#33 Status Quo of Media Rights in European Football: Can we do better than No-Single-Buyer Rule?

After having recently closed new deals in Italy (through 2020/21), United Kingdom (through 2021/22), Spain (through 2021/22), and France (through 2022/23), the domestic live broadcasting rights to Europe’s five biggest football/soccer leagues are now locked up to for at least the next two-and-a-half years, before the Italian Serie A and German Bundesliga are back on the market. Except for the English Premier League, which inevitably experienced a slight downward correction (-9.8%) and will move closer back to the pack, exceptional increases in annual domestic broadcasting revenue have been secured across the board - showing no signs of a bursting media rights bubble anytime soon.

Since it should be a rather quiet period on the media rights - front (ironically the news about digital-only streaming service Eleven Sports reportedly being on the brink of shutting down its operations in the United Kingdom just broke), I thought it would be an opportune time to take a look at the current state of European football’s sports broadcasting market and a looming issue that has recently caught my eye: The increased discontent of second divisions with the lack of attention by its current rights holders, most recently observed in Spain and Germany in particular.

The common denominator between the “2. Bundesliga” in Germany and “La Liga 1|2|3” in Spain is that all of their live broadcasting rights are exclusively held by the first division’s main broadcasting partner: Overshadowed by the country’s top-flight football competition in Germany (Bundesliga; Sky Deutschland) and Spain (La Liga Santander; Telefónica), the second divisions struggle for any attention (think: airtime, level of production, news coverage) by its exclusive rights holder, making it even more difficult to become relevant for the mainstream audience. Domestic broadcasting rights to a country’s top-tier competition are usually shared between at least two broadcasting companies due to the public-serving, competition-creating approach of lawmakers in Europe (think: “No-Single-Buyer” - Rule). In North America, instead, the sheer costs and associated risk of exclusive ownership to the market’s biggest sports properties make exclusive ownership rather unlikely. In second-tier competitions of European football, however, having one exclusive rights holder of all games has become the standard. To make matters worse, said rights holder is more often than not also the primary rights holder of the country’s first-tier competition due to multiple reasons (think: bundled media rights tender, one market-dominating pay-TV operator).

In my opinion, it would more important to make sure that the first- and second-tier competition do not have the same primary broadcasting partner instead of artificially splitting the first-tier competition’s rights across multiple rights holders as intended by the “No-Single-Buyer” - Rule.

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Artificially Creating Competition & Innovation Through Public Interventions

In-line with the more public-serving, competition-creating approach of European lawmakers, there are much shorter media rights cycles in European football with the well-intended objective of not hampering competition and innovation. The North American sports rights market, for its part, has rather adopted a “laissez-faire” - approach regarding the number of rights holders and length of broadcasting deals. This is also one reason why new (digital-only/first) market entrants in Europe got a much earlier shot at high-profile sports media rights (think: Amazon: EPL & Tennis US Open in the UK, Eleven Sports: Golf PGA Championship, NBA, La Liga & UFC in the UK, DAZN: Premier League & UEFA Champions League in Germany) compared to the United States, a market that is currently characterized by the unavailability of any premium (and second-tier) live sports content due to long-term lock-up of the NBA (9 Years through 2025), NFL (9 Years through 2021/22), NHL (10 Years through 2021), MLS (8 Years through 2022), and MLB (8 Years 2021, excl. FOX’s recent 7-year-extension through 2028).

Even in the absence of any significant intervention on behalf of public regulators, live broadcasting rights in North America are usually shared among different rights holders and distribution systems (think: free-to-air TV vs. cable/satellite pay-TV) because the enormous value of media rights, or cost depending on your point of view, effectively serves as a “No-Single-Buyer” - Rule for the NFL, NBA, and MLB: Nobody would assume the risk of becoming the exclusive rights holder by committing multiple-billion dollars per year to a single sports property. Therefore, it is also no coincidence that the least-valued property among the four major leagues (read: NHL) is the only one in exclusive hands of one broadcasting partner: NBC pays an average of +/- $187m per season for the NHL after the network agreed to pay +/- $2bn over ten years (2011-21) but handed the league +/- $200m in up-front payments once the deal was signed in April 2011. Operating still under a media rights deal which was agreed upon almost a decade ago and before rights fees literally exploded across the global sports rights market, any new deal for the NHL is likely to increase more than twofold once the current deal expires after the 2020-21 season. Committing annually more than tenfold that amount of the NHL to only one property, instead, is a financial commitment on another level. As a result, the NBA (+/- $2.6bn; ESPN & Turner Sports), MLB (+/- $1.55bn: Turner Sports, FOX & ESPN), and the NFL (+/- $5.5bn; CBS, ESPN, FOX & NBC) have almost inevitably multiple rights holders, who share the financial commitment (or burden), for the linear distribution on national airways alone. With a competitive media landscape obviously secured in North America, European lawmakers have argued that the long-term lock-up of sought-after broadcasting rights would negatively impact the right holders’ incentives to continue to innovate: However, examples such as NBC’s “Sky Cam” for NFL broadcasts on the production-side or Turner’s purchase options for individual quarters during NBA games on the consumption-side are admittedly only of anecdotal evidence but there is no argument against the fact that rights holders have continue to enhance the broadcasting experience in order to compete for the consumer’s attention and discretionary income amidst an increasing number of entertainments options in today’s media landscape. Moreover, it could actually be made the case that a long-term lock-up incentivises rights holder to commit additional resources to any innovative efforts since it does not face the risk of losing the just-acquired media rights anytime soon.

