There is a trend in stadium/arena development to diversify venues, moving away from single purpose facilities that sit vacant for long periods during the calendar year, towards ones that can host a variety of non-traditional events (i.e. marathons, conferences, video game tournaments etc.) and draw spectators with varied interests. These new facilities are being built in more desirable locations (see: downtown) to encourage more visitors to attend. Flexible venues are also easier to finance with multiple parties contributing; as the public funding that used to subsidize the development of new sports facilities has, for the most part, dried up.
Howie Long-Short: New stadium construction can now cost more than $1 billion, so it makes fiscal to maximize ancillary revenue from stadium event rentals. Still, 86% of economists say that public funding for sporting venues is likely to cost taxpayers more, than any economic benefits realized by the finished facility; and most taxpayers are unlikely to ever step foot in the building. I’m all for multi-purpose venues, so long as the total expenditure for construction is coming out of owner(s) pockets.
Fan Marino: The Washington Redskins have released plans for a new 60,000 seat stadium that would offer locals far more than a place to watch football games. The proposed venue will include a moat that can be used for kayaking and surfing in the summer, and ice skating in the winter; while the stadium’s exterior will double as a climbing or rappelling wall. That doesn’t sound like a modern stadium, it sounds like an urban outdoor enthusiast’s dream.
The Walt Disney Co. (DIS) has reportedly held talks with 21st Century Fox (FOXA), that would result in DIS acquiring the FOXA movie studio, TV production studio, several television networks (FX, National Geographic), their international TV services (Sky, Star) and 30% of Hulu. For our purposes, it is what will not be included that is most noteworthy; Fox’s Sports Programming. There is a belief that combining those assets with ESPN could be construed as anti-competitive and lead to anti-trust violations. For those same reasons, DIS will not be purchasing the Fox Broadcast Network, Fox News or Fox Business Channel. Negotiations are currently on hold, though certainly not dead.
Howie Long-Short: 21st Century Fox doesn’t believe it has enough desirable content to compete in the OTT entertainment streaming space, so the company will strip down to just news and sports programming; content that still draws live viewers (and advertisers). As for DIS, adding the 20th Century Fox catalog, as they prepare to launch a new DTC service, must be considered a boon. FOXA shares are up more than 10% since the story broke on Monday (DIS is up nearly 3%). The company will report fiscal Q1 earnings later today. DIS will report fiscal Q4 earnings tomorrow.
Fan Marino: I find Fox’s NFL coverage, from the studio talent to the graphics, to be unwatchable; so, it’s disappointing to hear ESPN won’t be taking over production of Fox’s sports properties. Perhaps in another lifetime we’ll get a Gus Johnson/Bill Walton college basketball broadcast.
KPMG published an interesting study on what would happen to English Premier League clubs, if the money generated from league broadcast rights (the most lucrative in Europe) were to be subtracted from the teams’ bottom lines; a viable concern when you consider that broadcast revenues can be worth up to 45% of an EPL team’s gross revenue. KPMG bases the study on the premise that revenue from broadcast rights is precarious; that consumer behaviors change and there are no guarantees that humans will watch television, stream video etc. in the future. What KPMG found, was that the most fiscally sound clubs were the ones that maintained the largest social presences. Those clubs are most successful in closing commercial partnerships and selling out their stadiums; factors that would help to reduce the impact, that a total loss of broadcast revenue would bring.
Howie Long-Short: The EPL’s overseas rights expire in 2019 and are expected increase in value during the next round of negotiations; so, while a fascinating study, not one that should cause immediate concern. Overseas rights for the current 3-year period, total roughly $3 billion Euros (domestic rights for the same period equal $5.1 billion Euros). There seems to be a consensus that while domestic rights may be close to capping out in value, interest from international players like Facebook (FB), Google (GOOGL) and Amazon (AMZN) is likely to send overseas rights soaring. Those rights fees will be split evenly amongst EPL teams, as the “Big 6” conceded their effort to secure a greater percentage of overseas TV money.
Fan Marino: La Liga clubs FC Barcelona (206 million) and Real Madrid (204 million) maintain the largest social followings in Europe, and it isn’t close. 3 EPL clubs; Manchester United (MANU) (111 million), Chelsea FC (76 million) and Arsenal (63 million) round out the Top 5. Bayern Munich (61 million), Juventus (JVTSF) (45 million) and Paris St. Germain (45 million) have the largest digital followings within their respective leagues and all place within Europe’s Top 10.
Major League Soccer has signed a long-term deal with Fanatics, scheduled to begin domestically in 2019 (‘18 in Canada), that provides the fast-growing sports apparel manufacturer with the rights to produce official MLS merchandise, not just sell it. The company will be able to make everything but official MLS jerseys, as Adidas (ADDYY) owns those rights as the league’s official on-field apparel provider; though the company is able to sell ADDYY game jerseys on the e-commerce platform. In an unrelated transaction, MLS has made an investment in Fanatics. Financial terms were not disclosed.
Howie Long-Short: The NFL bought 3% of Fanatics in May 2017 for $95 million, at a $3.17 billion valuation. By August of 2017, the company had a $4.5 billion valuation; closing on a $1 billion investment from Softbank (SFTBY). Remarkable growth for a company that was purchased for just $277 million back in 2011. It’s worth noting that both MLB and the NFLPA are also invested in the company.
Fan Marino: In 2019, Fanatics will become the manufacturer of MLB’s official Under Armour (UAA) game jerseys. However, April’s $225 million acquisition of Majestic Athletic means they could be putting their product on the field, as early as next season. Majestic and Nike (NKE) currently own the on-field uniform rights to MLB.
