his next 2 fights are “preordained.” Expect to see Wilder vs. Luis Ortiz II and Wilder vs. Adam Kownacki. Both guys passed on the opportunity to replace “Big Baby” Miller in Anthony Joshua’s U.S. debut on June 1.

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Overtime Hosting ‘Takeover’ to Engage Fans IRL, Diversify Revenue Streams

Overtime

Overtime – “the fastest growing sports network for the digital generation” – has teamed up with Converse to put on the Overtime Takeover (taking place on May 18 at Greenpoint Terminal Warehouse); an all-day basketball experience featuring a 3×3 tournament, dunk competition, sneaker release (All Star Pro BB) and retail pop-up. The showcase is Overtime’s latest effort to engage its audience “in real life” and to give its fans a chance to “be a part of the brand.” It’s also a means of diversifying company revenue streams. Merchandise sales and live events have become profitable ventures for digital media entities with loyal audiences (think: Barstool, Bleacher Report) needing to supplement traditional advertising revenues. The blurring of lines between sports and fashion and a Gen-Z consumer that wears branded clothing as a means of expressing themselves has enabled companies like Overtime to crossover.

Howie Long-Short: Overtime still generates the bulk of its annual revenues from advertising (think: show sponsorships, branded content), but president Zack Weiner acknowledged that “digital media is a tough business (see: Google, Facebook dominate corporate ad budgets) and there’s a need to find alternative means of generating revenues.” The company has been able to do that successfully because of the loyal fan base it has built up. Weiner said that having influence over their audience “has allowed us to sell DTC; and we expect both merchandising and events to be 7-figure businesses this year.

Overtime’s “secret sauce” is in delivering content that kids can relate to. It’s the reason their content draws upwards of 600 million views/month. User generated content (think: game highlights) is relatable by nature – the most frequently posted comment on the company’s YouTube page is ‘I’m going to be on Overtime’ – but Weiner insists that “even our professionally shot long-form programming feels very accessible. Our most popular show on YouTube (Hello Newmans) is a reality show about two teenagers and their overbearing parents. Every kid can relate to that.

I’m familiar with overbearing parents, but as an old millennial, the concept of wearing a media company logo on my clothing seems foreign. For as many times as I watched SportsCenter on loop as a kid, I never owned any ESPN apparel. Weiner says that I’m looking at it the wrong way, that “the comparison shouldn’t be to ESPN, but to MTV or Thrasher Magazine; media companies that became lifestyle brands. If you see someone wearing an ESPN shirt, you assume they work there. Our fans ‘wear the O’ because they want to signify that they are a part of this fan community.”

Weiner said he and CEO Dan Porter set out to “build a sports network for the next generation that kids would love and feel like they are a part of”, so holding a free event featuring elite Gen-Z basketball prospects aligns with that mission. The network Weiner and Porter envisioned though, wasn’t meant to be focused on high school basketball; the sport was simply their entry point into the market (Fan explains why below). Overtime made its name in grassroots basketball, but the company is now producing pro hoops, football, soccer and esports content as well.

Fan Marino: Overtime was able to make a name for itself within the high school basketball space because it didn’t need to purchase the broadcast rights (or partner with any entities) to film games and distribute highlights. Weiner explained that “99.9% of the time there are no local broadcast rights in place for high school sports. There’s probably 10,000 games happening every day and there might be 20 that ESPN owns the rights to.

Now that the company has an established presence though, it has ambitions to tap into collegiate sports – where it will need to acquire rights. Weiner says it’s a logical next progression though as “conferences care about our audience and want us to continue covering these players after they graduate from high school and navigate through their collegiate careers.”

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Explosion of Big Data Leading Brands to “Place Big Bets” on Loyalty Programs

Nike+

Nike introduced a limited-edition Tiger Woods polo shirt for Nike Plus members on Tuesday morning that sold-out within an hour. It was the footwear and apparel company’s latest effort to engage (and reward) their highest value customers; Nike Plus members spend 3x more than the remainder of Nike buyers. The Beaverton based company isn’t the only brand (or team) finding success with loyalty programs. NPD Group retail analyst Matt Powell told the New York Post that those types programs are “on fire right now [as] brands and retailers [are] discovering their best customers are high-leverage.”

Howie Long-Short: Peter Honig (svp, CSM LeadDog) says that it’s no surprise brands are finding success with loyalty programs because “when you’re talking about discovery, purchase intent or advocacy, the research indicates that rewards and discounts are significant drivers within the consumer’s decision-making process. Nearly 90% of consumers are incentivized by loyalty programs and more than 50% see rewards or discounting as a reason to recommend a product or service to others.” Simply put, if a consumer has a good experience with a brand “they’re going to return and they’re going to evangelize for that brand to their friends and family.” They’re no longer just a brand’s most valuable consumers, they’re also a mobile sales force.