Across the pond, the intervention by European regulators does not just end with putting an artificial limit on the length of any rights agreement. Probably even more significant, the contractual freedom regarding the make-up of the set of rights holders for Europe’s most important media properties is limited: Currently the first-tier national football leagues in France (Ligue 1), Italy (Serie A), United Kingdom (Premier League), and most recently Germany (Bundesliga) have committed to the so-called “No-Single-Buyer” - Rule, introduced by the European Commission to ensure that no single bidder may be awarded all exclusive audiovisual rights for the competition’s live broadcasts.

Before focusing on the Bundesliga and the all-encompassing failure of the “No-Single-Buyer” - Rule in Europe’s second-largest sports rights market, you may wonder why I have not mentioned any other sports (think: Basketball, American Football, Motorsports, Tennis, Boxing) yet. In a nutshell: Excluding cyclical continental or global multi-sports events (think: Olympic Games), football is pretty much dominating all other sports properties, resulting in a highly-concentrated European sports market in terms of economic value. Therefore, almost every sports besides football struggle for mainstream attention and has inevitably to be categorized as niche sports in most markets. How big (read: dominant) is football/soccer outside of North America? Just take a look at the global sports media rights market: Although US sports properties boost three of the four highest-valued media rights on an individual basis (NFL, NBA, MLB), football properties (+/- $20.1bn) dominate the global landscape with a market share of more than 40% in 2018, via Sport Business Group.

Bundesliga: “No-single-buyer” - Rule As Flaw In Otherwise Successful Media Rights Tender Among the European broadcasting markets, Germany is characterized by two specific observations: First, football is even more dominating than in almost any other European country, greatly diminishing the mainstream relevance of other somewhat popular sports (think: Winter Sports, Formula 1, Basketball). Second, the country has historically has a very strong free-TV landscape that is home to both Europe’s best-funded public broadcasting service (think: ARD & ZDF), reportedly having an annual budget of +/- €600m for sports content at its discretion, and numerous for-profit free-to-air broadcasting channels that are (purely) ad-financed but have carried a lot of live sports in the past (think: RTL, Sat.1, ProSieben, Sport1). Having had access to lot of a media content for free over the last few decades, an unwillingness of German consumers to pay for any content has been firmly developed - certainly a problem in times during which acquisition costs of premium live sports are increasingly only to be recouped by rights holders with a dual revenue stream of subscription and advertising revenue. Unsurprisingly, pay-TV operators in Germany had major problems to build a sustainable business model in the past (think: Premiere, Arena). Luckily for any pay-TV business, even the spoiled consumer in Germany started to get somewhat sensitized to the idea of paying for premium content or increased convenience as other paywalled services in the area of music (think: Spotify, launched in 2012) or non-sports video content (think: Netflix, launched in 2014) gained some traction. Those developments certainly contributed to the fact that Sky Deutschland, having been the exclusive rights holder of the Bundesliga from 2009/10 through 2016/17, reported its first-ever year of positive operating income (= earnings before interest and taxes; EBIT) in FY15/16. How tough and unprofitable has the German broadcasting market really been for any pay-TV business? The reported operating income for its German division (+/- £4m) contributed a mere +/- 0.2% to the London-based pay-TV operator’s bottom-line (+/- £1.558bn). At the same time, banking revenues of +/- £1.512bn during FY15/16, the German division actually contributed +/- 12.6% to the top-line of Sky PLC, making Sky Deutschland an operation running on razor-thin margins.

Just because the leading, and essentially only, pay-TV operator in Germany announced its first profitable financial year of its history did not mean that the German market was all of the sudden prepared to become home of another rights-buying entity trying to monetize its sports content through subscriptions. Before the 2016/17 Bundesliga season, less meaningful concessions (think: comprehensive highlights and selected live game broadcasts on free-to-air channels) made by Deutsche Fussball Liga (“DFL”), which is responsible for operating both the Bundesliga and 2. Bundesliga, were sufficient to assuage the German competition watchdog (“Bundeskartellamt”). In exchange, all 36 teams across the first and second division were allowed to sell their broadcasting rights via one centralized media rights tender to one single bidder. Starting with the 2017/18 Bundesliga season, however, the Bundeskartellamt demanded that more than one bidder may be awarded audiovisual rights for the Bundesliga’s full-length live broadcasts. Therefore, the DFL was suddenly tasked to come up with another viable option for at least 30 out of the 306 Bundesliga matches in order to satisfy the newly-implemented “No-Single-Buyer” - Rule for the current four-year rights cycle (2017/18 - 2020/21). Whereas the domestic media rights tender was a great success for the DFL from a monetary perspective, banking +/- €1.16bn per season (+73%) through 2021, it also resulted in an uphill battle for the successful bidders to recoup their rights acquisition costs.

