Sundaymail EditorJoseph Pompliano
Despite Covid-19 clearing out stadiums and testing the entire economic model that professional sports were built on, both individual leagues and teams have proven to be strong and resilient assets over the last 12 months.
Here are a few examples:
The Golden State Warriors recently sold a 5 percent minority stake in their franchise to private equity firm Arctos Sports Partners, valuing the NBA franchise at US$5,5 billion — representing a 1,122 percent increase from their US$450 million purchase price in 2010.
US-based investment firm RedBird Capital acquired an 11 percent stake in Fenway Sports Group for US$750 million. FSG is the holding company for various amateur & professional sports organisations like the Boston Red Sox and Liverpool F.C.
Billionaire hedge fund manager completed his record US$2,4 billion purchase of the New York Mets in November 2020, topping the US$2 billion Los Angeles Dodgers sale in 2012. But, with valuations continuing to rise globally, and teams like the New York Yankees and Dallas Cowboys now worth almost US$7 billion each, the real question becomes:
How do professional sports teams even make money?
Below, I’ll run through each revenue-generating line item, including growing media rights, ticket sales, concessions, merchandise, sponsorships, and licensing deals.
Growing Media Rights
Despite US cable providers expected to lose more than 1/3 of their pay-TV subscriber base by 2025 due to cable cutting, sports leagues worldwide — think NFL, NBA, MLB, Premier League, La Liga, etc. — have seen a massive increase in their broadcasting rights.
For example, not only did the NFL recently sign 10-year, US$100 billion-plus broadcasting agreements with various networks — an almost 100 percent increase over their last deal— but collectively, more than US$50 billion is spent annually on sports media rights globally.
Even more interesting?
Estimates from Rethink Research suggest that the rise in streaming services like Amazon Prime Video, Hulu TV, and more will drive global revenue from sports media rights toUS $85 billion by 2025 — that’s a 75 percent increase compared to 2018.
Bottom Line: Broadcasting & Media rights are the single greatest revenue driver for virtually every major professional sports league globally.
Ticket Sales, Concessions & Merchandise
While in-person, fan-centric revenue items like ticket sales, concessions, and merchandise are typically overshadowed by massive broadcasting agreements, the Covid-19 pandemic was a brutal reminder of just how important they are to the overall sports ecosystem.
Estimated Covid-19 Revenue Loss Due To No Attendance
NFL: US$4 billion
NBA: US$1,5 billion
MLB: US$3 billion
Premier League: US$2,5 billion
Those figures only reflect losses in 2020 and will surely only compound as most professional sporting events worldwide are still being held with limited to no fans in attendance. In total, depending on the professional sports league, anywhere from 10 percent to 40 percent of overall revenue comes from in-person-related items like tickets, concessions, merchandise, parking passes, and more.
Sponsorships & Licensing Deals
Besides large media contracts and more tangible items like tickets and concessions, professional sports leagues and teams also make a large sum of money by selling companies the rights to sell items that represent their league or team.
Here are a few examples:
The NBA signed an 8-year, US$1 billion deal with Nike that saw the sports retail giant become the exclusive apparel provider of the league and its teams.
Standard Chartered pays Liverpool FC about US$55 million annually through its current jersey sponsorship deal, a 100 percent increase from its previous deal that ended in 2015.
The Miami Heat and cryptocurrency exchange FTX agreed to a 19-year, US$135 million naming-rights deal for their arena, making FTX the first crypto exchange to sponsor a major US professional sports venue.
The point being, if an asset can be sponsored, labelled, and sold, whether it’s NFL stadium naming rights or a patch on an NBA jersey, professional sports teams and leagues will find a way to monetise it.
Future Opportunities
Outside of the typical revenue streams that most sports fans generally tend to think about, the sports landscape is currently experiencing multiple macro-related tailwinds that will help grow the industry for years to come.
As mentioned previously, the addition of streaming services like Amazon Prime, Hulu TV, and more will continue to fundamentally shift the supply and demand equation for sports media rights — ultimately driving prices even higher over time.
Another one? Sports betting
For example, only 27 percent of the US population currently has access to legal mobile sports betting in their state, which Macquaries believes will move all the way to 96 percent by 2025.
As legal sports betting continues to be legalised across the country, new revenue opportunities for professional sports teams and leagues will become available. — Huddle Up (Online Newsletter)
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