Enders: Sport’s Fairy Godmother delusion
Claire Enders has the ear of every broadcaster, mobile telco and tech platform. Her company, Enders Analysis has a reputation for accurate and often contrarian predictions. And it’s fair to say Claire didn’t pull her punches in this podcast: ‘Our work is not for shallow thinkers, and I’m afraid they abound in sport’.
Here are some highlights of our conversation - available in full here:
Unintended consequences: The European Commission’s intervention in to sports media rights has left ‘many corpses’ and encouraged short term thinking among major sports rights holders.
“You don’t find many football clubs or leagues that work on a long term basis, particularly since the three year term for sports rights cycles became the norm. That makes for short term thinking, very emotional rights auctions and very shallow thinking.
The short cycle problem
Three year cycles has not favoured football clubs in the long run, because it means they don’t have long term sources of income. When you’re only on three year terms, and then suddenly have to give rebates back to broadcasters you don’t have the financial conditions to look attractive to banks because they are loaded with debt. So the have been exposed, because they made out like bandits for years and never developed a sustainable model along the way.
That was part of a mandate by the EC to introduce competition, so single rights holders - eg Sky in the UK - were challenged for those rights which were mandated to go to a lesser player. We’ve seen many, many corpses laid at the door of this rule that there should be two bidders at every auction, from Setanta, Eleven Sports, DAZN is now withdrawing from various markets, so the level of competition ushered in by these dual rights packages has actually been injurious for many investors. There isn’t any change, there’s no outbreak of common sense or long term thinking, even now.
We’ve already seen Peak Sport, it’s in the past, certainly in the UK. The last Premier League auction takings were down and we expect that to continue. The overall market for sports media rights at that level, PL, Bundesliga, F1, is down slightly and we expect that to continue through upcoming auctions for Premier League.
This is because the very significant and entrenched players like Sky are cutting their costs and reallocating to original material where they control the rights. Sky didn’t bid at all for rugby highlights packages that Amazon got, they just walked away.
So you’re seeing a lot of discipline from the alpha male in the Premier League, which is Sky.
What has been the impact of sport on the value of Sky and BT?
In terms of Sky’s value, the PL has always been a strong driver but it’s been many years since it was the only one. Sky was sold for $35billion with already in the bag a reduction to what it paid to the Premier League and with tens of other key revenue streams from sports to broadband. It is incredibly good at monetising rights but the company makes the same structural losses in sports as BT, and for the same reasons, that is overpayment for rights in the past. That situation didn’t stop Sky from being sold to Comcast for a huge price, but in contrast BT has suffered momentous decline in its value as the marketing benefits of giving away sports, which was its initial strategy, simply didn’t materialise. So the strategy shifted towards pricing as high as possible to achieve break even in 2022-23, which will be ten years after they entered the business. So one can say that sport has been crippling for BT, they too are losing of around £300m a year, mainly as a result for overpaying for Premier League and UEFA Champions League: They broke the bank and it broke them.
‘BT has always blinked and written a large cheque’
The UK sports broadcasters will be trying as hard as they can to reduce their rights fees. But we have to understand that as ever, auctions are very emotional affairs and in the past, BT has always blinked and written a very large cheque.
Sky has not been emotionally affected by these auctions for some time, the last three years we’ve seen extraordinary discipline at Sky and we think that will continue…they have an overall view of what works for them very clear idea of what they’re doing and why.
The next Premier League auction could see a decline in rights values by 5 to 10% in the UK, unless the Premier League extends the term to say, five years. In which case, that would change the dial, that would guarantee they would be able get as much as last time. It would enable them to develop a long term audience, which is needed. The inflation in rights has seen clubs and leagues thinking they have an unending line up of companies after BT.
The clubs believed there is another Fairy Godmother lining up, another set of mugs called the tech companies who would step right in and do exactly the same all over again. That’s just been proved to be false.
They have just had a bloodbath event that exposed all the clubs to paying rebates but having no way of clawing that back from their players. There’s a lot of distressed clubs around the place, I hope they’re thinking sensibly about how they insulate themselves during what will be a very long virus crisis, of at least five years.
DAZN’s Netflix for Sport story is over
DAZN is raising a billion dollars, and it’s in a state of crisis, it’s pulling out of the USA and Brazil, and only staying in Japan because it came to a revenue share deal with the J-League that de-risked their venture and essentially gives an ownership stake to the J-League. The J-League was forced to accept these terms because nobody else was interested in them.
The whole Netflix for Sport story is just so over for DAZN. It’s not going to work. DAZN is doubling up in Europe.
The Netflix of Sport thing that DAZN were so keen to proselytise when it started, is over, it’s not going to work. They are completely blown out of the water in the USA and Brazil. A billion dollars will just go towards support their global boxing thing.
They’re nothing to worry about in the UK, they never were. But honestly, the amount of hope that clubs have put in to them in the UK, it’s Fairy Godmother time.
The limits of Amazon’s sporting ambitions
Amazon’s strategy is unique to its business. It buys video and other rights to keep its Prime customers interested and give a thank you for staying with them. It’s essentially a product that’s bundled with free postage.
They are naturally growing a very small audience of Prime subscribers, and sport is entirely focused around peak shopping moments.
So the rugby package it just acquired encompasses key shopping days in November. The 13-14million customers it has now are an extraordinary route to market, but they aren’t paying for anything. Even the PL experiment at Christmas was focused around big shopping days. They’ve made some really small bets in the UK. They were handed to the games although BT’s bid was higher. The PL put out of a very thick red carpet to Amazon, a company that could afford to have paid anything for these rights were basically given them away. Sky didn’t even bid for them.
Sky is a very deep local service. Amazon is happy with very high impact events, for example the Jeremy Clarkson show, The Grand Tour is fantastically successful for them, because its only of interest to one audience, but its a very big audience of petrolhead in the UK.
Amazon have no stomach to keep pace with Sky.
Sky spends all year marketing its sports to drive customers. Amazon markets to its Prime customers. It’s a completely different strategy. We don’t predict this approach to be consistent with challenging Sky or BT for the major rights packages, upon which the PL revenues are so critical.
I’ve long predicted the streaming services are not interested in challenging Sky and BT and I’ve long been right.
Netflix has been in the UK since 2012, are wildly successful and don’t need sport. Apple has become a modest player for original material.
The days of the Fairy Godmother are over.