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Interested in additional insights into the current state of the sports broadcasting market in Germany?

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For market incumbent Sky Deutschland, being a profitable operation (i.e. positive EBIT) was ultimately a short-lived aberration and the pay-TV operator was immediately back making operating losses (+/- £40m) once the new domestic rights agreement kicked in during the company's FY17/18. A similarly negative impact on the division’s bottom-line has been observed one year earlier in the UK, with operating profits dropping from +/- £1.504bn to £1.292bn (- 20.8%) in FY16/17, when the recording-breaking domestic broadcasting deal (+/- £5.1bn over three years) took effect. It will be interesting to see whether the German division can bounce back the same way like the UK business once it adjusted its operations (think: cost-cutting) after committing +/- €876m per year over the next four seasons to retain the majority of Bundesliga games (266 out of 309 matches) on an exclusive basis. On a positive note, Sky Deutschland was able to continue to grow its subscriber count by +/- 4.0% to +/- 5.191m since the new agreement with the DFL started - despite necessary but significant losses in the company’s rights portfolio (think: Formula 1, Premier League).

Increasing annual domestic broadcasting revenue by an astonishing +/- 73% compared to the previous rights cycle to +/- €1.16bn was the good news for the DFL. However, it was still tasked with finding a second viable bidder for a significant live package despite the fact that even exclusive ownership of the country’s most valuable sports property was a business with razor-thin margins for any pay-TV operator in the past.

Being the rights holder of the Bundesliga, besides the UEFA Champions League probably the only sports property able to drive any subscriptions from German consumers not willing to spend on content at all, had never evolved into a sustainable business model in the past. Until the 2017/18 season, the rights holder had at least the benefit of being the “Home of All 612 Bundesliga Games” per season - a message that was heavily pushed by every rights holder’s marketing efforts since both competitions moved behind the paywall starting with the 2001/02 season. The now-dissolved channels Premiere (2001/02 - 2008/09) and Arena (2006/07) never turned the costly Bundesliga into a profitable business before UK-based Sky PLC entered the market. Now, the Deutsche Fussball Liga (DFL) faced the challenge of coming up with another broadcasting company willing to invest in an inherently loss-making endeavour. With digital-only platforms such as Telekom Sport (launched in 2014) or DAZN (launched in 2016) not being serious alternatives for the DFL yet as German consumers have traditionally been slow adopters of digital technologies, Discovery-owned Eurosport, which largely operated as an FTA channel at this point in time in Germany, was effectively pushed into assuming the role next to Sky Deutschland. The pan-European pay-TV operator, who is actually not known for its ambitions in live sports content in its domestic market in North America, ultimately committed +/- €70m per season to broadcast 43 selected games on Fridays, early Sundays, and Mondays on an exclusive basis. Additionally, ZDF, one of the two largest public broadcasting services in Germany, acquired a minor non-exclusive package for three live games as the channel had already done during the previous rights cycle. Due to the aforementioned need for a dual revenue stream to recoup the skyrocketing rights acquisition costs, a more comprehensive live coverage on free-to-air channels had not been a serious alternative either - even for the well-funded public broadcasting service in Germany tasked to represent the entire breadth of the country's sports landscape by public mandate (think: backlash when spending entire budget on Bundesliga, limiting FTA distribution / visibility for niche sports).

Pivot To Long-Term, Multi-Territory Sports Rights After Unsuccessful Endeavour in Bundesliga

Not surprisingly, the lawmaker’s artificial attempt to change the nature of competition was bound to fail and Eurosport’s endeavour into the Bundesliga was not the breakthrough success that actually nobody expected from the beginning. The DFL itself provided probably the most obvious confession that nobody benefitted from splitting the audiovisual broadcasting rights between multiple bidders for its current rights period: Amidst heavy fan protests against an increasingly fragmented schedule, the league operator recently announced the elimination of any matches on Monday nights (20.15h) for the next rights period, starting with the 2021/22 season. Ironically, these stand-alone games on Monday nights were specifically created to increase the attractiveness / monetizability / exclusiveness of the second rights holder’s package.

The Discovery-owned pay-TV operator, for its part, also effectively admitted the failure when it comes to the Bundesliga: Although Discovery is not willing to leave the European sports rights market entirely, the company’s executives repeatedly hinted at a strategic pivot away from single-territory, short-term rights commitments (2-4 years) towards multi-territory, long-term partnerships in sports. Instead of facing the risk of losing broadcasting rights or at least the prospects of greatly increasing acquisition costs every other year given the short-term nature of rights periods required by competitive laws, it wants to focus its time and resources on long-term, multi-territory, if not global, broadcasting rights on a platform-neutral basis (think: linear, digital, mobile): Recent deals of that nature with the PGA Tour ($2bn/12 years; 2019-30) and Olympics (€1.3bn/6 years; 2018-24) underline the company’s vision to become a global player with exclusive rights to a comprehensive sports and entertainment content library. I shared my thoughts on Discovery’s vision for becoming a “global IP company” (think: sub-licensing its content to streaming platforms with similarly global operations such as Amazon, Apple, or Netflix) in a recent post on Facebook. (Facebook - Post in German-only) Despite being headquartered in New York, nobody should expect Discovery to become a serious player in the North American sports rights market anytime soon though, with higher price levels for sports broadcasting rights compared to Europe often cited as the main reason for the dislike for the world’s biggest media market by the company’s executives. The European market has certainly caught up over the last few years, costs for comparable broadcasting rights (think: size of audience, advertising inventory) are still priced about +/- 30% lower compared to North America and Discovery would certainly be late to the game in an increasingly crowded sports broadcasting market in North America. (see: Twitterpost)

