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June 27, 2023

Editor Note

: JohnWallStreet and Guggenheim Securities' Michael Morris are hosting a sports investing 'mini-camp' this afternoon for a collective of institutional investors and JWS A-Listers. It will be the first in a regular series of invite-only events.

Former Goldman Sachs partner and NFL VP Eric Grubman will lead an interactive discussion on topics including, but not limited to, media distribution, league ownership/investment and sports gaming.

Our program ensures everyone in attendance will leave the room more informed and with a better understanding of the evolving sports landscape than they came in with. They'll also leave full. The event is being held at Zuma in NYC.

The next 'mini-camp' is set for July 12. 

Jazz Take Control Over Destiny After Weighing Opportunity Value

Smith Entertainment Group, the parent company of the Utah Jazz, recently announced the launch of a new sports media division (SEG Media), along with plans to deliver ubiquitous access to the NBA team’s games.

Beginning next season, fans within the local broadcast market will be able to get all non-nationally televised Jazz games on KJZZ, an over-the-air broadcast station. SEG Media will also introduce a Utah Jazz-branded subscription-based streaming option for the digitally native portion of the fan base. 

SEG Media will produce all Jazz games and other insider content that will appear on KJZZ and the soon-to-launched streaming platform.

The team's decision to re-

embrace 'rabbit ears

' has drawn headlines. But the announced moves are really about the Jazz taking control of content and distribution in the face of an uncertain media future.

“The segments and profiles that we know now are going to be changing at a pace no one has ever seen before, and SEG Media is going to lead out on making sure the experiences fans have with Jazz content is incredibly personalized,” Ryan Smith (governor, Utah Jazz and chairman, Smith Entertainment Group) said.

They are also about opportunity value.

“Our fan base has grown so much [since the last RSN deal was signed], that the cost of [another lengthy] deal versus the opportunity with the fans is ripe to go [a different route],” Smith said.

By jumping market size and improving the fan experience, the Jazz believe it can keep local rights revenues growing long-term.

Ryan Smith’s background is in experience management (see: Qualtrics). So, it’s no surprise that when he took control of the Jazz 2.5 years ago, he sought to get a read on what the fans thought of the fan experience.

The number one complaint he received was that it was too difficult to watch the team’s games on television. Just 39% of the households in Utah were receiving the local RSN. He recognized that if the team was going to maintain and grow the fan base, it had to re-think distribution.

With the new broadcast approach, the Jazz will reach 100% of Utahns (all 3.3 million of them). The KJZZ signal reaches every part of the local market.

The Jazz were able to make moves at this time because its contract with AT&T SportsNet expired. The trouble with doing so is it’s not clear how sports fans will consume content a half-decade or more down the line.

“There are going to be platforms that are just popping up now, or that we’re just hearing about, that are going to take massive parts of these [fan] segments,” Smith said.

So, the Jazz set out to find a local carriage solution that would give it the flexibility needed to adapt to, and remain out in front of, future media trends. RSN contracts are, by nature, restrictive.

KJZZ was willing to align with the team on a true partnership (i.e., it works for both or neither side), and do so without restricting the games’ carriage elsewhere.

It was also able to offer a nostalgia factor that none of the other station groups interested in the rights could match. The Sinclair Broadcast Group owned affiliate held the team’s rights from 1993 to 2009.

The Jazz are the latest pro sports franchise to make a move from cable to broadcast. But the KJZZ deal isn’t like some of the others covered in recent weeks. The team is going to produce and sell against all the live game inventory.

That’s not a change for the organization. It did the same under its deal with the RSN.

However, SEG Media intends to make media a more integral part of its business moving forward. Smith believes it must do that to deliver the personalized experience each fan segment has come to expect.

“Personalization is everything right now. Organizations who can personalize an experience, they’re the winners,” Smith said. “The entire model of signing one [broadcast] contract and someone else is going to handle [production is] always going to leave [rights owners] in a bad spot.”  

The KJZZ deal also does not prevent the team from distributing game content via other channels.

“So, what we’re doing is standing up a production company (SEG Media) and saying, ‘we’re going to control it all, we’re going to be untethered, and we’re going to actually form partnerships,” Smith said.

The KJZZ partnership will serve one segment of the team’s fan base, those that want to watch over the air; either with an antenna or through their local cable or satellite provider.

The team’s new Jazz-branded streaming service will serve its direct-to-consumer segment.

“The tech side of [streaming] is not the most challenging piece,” Smith said. “The business model is.”

The Jazz’s DTC product, which will be available with one-click from both UtahJazz.com and the Utah Jazz app, will be behind a paywall. The team has not determined how much it will cost.

“We have [existing] corporate partners that would be interested in doing some creative stuff,” Smith said. “It’s [also] another channel that can be personalized, and there’s a lot of [other] brands that actually play in that space and could benefit from getting into sports.”

Smith recognizes it will be difficult for the team to back its way into the revenues received from the RSN next year (~$26 million), regardless of how much it charges to stream games or how much ad revenue it is able to drive.

“There is a financial component of this that is a step backwards compared to the old way of doing things,” Smith said.

But it’s not a $26 million step. KJZZ is paying a nominal rights fee and the team will continue selling its own advertising. So, there is some “built in revenue,” he said.

New revenue streams could also emerge.

“There’s a lot of people who want additional content. They want more access to the owner, GM, coach, insiders, and players,” Smith said. “If you think about how we’re building this production company (SEG Media), we’re doing stuff that is going to add value.”

The size of the short-term haircut ultimately remains to be seen. Much of it is likely to depend on the team’s ability to engage an increasingly large potential fan base. The Jazz are in the fastest growing state and within an hour of both Idaho and Wyoming, two states it has not historically marketed to but will moving forward.

“People think we’re a small market,” Smith said. “If you look at all our numbers, we’re a mid to mid-upper market and we can take our reach and jump markets to be a top ten market,” Smith said.

Smith believes the Jazz's total market size can grow from 3.2 million to more than six million with a different marketing approach.

And Utah is a market that punches above its weight to begin with. Remember, the team has sold out 251 straight games.

That all gives Smith confidence that SEG Media will be a major revenue driver for the team in the long term.

“If you actually forward out being untethered in every single way, to be able to go where media is going and to focus on the segments and provide a world class experience for [each, that is] going to win in the long run.”  

That doesn’t mean other NBA teams are likely to follow their lead. Many franchises simply make too much money to leave the confines of the RSN business.

An NBA franchise making $75 million or $100 million in annual rights fees is “going to lose 50% trying to go at it alone,” Smith said. “That’s such a big hit and that market size hasn’t changed so it’s really tough.”