How digital natives are shaping the future of sports monetization
Opinion piece on how traditional sports leagues can sustain rights monetization in a changing world...
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Live competition has engaged fans for ages. This piece explores how the monetization of fan engagement has evolved, examines some of the different ways it’s currently implemented, and suggests new ways it can be optimized to cater to figure generations - specifically Gen Z, whose waning sports fandom is causing concern. With looming shifts in content consumption behavior and technology, the core question that I’ll address is: how can professional sports leagues sustain media rights monetization into the future?
Before we dive in, it’s important to understand how sports leagues make money. Leagues generate revenue across four main streams - media rights, gate revenue, sponsorship and merchandise. Over the past five years, media rights have been the golden goose. Let’s take a look at some of the biggest media rights deals and developments just in the past couple months:
The NFL announced an 11-year contract worth a total of $110B ($10B per year) with Amazon (exclusive streaming rights for TNF), CBS, ESPN, FOX and NBC
The NBA is reportedly seeking to triple their tier 1 rights fees, earning the league over $8B per year, when contracts expire after the 2024-25 season
The NHL announced a 7-year rights agreement with the Disney (ESPN & ABC) that will begin with the 2021-22 season. 75 regular season games will stream exclusively on ESPN+ and Hulu each season
The creation of the European Super League (ESL) was announced, bringing together the most storied and popular clubs across Europe. The ESL, whose proposed star club composition was static and not subject to relegation, was designed to prioritize popularity over merit in order to achieve maximum engagement and media rights value. Widespread revolts from players and fans led to the collapse of the proposed league just 48 hours post announcement
The PGA announced the Player Impact Program, which rewards the sport’s biggest stars with a $40M annual prize pool that is distributed across the 10 most popular players regardless of their performance. This was a direct response to keep their most valuable IP from considering the Premier Golf League
Sports media company Overtime raised $80 million in a Series C last week, intending to use a portion of the funds for launching its elite youth basketball league that pays 16-to-18-year old players at least $100,000 per year. The company’s content is currently streamed more than 1.7B times a month across all social platforms, generating revenue from ads and e-commerce merch. With the launch of the new league, I assume media rights and licensing will become a core priority going forward. How convenient that Jeff Bezos (via Bezos Expeditions) participated in the round
As you can glean from these headlines, media rights are a huge deal. However, as contemporary media continues to evolve, rights monetization via linear TV is starting to show signs of concern amid declining ratings. As a result, media rights are starting to transition to streaming-exclusive deals like the recent Amazon/NFL deal and ESPN+/NHL deal. At scale, this is an existential threat for linear TV. “If sports were not on TV, people would have cut the cord in a lot bigger numbers a long time ago,” says Dan Rayburn, a principal analyst of digital media at Frost & Sullivan. Media companies securing streaming-exclusive deals for live sports shouldn’t come as a surprise, following the path of original programming. However, the shift shouldn’t be too disruptive given it provides an incremental revenue stream to leagues for now and a reallocation option should linear TV phase out in years to come.
The true concern for leagues is their ability to transition to meet the expectations of emerging generations. Gen Z, born between 1997 and 2012, is not consuming sports nearly as much as the generations before them. According to a study conducted by Morning Consult, only 53% of Gen Zers identify as sports fans, compared to 63% of all adults and 69% of millennials. Additionally, only 21% identify as “avid” sports fans.
To make matters worse, the Gen Zers who are sports fans place significantly less value on watching live events. In a separate Morning Consult study, only 25% of Gen Z sports fans said watching live competition either on TV, via streaming or in person is “an important part of being a fan.” The mental model of feeling excitement to sit down and watch a full game has never been developed for this generation. Gen Z is accustomed to asynchronous consumption and streamlined gratification.
Before identifying ways for leagues to adjust to Gen Z’s consumption behavior, let’s analyze the grassroots factors underlying their preferences.
As the first digitally-native generation, Gen Z’s online and offline worlds are isomorphic. By the time the oldest Gen Zers could think for themselves, high-speed internet and the iPhone existed. The existence of social media has also been a mainstay in their lives, causing a majority to feel overwhelmed by societal expectations. As a result, Gen Zers turn to video/streaming platforms like YouTube as a way to decompress and to get their minds off of the issues that are causing them stress. Video/streaming platforms also provide Gen Z with a way to share digital experiences with friends. Gen Z watches an average of 68 videos per day, contributing to their strong preference for content delivered in an on-demand, quick-bites format1.
Gen Z craves and values interactive experiences above all else, and a large amount of these shared experiences occur within the gaming world. The boom in Mass Multiplayer Online (MMO) games, such as Roblox and Fortnite, has catalyzed these cravings, giving kids and young adults more immersive worlds to explore. With birthday parties being hosted in Roblox and Travis Scott concerts being hosted in Fortnite, gaming is truly the new social network. However, we can assume that more time spent hanging out with friends in digital worlds means less time spent outside playing traditional sports, which ultimately erodes the future fandom of said traditional sports.
Because Gen Z’s content consumption behavior is drastically different than preceding generations, let’s explore three ways in which sports leagues can sustain media rights monetization into the future.
Engagement via micro moments
While streaming brings live sports closer to where modern audiences are consuming content, it doesn’t solve the problem of Gen Z fans placing significantly less value on watching live events. New-aged fans are seeking out sports content delivered in short-form or highlight format as they navigate a world of endless digital experiences aggressively vying for their attention. If leagues want to be proactive in sustaining media rights monetization a decade from now, it would behoove them to start identifying the platforms that will eventually host Gen Z’s eyeballs. Linear TV and traditional streaming plays likely aren’t it.