With Eurosport likely to leave the field of potential bidders for Bundesliga broadcasting rights during the next rights cycle and no other contender being on the horizon, streaming platform DAZN - currently paying +/- €20m per season for digital Bundesliga highlights starting 45 min after the final whistle - will inevitably have a pretty clear path to carrying live games of the top-flight competition, assuming that the "Bundeskartellamt" will not revisit its ill-fated “No-Single-Buyer” - Rule to some extent. Nonetheless, it remains to be seen whether a complementary rights holder of Bundesliga rights - next to Sky Deutschland - will be able to build a sustainable business (think: ability of driving subscriptions relative to acquisition costs) with only a few selected Bundesliga games or whether exclusive ownership of (almost) all audiovisual rights is necessary to do so and competition should rather be driven through alternative means?

Exclusive Ownership Of Broadcasting Rights Necessary To Build Profitable Business For Traditional Pay-TV Operator?

As currently evidenced, 43 games of the country’s top-flight sports media property randomly scattered across Fridays, Sundays, and Mondays do not seem to be able to drive a significant amount subscriptions relative to its content acquisition costs. On the other hand, further cannibalizing the rights packages of the primary rights holder, who should be expected to remain Sky Deutschland beyond the current cycle, would be a questionable decision as well given the company’s latest financial results (think: stuck in the middle). This obvious need for exclusive ownership to a country’s leading football competition is a phenomenon that is not limited to the tough broadcasting market in Germany but can also be observed in other markets:

Although pay-TV markets in other European countries (think: UK, Spain, France, Italy) were and continue to be much more developed than Germany, housing more than one profitable pay-TV operator, who is actively buying sports rights on an exclusive basis to differentiate its services, has proven to be difficult as well.

Let us take a look at the United Kingdom: A similar “No-Single-Buyer” - Rule implemented by Ofcom, the government-approved regulatory and competition authority for the broadcasting and telecommunications industry of the United Kingdom, artificially forced similar and equally unsuccessful challenges of market incumbent Sky Sports UK by several pay-TV channels since 2007: On first glance, if one market should have been able to be home to more than one profitable pay-TV operator with a sustainable business next to one market-dominating rights holder of live sports content it was the UK: the world’s second largest sports media rights market with a total volume of +/- $4.1bn in 2016, or +/- 8.7% global market share, and comparatively high mainstream adoption of the pay-TV model, resulting in the world’s highest market share of a country’s GDP (0.15%) and market volume per capita ($63.21) for the domestic sports media rights industry. Seemingly attracted by that attractive market environment, affiliates from both Irish-based Setanta Sports (“Setanta UK”; 2007/08 - 2009/10; 46 EPL games per season) and US-based ESPN (“ESPN UK”; 2010/11 - 2012/13; 23 EPL games per season) grabbed the opportunity provided by the country’s competition watchdog and became complementary rights holder of the EPL next to Sky Sports UK in the past. This enthusiasm, however, was short-lived as the companies either ceased operations completely (Setanta UK) or were acquired by the competition (ESPN) after having secured rights to the EPL for only one three-years cycle each. In fact, I expect current rights holder BT Sport (2013/14 - 2018/19; 42 EPL games per season & 2019/20 - 2021/22; 52 EPL games per season) to ultimately experience a similar fate after having recently lost major sports properties including the NBA (Sky Sport UK), Serie A (Eleven Sports), and UFC (Eleven Sports) amidst significant cost-cutting moves: BT's pension deficit seemingly outweighs any ambitions of the telecommunication company that it might have previously had in becoming a major sports content player. After fiercely competing with market leader Sky Sports for about four years (2013-17), a much more collaborative approach between both parties has been observed over the last few months (think: maximizing distribution of existing sports content library) - providing more evidence for BT’s lowered commitment to costly live sports content moving forward. (see: Twitterpost)

However, there are not only some significant differences compared to the previous situations of Setanta/ESPN in the case of BT Sport (think: remaining EPL beyond only one rights cycle, more diversified business model as vertically-integrated telecommunication company without risk of ceasing operations completely; financial commitment to EPL actually increased by +1.6% for the upcoming rights cycle), but the next wave of challengers for Sky Sports UK has already entered the British market: First and foremost, the digital-only or -first players Amazon Prime and Eleven Sports, the latter is led by Leeds United owner and former MP & Silva executive Andrea Radrizzani, should be mentioned in this regard. Additionally, also expect DAZN to enter the picture at some point in the future given that the Blavatnik-backed company is headquartered in the UK (London) and it is hard to imagine the subscription-based streaming service simply foregoing the second-largest sports media rights market in the world.

