Cord Cutting Could Be The Best Thing To Happen To Pro Leagues

Cord Cutting Could Be The Best Thing To Happen To Pro Leagues

The erosion of the pay TV ecosystem has put local broadcast rights revenues in peril. So, logic would assume sports properties and their owners would view the ongoing media transition as detrimental to the business. 

And it will be for some, at least in the short-term.

“But cord cutting could actually be the best thing that has ever happened to these leagues,” one prominent sports investor said.

It is forcing rights owners to make the transition to a digital world where they should learn more about their fans and what they value. Remember, the beauty of streaming is that the platforms have the capability to capture more about who is engaging with the content, and how they’re doing it, than cable distributors ever could.

The data and insights gained will help these sports properties to tap into different parts of the fans’ ‘entertainment wallet’, which should lead to increased revenues and continued valuation growth.

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Sports fans now long for the days of having all their favorite teams/leagues’ games on a single platform at a reasonable price.

But the fragmentation of live rights has, in hindsight, changed perceptions of cable TV. Few loved the model when they had it, despite the value it delivered (think: channels for dollars).

Set-up/installation was required, and because distributors were largely the only game in town, the customer service didn’t have to be great. Those paying for the monthly utility had little choice but to deal with it.

Jim Carey’s 1996 movie The Cable Guy had the tag line ‘once you let him into your house, you'll never get him out of your life!’

So, sports fans do not miss cable. They just don’t like having to buy multiple services and spend more money to watch the same games.

Live sports programming on television used to feel ‘free’. It came as part a broad package that included other content. 

Now, fans –even those still with cable or a vMVPD– are being asked to allocate an additional portion of their discretionary spending budget to see all of their favorite teams and leagues’ games. And many are electing not to.

It’s not that they are ‘tapped out’. They’re just choosing to spend the money elsewhere.

Someone who spends $6/day at Starbucks is allocating $180/mo. to their coffee intake. That same individual might be willing to spend $200 on a given weekend to go to a nice dinner, or throw $5 on a random 10-team parlay, but won’t pay $30/mo. to watch sports on yet another pay TV service. 

That’s because one’s luxury, social, and sports betting wallets are often separate from his/her media wallet.

“The key for sports properties is to get out of that wallet,” the sports investor said, and to start tapping into the fans’ other discretionary spending wallets.

The easiest way to do that is by delivering additional value. 

Sports properties have begun doing this with their most valued season ticket holders (think: invite to a luxury box when their favorite artist comes to town, bottles of their favorite spirit at Christmas). Or at least those armed with enough first party data to do so are.

And because those premium ticket holders increasingly feel like valued members or insiders of the organization, as opposed to transactional customers, they’re happy to spend an increasing amount of money each year.

Rights owners must now work to develop packaged offerings that appeal to the balance of the fan base. Industry stakeholders view succeeding on that initiative as the business’ ‘holy grail’. 

The change in approach won’t happen overnight. It is, however, happening faster than most anticipated.

The rate of interactive TV adoption will ultimately determine just how long the timeline is (think: Prime Video, YouTube TV). That’s because to get to ‘member’ or ‘insider’ nirvana, rights owners must understand what motivates each of their fans.

Teams and leagues have historically done without much of that information. The ‘dumb’ cable pipe didn’t allow for greater understanding.  

But in the future, streaming technology should enable rights owners to collect insights on fans’ personal lives and preferences, within privacy restrictions, and create custom value propositions for them (the data must still become more effective).

One can imagine a subscription offering that includes season long access to the teams’ DTC RSN platform, tickets to a pair of regular season games, a couple of collectibles, a discount code for merchandise, and a personally relevant fan experience. 

Suddenly, the same individual who had balked at paying $30/mo. for another streaming service may be eager to pay twice as much because he/she feels valued by organization and is pulling funds from different discretionary spending wallets. We know fans will pony up for memorable experiences (see: Taylor Swift tour). 

The casino companies figured this out a long time ago. Sports properties never had to with broadcast rights and their valuations consistently skyrocketing over the last two decades.

But if teams and leagues can begin to pull more revenue from their existing fans these organizations will become ‘amazingly’ profitable; and there should be plenty of room for future EV growth.

Think about it this way. Manchester United (NYSE: MANU), which had 207 million social media followers as of February, generates ~$800mm in annual revenue and has market cap of $2.46 billion. Dumb math would suggest each of the club’s supporters is spending $4/year or $.33/month on it.

If MANU could increase that figure to $2/month by delivering more value (or perceived value), there’s no reason the Red Devils couldn’t be worth upwards of $20bn a decade from now. While that may sound unlikely, no sports franchise had ever sold for one billion dollars prior to 2012, the number of billionaires globally continues to grow; as do the market caps of the largest publicly traded companies. 

Things simply get bigger. It’s the law of inflation–and growth.

And squeezing an additional ~$1.70/mo. out passionate supporters seems achievable. For context, the average American spends $400/year on lottery tickets.

The key for sports organizations will be figuring out which discretionary spending wallets to pull it from.

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