Sports Rights Bubble Narrative “Overstated and Under Researched”

Sports Rights Bubble Narrative “Overstated and Under Researched”

The Premier League’s domestic rights deals, the ongoing fractionalization of national rights in the U.S. (see: NFL, MLB, NASCAR) and MLS’ move to Apple have all be cited as evidence that sports rights values may be close to peaking. The narrative gained steam in the wake of Mark Cuban’s sale of the Dallas Mavericks.

But at least some industry veterans remain bullish on national broadcast-related revenues continuing to grow, and by proxy, pro team and league-level investments.

“This concept of a sports media rights bubble is overstated and under researched,” Brian Flinn (partner and COO, Isos7 Sports) said. Leagues may not be able to command “a 3x or 4x increase in negotiations anymore, but a 2x increase remains achievable and can still be a gamechanger for most properties.”

Remember, after the revenue stream is split with the players, much of the balance should hit the bottom line. 

“People aren’t realizing the impact 2x growth with near 100% margins will have on the economics of these leagues and teams,” George Barrios (founder and co-managing partner, Isos7 Sports) said. “These are businesses you should be running to invest into.”

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The TV advertising and subscription business (think: affiliate fees) consistently grew at a 5-10% YoY clip in the U.S. in recent decades, and much of that revenue trickled down to the rights owner. Now, with the industry undergoing a transition and the profits embedded in the old system slowly leaking away, an increasing number of observers are wondering where future growth will come from. 

“They see the networks struggling and the streamers losing money and wonder how rights fees can continue to increase,” Barrios said.

While that logic makes sense, it fails to account for the critical role sports play in legacy broadcaster portfolios.  

“If those networks don’t have live sports, their value goes to zero because nobody cares about their content,” Barrios said. 

So, Isos7 Sports expects the legacy outlets to increasingly shift resources from unscripted and scripted programming to sports. 

“There’s still a lot of room for them to invest in more sports content, which has stable, reliable, predictable audiences, as opposed to guessing on a new show,” Flinn said.

It also does not account for the possibility of the digital players spending more aggressively on live rights in the years ahead.

“There is a significant amount of their revenues that they can spend to drive acquisition and retention through sports,” Flinn said. 

Isos7 Sports acknowledges there may be some short-term turbulence and disruption in the marketplace as the legacy players work to right-size their businesses and the tech giants continue to test and learn.

But "our math suggests that this blip people are negotiating in should go away pretty quickly," Flinn said.

How quickly?

“In 10 years, U.S. sports rights are going to be, in aggregate, 2-3x greater than they are today,” Barrios predicted.

And Isos7 Sports believes the new distribution system will end up being more profitable for rights owners too because of how revenues are disseminated.

In the old system, “the networks would buy content from others, bundle it, double the price, and sell it to the MVPD,” Barrios said. “They'd make a 50% margin and the MVPD would take the offering and double the price to the consumer.”

More of the economics are expected to flow down from the distribution layer to the content suppliers in the new system.

“To where the value really is,” Flinn said.

Power laws should ensure sports properties command the bulk of incremental revenues, or at least that those at the very top of the value chain do.

“The break points between [property] tiers and the slope of the curve is changing,” Barrios said.

Tier two and tier three properties will likely have to get more creative and deliver more value to keep their rights revenues rising.

Isos7 Sports assumes increasing fandom abroad, spurred on by digital and social media content, will be another catalyst for future growth.   

“What’s happening globally is really misunderstood,” Barrios said (think: ongoing wealth transfer + tech adoption in emerging markets). 

And it views the continued expansion of legalized sports betting in the U.S. as another strong tailwind.

“The ability for a casual fan to participate and be engaged with league content is valuable,” Barrios said. 

Time will tell how large the pie can ultimately grow to be. But it certainly seems premature to call the top on sports rights before the new distribution system shakes out.

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