In the end, it can be concluded that being the secondary rights holder for the respective top-flight soccer competition in European markets does not seem to bode well for building a profitable pay-TV business. The main challenge: building a sufficiently-attractive/relevant content portfolio to drive subscriptions from the mainstream, non-hardcore sports fan to recoup the skyrocketing rights fees. It should also be noted that the consumer’s threshold for subscribing to traditional pay-TV operator’s bundled services (> €50 per month) is much higher compared to stand-alone streaming services like DAZN (+/- €10 per month) or Eleven Sports (+/- €7 per month) given the different price points. By implication, there are different requirements for size and depth of rights portfolios to convert sports fans into subscribers of their respective offerings.

Possible Solutions For Lawmaker’s Desire To Create Competition: Awarding First And Second Division To Different Rights Holders!

Facilitating a profitable undertaking for traditional pay-TV operators by not prohibiting exclusive ownership to all audiovisual rights to the country’s premier football competition instead of stubbornly enforcing straight-forward “No-Single-Buyer” - Rule does not necessarily mean one single rights holder for the Bundesliga, Premier League & Co. as a result either.

Letting the market forces play out, the increased fragmentation of the media landscape combined with skyrocketing acquisition costs would probably still lead to multiple rights holders in the end. Except for Germany, most European markets actually have multiple (viable) bidders: Spain (Telefónica, Orange, Vodafone, MediaPro, beIN SPORTS), France (Canal+, beIN SPORTS, MediaPro, Altice), and Italy (DAZN, Sky Italia, Mediaset) have all a much more diverse sports media landscape compared to Germany with both vertically integrated telecommunication companies that have traditionally shown interest in live sports rights for differentiation's sake and pure content/rights-buying broadcasting channels without self-owned and -operated distribution systems. Given the fact that the necessary financial commitment and associated risk of exclusive ownership become less bearable for any interested bidder amidst skyrocketing rights fees (see: NBA, NFL & MLB), such case with one bidder ending up with exclusive ownership of the market’s most sought-after sports property becomes increasingly unlikely anyways. But even then, it could actually create tremendous opportunities for other players in the respective sports rights markets: The successful bidder would most likely have paid greatly (beneficiary: sports property) and should have limited financial resources for going after other properties as a result (beneficiary: existing and new rights holder’s competition). Such scenario has probably just played out in Spain where a financially hamstrung market leader Telefónica was obviously not able to retain its broadcasting rights to English Premier League, MotoGP, and Euroleague Basketball after having committed +/- €4.02bn over the next three years to the UEFA Champions League (through 2020/21) and La Liga (through 2021/22) alone. Without the financially most-potent bidder at the table, it effectively jump-started newcomer DAZN’s operations in its eighth market by shelling out +/- €70m for exclusive ownership to all of those three sports properties. Therefore, allowing exclusive but costly ownership of rights to major sports properties not only does not compromise competition but actually creates new opportunities. (see: Twitterpost)

Nonetheless, both parties are probably happy with how the market forces in Spain played out: For the most recent quarter (06/2018 - 09/2018), Telefónica just announced an increased subscriber count by +/- 101,000 customers, providing more evidence that - even in a ever-more fragmented media landscape, increasing on-demand consumption, and ongoing cord-cutting - (exclusive) premium live sports content continues to be the most effective way of differentiation and, as a result, a reliable subscription driver for the so-called “Quadruple-Play” of the legacy business by telecommunication companies (think: telephone, mobile, broadband & television). The lower-priced stand-alone streaming service of DAZN, instead, probably does not necessarily need first-tier content like Telefónica (think: La Liga & UEFA Champions League) to build an initial subscriber base at its current price point (+/- €10 per month). (see: Twitterpost)

Additionally, there is evidence that European soccer leagues itself are not interested in purely maximizing media rights revenue when this entails granting exclusive ownership of its domestic broadcasting rights to only one bidder. After hilariously hyping the supposed interest of Amazon, Facebook & Co. for months (think: EPL's Richard Scudamore & Manchester United's Ed Woodward), the English Premier League, for example, seemed willing to take a deep discount to include at least one digital-only players in its roster of rights holders for their live games starting next season: Amazon (+/- €1.5m per game; 20 games per season) is going to pay about one-sixth on a per-game basis compared to market leader Sky Sports UK (+/- €9.3m per game; 128 games per season) during the upcoming domestic rights cycle (2019-22). Admittedly, it is not an apple-to-apple comparison (think: number of games vs. number of exclusive broadcast windows), but such decisions by leagues not maximizing revenue in the short-term should turn out beneficial once the next rights cycle is tendered (think: building relationships with market participants that should become more relevant going forward).

That is just one more reason why even a “laissez-faire” - approach on behalf of the country’s lawmakers would not inevitably result in a single buyer of all available live broadcasting rights to the market’s most valuable sports properties.