The concept of a loyalty program is not new, but the explosion of big data within the last decade has driven brands (like Nike) to “place big bets” on their renewed efficacy. Honig explained that “for many years sweepstakes and contests were used to attract consumers when a company was running out of creative ideas, so the returns were limited. But with access to real-time consumer insights (editor note: Nike bought Zodiac, an analytics firm in ’18), brands can now re-target the consumer with communications suited to that specific individual. It’s a level of detail and customization that didn’t exist just a few years ago.”

Brands also didn’t have the ability to deliver custom ads and experiences through engagement on television up until recently, as cord cutting and OTT distribution are relatively new advancements. Honig thinks that as digital ad distribution gets more sophisticated brands will see “the real incremental rise in revenues because there is nothing like feeling as if a brand knows who you are and what appeals to you.”

Fan Marino: As Nike “ramps up” it’s loyalty program, Fitbit recently rolled out a beta version of its own Rewards program (users earn points for doing exercise, Adidas, Blue Apron & Deezer are partners) and announced plans to introduce a premium paid version later this year. While the idea of paying for a loyalty program sounds a lot like paying to work (a surefire tell of a pyramid scheme), Honig insists that there’s logic behind it; “people love the idea of exclusivity and can be incentivized with a higher barrier for entry. The basic premise is that membership has its privileges. It’s the AMEX approach.

Of course, setting a high barrier is exclusive by nature, so Peter isn’t sold that premium paid tiers “are going to be the next trend in loyalty programs.” If you add the element of exclusivity to your program, “how do you get the remainder of your target audience to engage? They know that there is additional content or experiences available for an additional investment.

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Sinclair Exploring In-Game, On-Screen Betting, Opportunity Limited Without Streaming Rights

Sinclair

Sinclair Broadcast Group (SBGI) CEO Chris Ripley told Reuters that the company is “exploring” in-game, on-screen betting with The Tennis Channel and that there are plans to “eventually” offer a similar viewing experience on company’s newly acquired RSNs. Ripley said, “we’re going to add on extra stats, the ability to do prop bets in the game, pitch by pitch, play by play; fans [will be able to] play along and wager while they watch.”

Those plans will include the formation of a strategic partnership with a licensed gaming operator (think: FOX Bet, though it doesn’t have to be exclusive) as SBGI “doesn’t [believe it] makes sense to be the licensee and run the book.” The decision by Sinclair to place odds on-screen during game broadcasts could impact as many as 44 clubs across the sporting landscape (16 MLB, 16 NBA & 12 NHL). The company obtained the local cable rights to 42 teams via their recent $10.6 billion acquisition of the 21 FOX RSNs and maintains ownership interest in both YES Network and Marquee Sports Network.

Howie Long-Short: Sinclair’s control of the RSNs would seem to give it a significant advantage over the established gaming companies as it relates to capitalizing on legalized sports betting – even if the company needs to align with a licensee (in each state) to profit on the wagers placed. While gaming operators wait for the leagues to carve up digital streaming rights for in-app wagering, SBGI can immediately begin to show odds during game broadcasts in states where sports betting is legal.

Sinclair also has the advantage of giving fans access to their game on the biggest and best screen available, making it more likely they tune in and thus bet through the company’s 3rd party platform (remember, media companies can’t just take bets on their own platforms without running afoul of regulations); in Europe, gaming operators with streaming rights broadcast in a lower resolution so not to dilute the audience of the leagues’ core digital rights holder(s).

Adam Candee (managing editor, LegalSportsReport.com) isn’t so sure – at least, not without the RSNs acquiring local streaming rights too. “If you think of the Wizards alternative broadcast, the easiest way to place a bet while watching those games was still through a smart phone. So, what is gained by showing odds on a television screen during a sports broadcast? How does the fan mechanically place that bet? If the fan needs to be on their phone, then I’m not sure how much of an advantage it provides.” For Sinclair to maximize gaming revenues they’ll need to integrate odds into digital media (of course, that assumes league gives local streaming rights back to teams) and hope the DGE gets more comfortable with operators on 3rd party sites.

Speaking of alternative broadcasts, Sinclair is considering producing them in the mold of what the Wizards and Clippers have done. In the short-term, it sounds like a reasonable solution (particularly if they can force carriage), but if you consider Candee’s point that the marriage between live sports and gambling will occur via digital means and you believe that local streaming rights holders (again, assumes the league gives local streaming rights back to teams) will have in-app betting functionality and the DGE’s blessing, who exactly is watching?

