Reinventing Sports Media In the Covid 19 Era

What impact will the pandemic have on upcoming sports media rights negotiations?  Once the games return, team owners, league executives and collegiate sports administrators face huge decisions about the primary financial engine that drives each of their respective sports: the television broadcasting rights.  Those decisions will impact millions of Americans.

To cut to the chase, I think the time has come for the leaders of our major sports to stop promoting a business model for their broadcast rights that charges millions of people who never consume their product.  ESPN, regional sports networks and cable companies get most of the blame for the current situation, but in reality, it starts at the source with the people who control sports rights.

It may sound trivial at this time, and certainly it is compared to the life and death issues facing our society at the moment.  But in the wake of the massive economic damage caused by Covid-19, sports executives have the power to reduce the financial burden their properties impose on millions of Americans.  For those looking for work in times of record unemployment, or whose business has closed, such a development would be welcome news.

For the purposes of this discussion I’m going to assume the reader has a basic understanding of how the uneasy partnership between rights holders, television networks and pay TV distributors drives the economics of the sports business.  If you want an excellent, more detailed analysis click here to read John Kosner’s and Ed Dressers’ piece published recently by Sports Business Journal.

It’s a very complex issue with many factors, yet the inescapable truth is that the sports TV business relies on extracting fees through the monthly cable/satellite bills of millions of consumers who never watch sports.

Case and point:  there are approximately 80 million households in the pay TV universe.  It’s a great night for a sports network if 10% of those households tune into a game, but that means 90% don’t watch.  Yet everybody pays.  And we’re not talking chump change. Literally billions of dollars flows through the system, enriching all the participants to varying degrees, at the expense of millions of people who never or rarely watch sports.

The cost of sports rights is far and away the biggest driver behind the increase in consumer’s monthly cable bills.  More so than the emergence of competitive OTT services like Netflix, Amazon Prime and Hulu, the rapidly escalating cable bills caused by sports rights are the main reason why 20 million households (and counting) have “cut the cord” in recent years.

Before continuing let me say that in my view the “cable bundle” we are talking about is one of the great inventions of the past century.  Beyond what it did to enrich owners, athletes, networks and distributors, it was awesome for consumers.  They gained access to unprecedented amounts of content for reasonable prices.

But to return to my original question, I think the post pandemic world is fraught with danger for rights holders if they assume this current model is sustainable.  A look at history sadly shows how our politics can be radicalized in the wake of national traumas such as what we are going through.

I normally don’t talk politics here, but it’s easy to see how clever politicians could leverage this issue to curry favor with angry voters.  As the costs for pay TV continue to increase far in excess of household incomes because of sports, one can argue that a small, elite group of billionaires (almost exclusively middle aged white males) are imposing an involuntary “tax” on millions of non-sports fans to benefit themselves in the midst of an economic calamity not seen since the Great Depression.

Is it difficult to imagine a politician exploiting the optics of Jerry Jones “sheltering in place” and making draft picks from his $250 million yacht while millions wait on line for food?

The same question could be asked for colleges and universities authorizing $10 million contracts for football coaches while those same institutions offer students diminished “virtual” learning experiences for the same tuition and with less availability of financial aid.

Granted, these may be cheap political shots, but do sports rights holders want to wait for the politicians to get a hold of this issue and use the regulatory power of the government to enforce change?  I think it’s safe to say that government interference in their respective businesses is the last thing they want.

The solution starts by working with distributors and networks to give consumer’s more choices on what constitutes a basic video package.  Move to a model that only charges people who want to view sports content.  Make it possible to get a quality selection of  70-80 networks without including the sports channels.  Such options could reduce the costs for consumers not interested in sports by hundreds of dollars each year and perhaps reverse the cord cutting trend.

Conversely in this version of the world sports fans would pay significantly higher monthly costs for video packages that includes sports.  The sports TV ecosystem would have to get creative with how they price and market their products.  But the choice would be with consumers, where it belongs.

I’m not suggesting that a such a model would be more profitable for owners.  Undoubtedly it will cause a reduction in revenue.  But in any version of the future a professional athlete, coach or owner still will occupy the wealthiest segments of our society.  Maybe the next contract for a big time college coach is for only $5 million a year or the average salary for an NBA player drops below $7 million.  Is that really such a hardship?

One could argue that I’m painting a dark portrait of a future that won’t come to pass, so there’s no compelling reason for rights holders to turn their backs on an incredibly lucrative source of revenue.

Bob Iger faced a similar choice when he green lit Disney+ a few years ago.  Disney could have stuck with their core business models and ignored the disruption for as long as possible.  But he chose a different, more challenging path.  And while it’s true that Disney+ is not yet profitable, an astounding 50 million people have subscribed.   Iger and his leadership team have been appropriately rewarded and heralded for their courage to redefine the future.

To me, the greater risk for rights holders than doing nothing is an outside actor, like politicians or regulators, stepping in to impose change.  In that scenario, all bets are off and the possibility of negative unintended consequences are high.

For those who say it could never happen, who would have imagined at the start of the year that the sports world would be in the position it is today.  As they say in sports, the best defense is a great offense.  It’s time for rights holders to go on offense and come up with a fairer, more equitable way to charge people to watch the games.

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