Having made the case for letting the market forces decide about rights ownership for the biggest sports properties in Europe, I would instead propose an alternative approach in order to drive competition in the respective sports broadcasting markets: Preventing any broadcasting company to hold exclusive rights to both the first and second soccer division during the same rights period.

Germany’s 2. Bundesliga Complaining About Decreased Commitment By Exclusive Broadcasting Partner Sky Deutschland

With the basic broadcasting signal already being provided by Bundesliga’s wholly-owned subsidiary Sportcast GmbH to any rights holder for an additional service and production fee on top of the total rights fees (+/- €1.16bn per season), Sky Deutschland has always prided itself on its commitment to every single game during the season to which it holds rights across the Bundesliga and 2. Bundesliga - promising equal treatment for all 36 Bundesliga teams: Fully-fledged production units with on-site commentators have provided stand-alone live broadcasts for all 612 games as well as a RedZone-like “Bundesliga-Konferenz” with its own dedicated commentators since acquiring exclusive Bundesliga live broadcasting rights in 2007 for the first time. Producing (think: commentary booth, pre- and post-game coverage) and broadcasting every single game live and in its entirety has not been the most profitable decision from an economic standpoint from the beginning. In recent years, however, even first division games started to score television audiences below 5,000 viewers more frequently. Since audiences below this mark are not recorded by the audience measurement service of Nielsen in Germany, one can only imagine how big or small of an audience second division games currently draw. However, it should be noted that rights holder Sky Deutschland has developed its own research panel a few years ago, arguing that Nielsen does not accurately represent the channel’s viewership (think: underrepresentation of pay-TV households in Nielsen panel, importance of viewership/ratings as currency for buyers in advertising market). Considering these circumstances, it is understandable that other European leagues but also major leagues in North America have historically constrained the supply of available full-length live broadcasts on national airways during media rights tenders. To make matters even more complicated for the Bundesliga, the concept of maintaining a “core matchday” on Saturday afternoons is deeply-entrenched in the German fan culture. As a result, a more aggressive staggering of games (think: more exclusive broadcast windows, Asian-friendly kickoff times) has always been met with significantly more backlash (think: elimination of first and second division games on Monday nights after fan protests) than in other football leagues. By implication, every single match has not only been produced and broadcasted live, in full-length, and with major expenses but are often broadcasted simultaneously, further cannibalizing any existing audiences.

Although there were already public complaints by the second divisions in both Spain (La Liga 1|2|3) and Germany (2. Bundesliga) about the right holder’s (Telefónica / Sky Deutschland) lack of airtime and editorial coverage in favour of the first division, it was only a matter of time to see more obvious evidence reflecting their decreased commitment to lower-tier competitions (think: changes impacting the cost side): The recent announcement by Sky Deutschland that it will stop having commentators in in-stadium booths and will cover games of the second division from remote locations going forward should not come to anybody’s surprise considering Sky Deutschland's decreased profit margins. Teams now fear negative impacts on their commercial revenue (think: less visibility, no post-game interviews with backdrops of sponsors).

It should be noted that the EPL, for example, just increased the numbers of tendered games per season from 168 to 200 games for its upcoming cycle (2019-21) as the demand for live sports from linear broadcasters in particular should only increases in time of more on-demand consumption (think: appointment television). At the same time, it should not be expected that a rights holder like Amazon is going to produce every single of its 20 games per season with an on-site production staff (e.g. commentators) either. With both the EPL and Amazon lacking an fully-fledged in-house production units, the basic broadcasting signal is going to be provided by Sky Sports. Amazon, in collaboration with the leagues "Premier League Productions" located in IMG studios in Uxbridge (West London), will focus on the (probably limited) shoulder programming and commentary.

Conclusion: “No-Single-Buyer” Rule & Splitting Rights Of First And Second Division

• "No-Single-Buyer" - Rule

As seen in Spain, not having implemented a „No-Single-Buyer“ - Rule doesn’t necessarily result in a monopoly by one pay-TV operator. Instead, less strict anti-competitive measures also seem to do the trick: In Spain, the primary rights holder of the La Liga is actually required by the league to sublicense their La Liga - carrying sports channels to other telecommunication companies (think: Orange, Vodafone) to ensure vast distribution and access to the league’s product. Anecdotally, being a market in which sub-licensing premium sports content is widely adopted could have been one factor why New York - based virtual MVPD fubo.TV recently chose Spain as its first international market. It will be interesting to see how the digital-only platform, which has positioned itself as a less expensive alternative to the traditional cable/satellite television bundle for sports fans in the United States, will strike the balance between remaining a pure distribution platform or becoming a buyer of exclusive live sports rights (think: DAZN, Eleven Sports) to differentiate its product.

