Will the ‘Rampant Inflation’ of Sports Media Rights Come to an End?
A few days ago the CEO of BT (British Telecom) Gavin Patterson claimed that the “rampant inflation” in sports media rights has to end. Across the world, we know that there is a huge change underway in terms of media consumption trends, most notably the decline of TV and the rise of digital. The sports market in the US in particular has been discussing the potential effects of declining subscriptions in the cable TV market. All of these are valid fears, but none of them are particularly new and yet sports media rights values continue to rise as starkly illustrated by this article, that although not completely current, really highlights the growth. Today I will discuss a few of the factors at play here and what could potentially happen.
Market Saturation of Sports Media Rights
Broadcast executives often complain about the market saturation of sports media rights and that sports media rights inflation must come to an end as a result. I won’t even pretend to know the sports media market and their businesses as well as these executives, and it does make sense that at some point there will be too much sport out there for only a limited population of viewers. What the sports industry must consider when they hear statements like this is that as true as they may be, they are coming from the point of view of media executives. They are primarily concerned with the market they operate in and with their own industry. Furthermore, even if we look solely at domestic markets, how many of these national markets are saturated? Consider the graph below:
Although these figures are quite high, let’s take a moment to compare some of the European markets. The EPL is getting $2.6bn a year and the UK has a population of about 65m people. Compare this to Ligue 1 who is getting ‘only’ $850m a year despite France having a population and economy that is very similar to the UK and we can immediately see that there is plenty of room for growth in the French market just to match where the UK is. If we look at the Bundesliga, who now has an improved deal of roughly $1.2bn a year (less than half of the EPL) despite a population 25% larger than the UK and a marginally stronger GDP per capita, and the arguments that there is no room for media rights growth quickly become a myth in many, if not most, markets.
When you consider that the USA’s population is over five times that of the UK and that its GDP per capital is nearly 50% higher, I would argue that even if you add all the various US sports’ media rights deals together, they are still below where the UK, relative to its size and economy, is with the EPL. Next, keep in mind that this is working off the assumption that the UK is at its peak. Although media companies are squeezing their profit margins to hold onto sports media rights, given that the bottom line is still in the black, I believe there is still room for more lucrative media rights contracts .
All in all, I think that although media companies are under pressure, there is still plenty of room for domestic media rights to grow. Sports is still at an early colonialism stage with high growth domestically and although sports organisations are looking internationally, the revenues from outside their domestic markets are still quite low. As discussed in my previous article ‘Sports Industry Revenues in Context and Future Opportunities‘, I believe that there is still plenty of room for growth across the sports industry.
The Laws of Supply and Demand – Competition for Sports Media Rights
Even if the market saturation argument held up, and media rights companies are at breaking point, there is the law of supply and demand to keep sports media rights prices rising. Traditional media companies are seeing declining subscriptions with less people watching TV and reading physical newspapers, but they all realise that perhaps their biggest drawcard is sports. With this seen by the media organisations as their best bet to stay afloat, it is the competition amongst them, the demand for the sports product, that is the main driver of sports media rights inflation.
What if a doomsday scenario were to happen and some of these companies collapsed so that there was less competition and demand for TV rights? There is a distinct possibility that this will happen in the coming decade. Remember that if this does happen, it is not because people are consuming less media overall, but rather that people are consuming different media (primarily digital) to the past. As such, I believe that any demand lost due to traditional media companies failing will not result in lower prices for sports media rights. Instead, the demand will come from digital media rights companies as they grow their consumer base and that market begins to mature.
Again, although media company executives are screaming about media rights inflation, I believe that the outlook for the sports industry itself remains strong regardless of what happens with the media companies. The big challenge will be adapting the sports product to the new ways in which people will be consuming them in the future – look out for a future post on this topic.
Globalisation of Media Rights
Compared to other industries, the sports industry takes a lot less of its revenues from international markets. The chart below shows the stark contrast between the percentage of international revenues that each of the organisations below bring in. The EPL is the clear leader in the sports industry and yet it is significantly behind other international brands. Considering the relatively low international appeal of American Football, we can assume that the NFL’s international revenues are minimal, however, the NFL is a private organisation, so it doesn’t publish its financial statements (as discussed in my article on the differences between the North American vs European Sports System) and we cannot know for sure.
Once again, I want to reiterate that the sports industry is still in the early stages of its growth path. Some sports media rights properties are coming close to saturation within their own domestic market, however, they are only just beginning to reap the rewards of international markets. Please note, that although there is plenty of headroom, international markets are finite and sports organisations seeking international expansion will need to contend with local sports media rights properties. Nevertheless, I believe that there is still ample room for growth globally for the sports industry.
Implications for the Sports Industry
Based on the above, although the media industry is going through a tough period of transition, I believe that the effects on the sports industry will be minimal and that there is plenty of room for growth. In order to capture this growth in media rights, sports organisations will need to be a focus on some key areas:
- Pick the low-hanging fruit and establish market share by diversify media rights income sources, paricularly:
- Digital media rights
- International media rights
- Focus on improving the sports product – the market will eventually mature and then the best sports product will win with fans.
Thanks for reading this post! Let me know your thoughts on sports media rights inflation by commenting below!
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