COMMENT: Tomos Jones, senior associate at global law firm Reed Smith on the changing value of sports rights in a post-Covid world.
At the time of writing, live sports events are showing the first, tentative signs of ‘getting the show back on the road’.
Major football and cricket events now have scheduled resumption dates, and will be even more reliant on television exposure in the absence of fan attendance. Nonetheless, much uncertainty remains around the future for the rights to broadcast sports events.
Much has been published on the assumed effects of cancelled sports events on broadcasting income, focusing on whether and how much of that income may be lost or required to be refunded.
This is largely speculation in the absence of access to the highly confidential legal agreements with broadcasters, and heavily dependent on a close legal analysis of their precise wording addressing issues such as event cancellation and ‘force majeure’ clauses.
However, dwelling on the legal niceties of the contract misses the wider, commercial point: the ‘product’ which broadcasters have purchased is diminished, and a significant ‘value gap’ has arisen which is in the interests of both sporting bodies and broadcasters to bridge.
Even where a broadcaster is able to claim reduced payments or refunds under a contract, this is unlikely to compensate it fully for its lost revenue, for instance, as subscribers churn away in the absence of live sporting content.
The ideal scenario for both sides is to at least get some product back on screen. That helps to fulfill contractual obligations, solidify projections as to likely subscriber numbers (particularly important in the context of forthcoming rights renewals), and quite simply gets cash flowing again.
Even the other-worldly scenes of empty Bundesliga grounds can drive spending by sports-starved subscribers.
The mutually interdependent relationship between sporting bodies and their broadcast partners is pushing creative initiatives such as putting more matches on screen and increased access to players, designed both to reinvigorate fan enthusiasm and to deliver more value to the broadcasters to bridge the value gap.
On the broadcasters’ part, the challenges vary according to their different business models.
Those with the most diversified income streams, such as pay television operators, who also provide entertainment and movie content, as well as broadband connectivity, have cushions against the loss of sports subscription revenue.
They also have the most levers to pull in limiting customer churn, as demonstrated by Sky’s recent offer to ‘pause’ its sports subscriptions, bonus content offerings and package swapping, as well as the promotion of increased content rentals.
The bigger and longer-term question concerns the effect of the current crisis on the value of future sports rights deals.
It is difficult to see how an uncertain environment of no events, empty stadia for the foreseeable future, and no clarity on resumption of the ‘normal’ product, can have anything other than a detrimental effect on value.
As events resume, some of that uncertainty will start to recede, but there may be calls for significant conditionality in future rights deals, such as payment ratchets dependent on events and attendances returning to normal, plus the continuation of some of the initiatives mentioned above to enhance the value of broadcast packages.
As to whether reduced rights values might tempt other players into the sports rights market, arguably a fall in value might tempt a pure streaming service to pick up more rights than it might ordinarily have done when prices were at their peak.
However, it is questionable whether any falls in value will significantly change the equation for such operators, whose ‘spend millions to serve billions’ model differs radically from the pay television ‘spend billions to serve millions’ approach.
Ultimately, however, basic market rules will prevail. What consumers are willing to spend will drive how much broadcasters can charge them, and therefore how much value broadcasters attribute to sports rights. That equation will depend on much bigger, wider economic questions around the inevitable economic downturn, the impact on jobs and disposable income.
Tomos Jones is senior associate at Reed Smith