• Splitting First & Second Division Between Different Rights Holders

The benefits of granting exclusive broadcasting rights of the country’s second division to a media company that does not hold any rights to the first division are twofold: First, the importance of the second division to the right holder’s top- and bottom-line would probably increase greatly. Second, it could be an opportunity to build up viable challengers for any incumbent holders of first-tier rights in the future but are not ready for primetime just yet. History has shown that carving out small rights packages and granting them to unproven market players just to satisfy the “No-Single-Buyer” - Rule (think: Eurosport’s 43 Bundesliga games, Setanta UK’s 46 EPL games, ESPN UK’s 23 EPL games) has not worked out for all parties involved. Instead, let new or less-established market entrants move up the ladder from long-tail (think: second division) to premium rights (think: first division) instead of having the burden of immediately refinancing extremely expensive first-tier rights while lacking any brand awareness, profitable operations, and sufficiently-attractive content libraries to drive a significant amount subscriptions.

La Liga 1|2|3 in Spain With Unique Opportunity To Move Out Of First Division's Shadow

As mentioned before, the majority of domestic broadcasting rights for the first and second division have already been awarded in European football through at least 2021 (Bundesliga & Serie A), with one small exception: La Liga de Fútbol Profesional (“La Liga”) has already secured a modest increase in domestic broadcasting revenue (+/- 14.9%) for the upcoming three-year cycle (2019-22) by awarding the most valuable part of its audiovisual rights (Lots 2/4/5/7) to Telefónica (342 out of 380 live games for +/- €980m per season) and MediaPro Group (highlights and out-of-home rights for +/- €160m per season). However, four out of eight rights packages (Lots 1/3/6/8) are still up for grabs, including the entire La Liga 1|2|3.

Therefore, the second division in Spain still has the opportunity to move out of the shadow of the first division starting next season. It is safe to assume that not meeting the reserve price (think: minimum demand) by any interested bidder was the main reason for withholding those four rights packages back in June 2018, but eventually it could provide a golden opportunity: Under the leadership of its ever-entertaining president Javier Tebas, the leagues’ operator has recently shown increased ambitions for building a self-operated, direct-to-consumer, multi-sports platform called “LaLiga4Sports.” Such offering should rather be compared to other rights-buying OTT streaming services such as DAZN, Eleven Sports, Stadium, or FloSports instead of league-owned services such as NBA League Pass, NBA Game Pass, or EFL’s iFollow that are usually limited to the respective league’s own intellectual property. The most newsworthy rights acquisition by LaLiga4Sports so far has been Liga ASOBAL, the top-tier professional handball league in Spain, for the next three seasons through 2021. Across most of southern Europe, in particular, basketball is the second-most popular team sport and the unprecedented move of granting exclusive ownership of its broadcasting rights to another sports organization, which is said to provide free-to-air coverage for ASOBAL via both LaLiga’s digital-only platform (“LaLiga4Sports”) and linear TV channel (“La Liga TV”), is expected to have resulted in a major increase in rights fees for the ASOBAL. Previously, Telefónica distributed its coverage of ASOBAL largely behind the paywall in exchange for rather modest financial terms (+/- €700,000 per season). Having a greater FTA distribution has certainly been another factor in its decision to change the broadcasting partner. Having its content behind a paywall is particularly challenging for any niche sports which have to fight for any mainstream attention from the beginning (think: limited visibility due to lack of ability to drive subscriptions). Although we should not expect any live broadcasts of the La Liga Santander appearing on LaLiga4Sports anytime soon since the league would forego a lot of money (think: market premium, better monetization via bundled packages by telecommunication services), integrating La Liga 1|2|3 into its own OTT service starting next season seems to be the logical decision for all the reasons mentioned in this column. Alternatively, DAZN would certainly be a logical home for the second-tier competition. In both cases, the second division would at least no longer be under the same umbrella as the La Liga, something that will be the case in EVERY other big market in Europe for the foreseeable future. (I do consider DAZN and Sky Italia both as primary rights holder of the Serie A given their respective rights packages of 114 and 266 out of 380 live games per season, greatly diminishing Serie B's relevance for DAZN's overall business in Italy.)

By the way, regardless of whether selling La Liga 1|2|3 to a third-party broadcaster or distributing it via its self-operated channels, La Liga should have a very good shot at replacing the French “Ligue de Football Professionnel” (LFP) as the European football property with the second-most valuable domestic broadcasting rights: The remaining packages can be expected to bring in an additional of +/- €120m per season, easily surpassing the DFL’s current (+/- €1.16bn) and LFP’s upcoming (+/- €1.22bn) broadcasting deals for their two leading football leagues. (see: Twitterpost)

I want to finish off with two final thoughts related to this developments that were discussed in this column, plus my take on the chaos surrounding Eleven Sports in the UK.

• Final Thought 1: THE NEED FOR DUAL REVENUE STREAM

A more comprehensive free-TV coverage of premium live sports across European broadcasting markets is no viable alternative for satisfying any “No-Single-Buyer” - Rule. Free-to-air channels that inherently lack the second revenue stream of subscription payments simply cannot compete with the dual revenue model of pay-TV channels (subscription plus advertising income) during the tender process for the most prestigious sports properties. But do not feel bad if that is news to you, it is also something that even the most influential sports executives in Europe still have to learn. (see: Twitterpost)

The market economics in Europe (think: fragmented/smaller media markets, less-potent advertising markets) are also not comparable with the North American broadcasting market (think: retransmission fees, larger audiences, more potent advertising market) in which FTA-channels such as CBS, FOX, and NBC continue to carry the biggest sports leagues including the NFL, MLB, NHL, and MLB.