Formula 1 (FWONK) is considering the elimination of Friday practice sessions, a fiscal decision that would enable teams to compete in more races without an increase in hard costs. The addition of races would increase the teams’ annual prize fund ($985.5 million in ’16) and line FWONK shareholder pockets; as race hosting fees make up 36% of the corporation’s total revenue ($1.8 billion). The 2018 calendar has a record-tying 21 races scheduled; though more could be added as F1’s governance contract allows the organization to hold up to 25 races/year.
Howie Long-Short: Racing hosting fees make up a higher percentage of F1’s revenue than any other source; with just 33% of FWONK revenue coming from the racing organizations broadcast rights. That is a drastically different model than we are used to seeing here in America. The NFL generated more than $13 billion in revenue in 2016, with 70-75% coming from media rights deals. Just 15% ($2 billion) of the league’s total revenue came from ticket sales. FWONK wants to increase the number of races on the circuit because doing so, will move the needle for them.
Fan Marino: If Friday sessions are eliminated, it’s the fans who lose the most. While tickets to a Sunday race can cost $200+, a ticket for Friday’s event can be had for less than half.
Sports fans that are considering cutting the cord may want to look at the channel lineup for FuboTV; a sports-centric, OTT, live TV streaming service that offers fans the “most sports for the least money”. Originally introduced as a skinny bundle for soccer fans, the service now carries a variety of sports on 37 (of 65) channels (both regional and national) including; FS1, FS2 and NBCSN. The $40/mo. niche bundle is looking to stand out in a crowded streaming TV market that includes; Hulu (TWX), YouTube TV (GOOGL), DirecTV Now (T), Playstation Vue (SNE) and Sling TV (DISH). Amazon (AMZN) and Verizon (VZ) will also be introducing streaming bundles soon.
Howie Long-Short: FuboTV has raised $75.6 million to date, with several publicly traded companies investing in the streaming provider. 21st Century Fox (FOXA), Sky (SKYAY) and Scripps Networks Interactive (SSP) all participated the $55 million Series C round that closed in June; so there are no shortage of ways to play the OTT streaming service.
Fan Marino: FuboTV has 100,000 soccer-loving subscribers, but is counting on their next 100,000 subscribers to be fans of traditional American sports. The carriage deals they’ve signed to date have given them some valuable programming (like the World Series), but you can’t convince the American sports fan to cut the cord without ESPN’s network of channels. ESPN (DIS) holds the rights to the College Football Playoffs (and NBA) through 2025 and MNF through 2021. If your key differentiator as an OTT streaming service is your sports programming, you must carry those games. The success of the service, at least as it is currently marketed, depends on it.
Corporate advertisers have found that content shared by athlete endorsers receive 6x the engagement that same content would receive, if shared on their own platform. However, brands struggle to get athletes to share their content as intended. Athletes want to build their personal brands and provide their fans with high quality content, but lack the bandwidth to create with so much of their focus on the field. opendorse has built the solution to both issues, a marketing platform that provides brand partners with direct access to an endorser’s personal social media channels; while giving athletes a way to access, approve and activate content from their brand partners in a single click.
Howie Long-Short: There is an ongoing shift occurring in the way sports rights holders distribute content, with an increase in broadcast related video being shared by professional athletes; as sports leagues look to increase distribution and grow their audience. That makes sense to me. Athletes have the reach and influence, while the leagues own the rights and can pre-package the content for distribution. Everyone seemingly benefits. It’s worth noting that the 2,400 athletes on the opendorse platform have a combined reach of 800 million followers, 4x ESPN’s reach when you combine all their social channels.
Fan Marino: opendorse was founded by former Nebraska Cornhusker football players Blake Lawrence and Adi Kunalic. The Lincoln (NE) based company has maintained its ties to the program, recently closing on a $3.5 million series A round with more than 1/3 of the capital coming from former Huskers; including Bears CB Prince Amukamara.
Congressional Republicans have drafted a bill that would put an end to the sale of municipal bonds; used to finance the development of professional sports stadiums and privately funded infrastructure projects (i.e. toll roads, airports). Should the legislation pass, the cost for teams to build new stadiums will increase, as municipal securities carry lower interest rates. The proposed bill, which also includes a provision that would eliminate tax breaks for cities and states that borrow money to build stadiums, is part of a larger tax overhaul plan that would increase government revenues by $39 billion over the next 10 years.
Howie Long-Short: There will be resistance to the bill as proposed, as President Trump’s $1 trillion public infrastructure plan, which certainly has its advocates, requires private investments. However, any changes to the legislation would be unlikely to benefit billionaire sports franchise owners. There is momentum on both sides of the political spectrum to end public subsidies for stadiums, with tax exempt financing on sports facilities costing the federal government $3.7 billion in revenue since 2000. The NFL argues that new stadium development is an economic driver in local communities, but 86% of economists say government subsidies are likely to cost the taxpayers more than any economic benefits realized from the finished facility. Here’s to hoping the we’ve seen the last of public spending on facilities for privately owned businesses.
Fan Marino: While professional sports franchise owners threaten to move their teams when they fail to receive public funding for a new stadium or arena, Amazon (AMZN) can get a “world-class sports and entertainment stadium” built, at no expense to them, just by showing up. Sterling Bay, the Chicago developer on the proposed Lincoln Yards site, has sweetened Chicago’s bid for HQ2 by offering to build the internet giant a stadium on campus. I’m not sure that’s going to seal the deal considering Jeff Bezos doesn’t own a professional sports franchise; but with an estimated net worth north of $93 billion, he could buy every NFL team and still have $13 billion in the bank.