So who is building the next-gen platforms to solve this problem? My favorite play is Buzzer. Founded by Bo Han, former Head of Live Sports Rights Acquisition at Twitter, Buzzer simplifies the discovery and access to live, short-form, “lightning-in-a-bottle” moments in sports tailored to your preferences with real-time notifications and microtransactions. Users can either connect existing streaming providers (e.g., ESPN+) or conduct microtransactions ($0.99) to view a moment. Think NFL RedZone, but calibrated to your own team and player preferences. Last week, the company secured official media rights for the NHL and PGA IP. Given Buzzer’s founding team pedigree and pending user growth, I’d assume additional league rights are likely to be attained in the near future. Once that occurs, I’d expect the app to layer on betting features or free-to-play games to augment engagement, which brings me to my next topic.
Engagement via sports betting
If you’re a sports fan, you probably haven’t gone a week in 2021 without seeing sports betting headlines filling up your news feeds, whether it’s related to the legalization of a new state or strategic consolidations between operators and content providers. Projected to be a $30B+ industry in a fully legalized, mature environment, sports betting is big business in the US and will be a boon to rights monetization for leagues. In 2018, the American Gaming Association projected the four major US leagues to generate combined revenues of $2.3B per year through media and data rights as a result of legal, regulated sports betting2. Given the recent media and data rights deals that we’ve observed this year, the $2.3B figure seems extremely conservative.
Wait, data rights? That’s correct. The sports betting opportunity is so large that it spawned a new type of rights - official data rights. Sports data companies bid for the exclusive rights to distribute “official league data” to sportsbook and media clients. This ensures that a league like the NFL isn’t excluded from the monetization of their IP. For context, Genius Sports recently secured the NFL official data rights, paying the league $120M annually over six years.
In addition to data rights, sports betting will be the rising tide that increases the value of media rights through significantly higher fan consumption of league content across all generations. For example, think about the March Madness effect. Every year in the US, over 40M people fill out brackets for the NCAA basketball tournament as a part of a family/friend or office pool. Participants range from young to old and hard-core fans to folks who have never watched basketball in their lives. However, gamification and shared experiences is the glue that brings everyone together. As a result, ratings go through the roof for the NCAA tourney as people naturally become more engaged when they have a stake in something. Legalized sports betting makes these types of shared experiences more accessible across all major sports and tournaments.
Sports betting can also preserve media rights value through increased engagement among Gen Zers who do identify as sports fans. As stated earlier, Gen Z values interactivity and shared experiences above all else. While the aggregate number of Gen Z sports fans is well below preceding generations, the percentage of Gen Z sports fans who bet is high, according to a study conducted by Rutgers University. Sports betting for Gen Z is more about having fun than making money. It’s a form of interactive entertainment. Mark Beal, an assistant professor at the Rutgers School of Communication and Information who helped conduct the study said,
“They’re seeing it almost as a social event to make a wager, to watch a game together, and even if they’re not physically together, they’re interacting throughout. It’s gamification for them, even though there’s money involved. It’s the gamification of sports events where they’re having fun competing against each other.”
While the total number of Gen Zers betting on sports may be a concern, the quality of the bettors (i.e., high engagement) could offset or chip away at the difference.
Engagement via the fusion of sports, esports and gaming
Esports presents a genuine threat to sports leagues and the value of their media rights in the long-term. As more digitally-native generations age up, interest in gaming will reach critical mass, driven by the factors touched upon earlier. Referencing the Morning Consult study again, esports came in at the #4 spot for Gen Z in terms of sport-specific popularity, ahead of college hoops, MLB, NHL and the EPL. That seems crazy to my millennial brain! Esports adoption also benefits from having a global digital audience that isn’t solely based in the US, affording organizations wide-spread reach and significantly larger fan bases. So the question remains: what additional ways can sports leagues license their IP into the evolving gaming world to keep their media rights relevant and valuable?
Leagues have been licensing media rights to major game publishers for years, powering singular titles such as Fifa, NBA 2K, Madden and NHL. As esports enters the mainstream, franchised leagues, such as the NBA 2K League, are popping up to capitalize on the popularity of competitive circuits and the strong viewership of such events. This is a net positive as additional revenue streams get added into the rights master agreements between leagues and publishers, but it isn’t enough. Leagues need a way to access the lives of every-day gamers beyond franchised leagues for individual sports titles. While no established platform exists yet, I believe the winner will be whoever can create a collective virtual shared space (i.e., the metaverse) to unite the worlds of both sports and esports. While this concept is still extremely nascent, early-stage startup GreenPark Sports is one player who is uniquely positioned to bring this vision to life.
Co-founded by YouTube co-founder Chad Hurley, GreenPark Sports combines sports fandom and betting with the mechanics of mobile gaming and the metaverse to create a new shared experience for digitally-native sports and esports fans. Within the game’s immersive world, players can buy team-specific skins for their fan avatar, explore live events within a league-specific “land” (where fan avatars gather to watch in-game jumbotrons) and engage in betting, prediction and dance battles to earn points for their team. Currently, the company has obtained official media rights from the NBA, La Liga and League of Legends (Riot Games) to use their IP. GreenPark is well positioned to provide innovation not only for the sports fan of tomorrow, but also for leagues by providing an opportunity to license rights to a sports-focused digital world that could become the future of immersive engagement. Here’s to the future!
As content consumption behavior evolves and as esports continues to rise, it’s imperative that sports leagues innovate to align their product with digitally-native audiences. Identifying strategic partners and experiences that prioritize digital interactivity, streamlined delight and gamification are core levers that can sustain the value of their rights into the future and seed interest within digitally-native generations.
https://medium.com/@the_manifest/why-generation-z-loves-youtube-ec64643bd5b2
https://www.americangaming.org/wp-content/uploads/2018/10/Nielsen-Research-All-4-Leagues-FINAL.pdf