Fan Marino: Ripley’s comments come on the heels of FanDuel’s announcement that the company would begin offering in-game betting on tennis matches and Bundesliga soccer games. FanDuel became the “first U.S. sports betting operator to offer live-sports broadcasts alongside odds on its website and mobile app” in the process.

Existing television broadcast rights deals signed long before PASPA was struck down have prevented gaming operators from streaming NFL, NBA, MLB & NHL games, but it’s been a lack of interest from bettors in wagering on sports like tennis or German soccer that have prevented in-game wagering from making its way overseas sooner. U.S. gaming operators are well aware that “interest in specific events can double or even triple when odds are offered alongside live rights”, but the costs associated with putting on these streams has outweighed the potential returns to date. It’s unlikely that FanDuel expects much to change with the rights they’ve acquired, so it’s reasonable to assume that the company is looking to achieve a proof of concept and has plans to pursue the rights to bigger sports leagues down the line.

It must be noted that while FanDuel is the first U.S. gaming operator to combine live odds and game content in the U.S., DraftKings acquired the rights to stream Euro-League games within their DFS app back in February ’18.

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TV Deals with ABC/ESPN, FOX “Magnify the Risk of Failure” for XFL

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The XFL has announced a pair of three-year deals with The Walt Disney Company and Fox Corp. The high-profile agreements ensure all 43 league games of the 2020 season will air on network or cable television. More than half are slated to be split between the ABC network and Fox network with the remainder set to air on ESPN or Fox Sports 1. While most tend to believe that wall-to-wall coverage increases the league’s chances of success, former CBS Sports president (and current television consultant, Pilson Communications) Neal Pilson suggested that it also “magnifies the risk of failure.”

Howie Long-Short: There’s no doubt that with more than half of the league’s games set to air on network television that the XFL will have the chance to showcase their product (i.e. fans will find it), but Pilson warns that widespread exposure puts a bullseye on the league’s back. “Television can be as damaging as it is beneficial. If there aren’t enough viewers to spread across all of these networks – which I wonder about – or if the networks fail to show viewership growth, there won’t be an excuse for the lack of interest.”

Pilson’s skepticism stems from his concern that “the league will now be under the spotlight – from a ratings standpoint – from day one” and his belief that having games on “so many competing networks will dilute viewership numbers. The assumption is that being on two or three networks will double or triple the number of people watching and that’s simply not true – unless people are going to watch three, four, five games every weekend, which seems unlikely.” That doesn’t mean he would have advised Oliver Luck & Co. otherwise. “When you have the opportunity to gain this type of exposure, you take it and accept the risks that I’ve been talking about.

Unlike the AAF’s deal with CBS, the XFL isn’t buying network time. Disney and Fox will cover the costs of production and handle game production; they’ll also retain all of the in-game ad inventory. While that should ensure NFL-like broadcast quality and save the league hundreds of thousands of dollars on a per-game basis, it also means they’ve lost 1 of 4 revenue streams and “ultimately you need to have revenue to survive.”

In addition to broadcast rights fees, pro sports leagues generate revenues through sponsorship & advertising, merchandising & licensing and ticket sales. Pilson expects the league to have “some sponsorship & advertising partners” on board for the 2020 season and believes it will collect a “limited amount of merchandising & licensing revenue” in year 1. As for ticket sales, he said, “playing football in cities like New York or Washington in February is a high-risk proposition and given that ticket prices are expected to cost significantly less than NFL seats, even if they do sell well, I don’t believe ticketing is going to drive league revenues. I have a hard time seeing the league realize any significant revenue streams in year 1.

Vince McMahon has earmarked $500 million for the XFL’s rebirth, so he can float the league for a while, but for it to succeed long-term they’ll need to build “fan loyalty and enthusiasm on the local level” and Pilson doesn’t believe that’s going to be easy. “The cities that they’re putting teams in – New York, Washington, Dallas, Seattle – are all strong NFL markets. How many fans in those locales are going to be truly committed to another professional football league?”

Fan Marino: Sports-media consultant Marc Ganis told the WSJ that the league’s only “real competition” between February and May is March Madness, but that’s patently false. The XFL season is 13 weeks long (10 regular season, 3 post-season) and there are very few “off weekends” on the sports calendar during that time. Pilson reminded me that “they’re up against some tent pole events that generate serious ratings year after year; March Madness, the Kentucky Derby, the Daytona 500, The Masters, the NFL draft, the NBA and NHL Playoffs.

There’s also the start of the MLB season and the XFL has planted teams in cities where baseball has strong tradition (think: New York, Boston, Los Angeles, St. Louis). You can say baseball doesn’t draw well on ESPN, but “look at the local ratings on [an RSN like] YES on a Sunday afternoon.”

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