The Future Of Sports

Written by
Ross Andrewsarrow icon

The Future Of Sports

Written by
Ross Andrews

So obviously the last 15–16 months have been anything but normal. With a pandemic that brought society to a halt, it greatly exposed that many industry’s revenue streams are, shall we say…vulnerable. One industry, which is often showered in big dollars, bright lights and had seemed nearly invincible, got a bit exposed. Professional sports, which are often thought of through the lens of multi-billion dollar TV deals and jam-packed stadiums. Did you know that from 2010–2020 the average professional sports franchise increased in valuation by nearly 23% annually? Well, the pandemic threw some cold water on that hot streak and highlighted the fact that professionals sports are in need of some innovation.

First things first, just to highlight the impact that the pandemic had on professional sports leagues, here are some numbers on how much several of the most notable leagues in the world lost over the last year and a half:

  • NFL: $4 billion
  • NBA: $1.5 billion
  • MLB: $3 billion
  • Premier League: $2.5 billion
  • NHL: $2 billion

Those are some pretty hefty numbers but to keep things in perspective, the most valuable NFL franchise is the Dallas Cowboys clocking in at a reported $5.7B valuation and the 32 franchises of the NFL as a whole are roughly worth a combined $115B so the league as a whole had an operating loss of roughly 3.5% of their market cap. Compare that to Uber which has a similar market cap as a company, of $93B, but has burned through an operating loss of just over 42% of its market cap in the last two years alone and their free-cash-flow burn is actually accelerating. On the whole, the numbers are big so it seems bad but we keep funding companies like Uber which do much worse (even without a pandemic) so it’s not all doom and gloom for these leagues, it just serves as a wake-up call.

Nonetheless, losing $4B hurts, no matter what industry you work in, so where did those losses come from and what does it mean for the future of live sports and the opportunities for entrepreneurs to bring novel solutions to the game. But first, where does revenue come from for professional sports teams? There are (currently) three main sources. TV/Media rights, In-arena purchases (tickets, concessions, parking, etc.), and sponsorships. It’s hard to know exactly how this mix makes up the revenue stream of most franchises in that they are private entities so they are not required to publish their books. But it is generally accepted that TV/Media rights are by far the single greatest driver of revenue for these leagues and teams generating over half of a team's annual revenue. These TV/Streaming deals are big and only getting bigger. For example, the NFL recently sign 10-year, $100 billion-plus broadcasting agreements with various networks, and estimates from Rethink Research suggest that the rise in streaming services like Amazon Prime Video, Hulu TV, and more will drive global revenue from sports media rights to $85 billion by 2025 — that’s a 75% increase compared to 2018.

So this brings us to an interesting opportunity around engagement, media rights, and streaming. As broadcast shifts from cable providers to streaming, this will open up a massive opportunity not only for streaming providers (seriously, no one can do better than Hulu and YouTube TV?) but also provide an opportunity for new technologies and platforms to support this growing channel. As more and more live TV is streamed over the internet there will be massive opportunities to support these new channels and when it comes to live sports and finding new ways to engage fans and ultimately monetize them. A prime example of this is live, on-air sports betting.

Streaming TV provider FuboTV, recently announced a deal to acquire Vigtory, a sports betting technology company. Along with the acquisition, Fubo announced plans to lunch their own sportsbook by the end of 2021 and integrate the technology into their live streaming service, ultimately hinting at a live user interface in which fans can place live, minute-by-minute bets as they watch a game from home, right through their TV. Now sports betting has an interesting history and regardless of how you feel about the morality of sports betting, when it comes to innovation around fan engagement in professional sports it has been a huge win. So much so that experts believe it could, directly and indirectly, lead to $4.2B in additional revenue for professional sports leagues should it be largely legalized in the U.S.

So why is sports betting so powerful? One word, engagement. At the end of the day, sports is a form of entertainment and just like this blog, or a hot new show on Netflix, the goal of any form of entertainment is to get as many people to watch and/or engage as possible. The more eyeballs, the more money from advertisers and sponsors (sponsorship is the smallest of the three revenue stream for most teams and closely tied to tv/media engagement so think of that here). Sports betting does a tremendously effective job of attractive those eyeballs. It’s so effective that research from the Harris Poll found that 63% of sports gamblers have watched sports more frequently since they started gambling, and 73% agree they enjoy watching sports more when they have money riding on a game. Ted Leonis, who owns the Washington Wizards, Capitals, and Mystic, recently opened a sportsbook inside Capital One Arena, and here is what he had to say around why he is amongst the first owners to make this move:

“This is really the first step in the reinvention of the role that arenas play in the community, in the city, and how we can get closer to our customers."