• Final Thought 2: INCREASED MARKET CONCENTRATION ON PREMIUM PROPERTIES

Speaking of increased broadcasting revenue, I do expect rights fees continue to rise; although at a slightly lower rate since the growth over the past decade has just been unprecedented and not sustainable. As mentioned before, I also expect a higher concentration of this future growth of the global sports rights market, currently estimated at +/- $49.5bn by market intelligence firm Sport Business Group, on the market’s premium properties that can continue to draw mainstream interest/eyeballs/attention in an ever-more fragmented media landscape. Therefore, I would dare to disagree with Sky Sports UK’s Barney Francis who considered the “sports rights market as generally receding” in wake of the recent extension with the English Football League. That seems to be a gross generalization based on a one-off event (think: downward-correction for EPL) for a market that is still growing big-time as evidenced by numerous domestic deals just over the last few months (think: MLB, Ligue 1, La Liga, EFL). (see: Twitterpost)

By implication, I also expect a convergence of domestic broadcasting revenues among properties in Europe (think: Big-Five Football Leagues) and North America (think: NBA, MLB), respectively, with revenue from overseas markets becoming the biggest differentiator between sports properties. In this regard, the English Premier League (in Europe) and National Basketball Association (in North America) clearly lead the pack at this point in time.

• Final Thought 3: ELEVEN SPORTS SHUTTING DOWN DUE TO LACK OF SKINNY BUNDLES IN UK?

I shortly alluded to the just-breaking news about Eleven Sports considering ceasing its operations in the UK just four months after its launch in August as months-long negotiations for an all-important carriage agreement (think: complementary linear distribution in addition to self-operated OTT service) with Virgin Media, the third large telecommunication company in the UK next to Sky PLC and BT, fell through. This is one example for the aforementioned uphill battle for new digital-only market entrants (think: limited brand awareness and consumer adoption rate) of immediately having to refinance very costly media rights (think: PGA Championship, La Liga, Serie A, UFC) instead of moving up the ladder from less expensive long-tail to premium content over time (think: DAZN in Germany). To make matters worse for Eleven Sports, aforementioned rights to Italian and Spanish football, in particular, might be "first-tier" in terms of acquisition costs, but not in the eye of the British football fan who shows little interest in any football competition besides the all-important Premier League - a circumstance that has also negatively impacted the monetizability of BT Sports' exclusive ownership of the UEFA Champions League in the UK, paying +/- £394m per season through 2021. Similar to Germany, there is little content that can reliably drive pay-TV subscriptions in the UK with Ashes Cricket (BT Sport) and some top boxing, though the best of this is usually monetized on a pay-per-view basis anyways, to be noteworthy in this regard. Therefore, there might have never been a market for Eleven Sports' offering of more than +/- 100,000 subscribers from the beginning. Its current subscriber base is said to be around +/- 50,000 users.

Another circumstance that seems to have turned out to be an insurmountable challenge for Eleven Sports: the lack of virtual MVPDs in the UK (think: less expensive alternatives to Sky / BT / Virgin Media with less (sports-carrying) television channels) for consumers that would have been willing to ditch the Sky / BT subscription in wake of their thin-out sports content library after the remarkable rights acquisitions by Eleven Sports itself and Amazon's Prime Video. Instead, with virtual MVPDs (think: fubo.TV, YouTube TV, Sling TV) not really being established in the UK yet, the consumer’s decision is rather made between instead of for or against telecommunication companies' television offerings. The former is simply a zero-sum game for telecommunication service provider. The latter is the feared phenomena of “cord-cutting” that would reduce the total addressable market for their services. As subscriber losses for Sky and BT were seemingly very limited despite smaller and less differentiated content libraries, with Sky even expanding its customer base from +/- 12.7m (Q3/2017) to +/- 13.0m (Q4/2018) over the last twelve months (+ 2.4%), they had little incentives to negotiate any carriage agreement with Eleven Sports. (see: Twitterpost)

This made the successful closing of a carriage agreement with Virgin Media, that has historically shown very little interest in exclusive ownership of costly sports rights to differentiate its product (think: neutral party between Eleven Sports and Sky / BT), a vital undertaking. These negotiations fell through now, putting Eleven Sports in a precarious situation and its most valuable properties reportedly back on the market (think: UFC, LaLiga, Serie A). Given that I just announced the inevitable downfall of BT's ambitions in exclusive sports content a few lines earlier: There seems to be life in the old (media) dog yet. Finally, I mentioned that I cannot imagine DAZN foregoing the British sports broadcasting market in the long run. However, although the venture capital - backed streaming service has been proven to be extremely opportunistic and dynamic whenever an (unforeseen) opportunity materialized (think: rights acquisitions in Spain & Brazil), the situation around Eleven Sports has really come on short notice and Sky / BT Sport should be the front-runners for scooping up any newly-available rights as BT Sport has just done with the UFC.

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