This is a bit of a weird analogy, but I think you’ll get my point (hopefully). Do you usually pay attention to mortgage rates? I bet you do when your thinking of moving or buying a house. Financial outcomes garner our attention in just about every aspect of our life and sports betting is no different. Individuals who feel they have “skin in the game” want to tune in to see how it plays out. For professionals sports, it might very well be a large part of its future and as Leonis said, a new channel to bring fans and the community closer to the game.

So how else do we interact with professional sports? Well, the second-largest source of their revenue, in-arena purchases, which also happens to be the section of revenue that was hurt the most due the pandemic forcing teams to play in empty arena’s. This is also the part of their revenue stream that no one is really sure how it is going to bounce back. Before becoming an entrepreneur I actually spent 3 seasons coaching NCAA Div 1 Hockey, I never worked in the professional ranks, but I have plenty of friends from those days that either work or play professionally as well as have leadership roles within some of the largest NCAA athletic departments in the country and the one thing scaring all off them is they have no idea what is going to happen to ticket sales as we move past the pandemic and restriction begin to drop. In-arena purchases are the greatest source of losses exposing a real interesting problem for these leagues. For perspective, roughly 20–40% of professional sports teams revenue comes from in-arena purchases (tickets, food & drink, merchandise, parking, etc.).

Fans have gotten used to not spending hundreds of dollars to attend a single game and get stuck in traffic both coming and going from the arena. Will it be worth the hassle and money? Sure arenas are full right now for the NHL and NBA playoffs, but that is more a product of coming out of the pandemic and a desire to get out, will it last? Many aren’t sure. So how are teams planning to keep fans engaged? And what channels are teams looking to help keep fans engaged even if they don’t return to stadiums in the ways they did before the pandemic?

Well, one interesting study we found spoken to 665 senior-level executives from across professionals sports leagues in the U.S. highlighted two things. 81.6% of them believe that team and athlete-generated content consumption will continue to grow over the next decade, and 75.6% of them believe that original content from teams and athletes will drive the greatest fan engagement. Remember from 2010–2020 the average value of teams in the NFL, MLB, NBA, and NHL increased an average of nearly 23% each year, it also happens to be the team year window that coincided with the rise of one of the most engagement drive industries in human history, social media. Clearly, technological innovations around engagement are crucial for growth in professional sports. So what is next?

A big buzzword lately has been around NFTs. Dapper Labs, a blockchain startup, partnered with the NBA to create NBA Top Shot which was an NFT marketplace for NBA highlights. For the first time ever, fans could purchase the rights to highlights that they could collect of their favorite team or player. Then came Sorare, which has raised millions from VCs for its NFT backed fantasy soccer game in which your performance is a reflection of the real-world performance of the players that your draft and purchase. Starting to see a theme here? Ownership or a sense of having some skin in the game is continuing to be a point of entry for many sports fans.

Nowhere is this more evident than in sports video games. In 2019 EA Sports, the company behind the popular FIFA, Madden, and NHL game franchises reported $1.5B in revenue from their “Ultimate Team” game modes. For those not familiar, Ultimate Team is a game mode in where players purchase card packs that randomly contain real-world players in them. Their statistics and performance in-game are meant to mirror their real-world performance and the payers in the game spend their own money to build a team of players that they think will give them the best chance to compete in the game. Again, a feeling of ownership that is tied to real-world performance giving you an incentive to pay attention and see how players and teams are performing in real life which is obviously a win for professional franchises.

Another interesting angle to consider here is the rise of younger generations, namely Millennials and Get Z. Our good friend Aneesh Dhawan, CEO & Founder of Knit, which is a Gen Z video market research platform, recently completed a study of nearly 60,000 Gen Z individuals around their feelings related to sports and how they consume it. Some of the insights are fascinating

Only 1 in 4 Gen Z’ers watch live sports at least once per week (vs 50% of millennials)

That is a fascinating statistic and has huge implications for the largest source of professional sport's revenue stream, TV/Media rights. With fewer and fewer young generations watching sports what can leagues and teams offer that generation that will get them to engage? When asked "I wish my favorite sport would have_______", here are the top three responses that the study got:

  • More interesting during broadcasts
  • Had more ways to watch the game
  • Had more ways to interact with the players

That is quite a list. Having more interesting broadcasts could be tackled with AR technology, live data feeds, sports betting (Is FuboTV on to something?). More ways to watch the game is already leaning into our new streaming economy and community video platforms like Twitch. Finding more ways to interact with players and giving consumers an inside look into their lives and behind the scenes. With $2.6T in disposable income from Millennials and Gen Z in 2020, a number expected to grow, new ways to engage these two experience-driven generations is going to be key.

All-in-all it is a fascinating time for the sports industry and the events of the last year and a half have forced what had been a stable industry into rapid adoption mode of new technology and channels to help increase consumer engagement. It will be interesting to watch over the next 10 years to see which technologies change the sports landscape and how leagues, teams, and players adopt them to continue engaging fans.

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