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Tech giants push into live sports bringing investor opportunities

Pro leagues are pursuing deep-pocketed tech firms – to the detriment of traditional broadcasters

By: PETER NOWAK

Date: October 6, 2017

“Welcome to Google Sportscenter. Coming up later in the program we’ve got the Amazon Turning Point, but first, let’s have a look at the Facebook Plays of the Day.”

To today’s television viewer, that may sound like an odd way to introduce a sports program. But give it some time – in a few years, it may be perfectly normal.

As in many other industries, from cars to banking to health care, the technology giants are coming. Google, Amazon, Facebook and others are expanding beyond their respective core businesses and into live sports broadcasting.

The sports landscape is expected to look very different in 10 years time as a result. Established players – including broadcasters and cable providers – will be forced to navigate the newly choppy waters and compete against tech companies with massively deep pockets.

It will be exciting times for sports fans, who will likely benefit from a number of new ways to follow their favourite teams, and also for careful industry watchers. The upheaval means value will be shifting between players, a good time for investors to capitalize – or potentially to lose out.

“I very much anticipate an Amazon or a Google will become the rights holder for one of the major sports in the United States,” says Dennis Deninger, a television and film professor at Syracuse University in upstate New York and former producer for U.S. sports network ESPN. “Whenever there is change, there is opportunity.”

Deals between the tech giants and sports leagues are intensifying in both frequency and value. Facebook, in particular, has been busy of late. In February, the social network company announced a deal to stream 46 soccer matches from Mexico’s Liga MX in the United States.

A similar deal with the World Surf League followed a month later, as did an agreement with Major League Soccer, which gave the company streaming rights to at least 22 matches. In May, Facebook announced it would also broadcast 20 regular season Major League Baseball games.

Not to be outdone, Amazon made its own splash in live sports in April with an announcement of a $50-million (U.S.) agreement with the National Football League. The deal, which lets the online retailer stream all 10 of this season’s Thursday night football games via its Prime video service, amounts to a tenfold increase over what Twitter paid for the same rights a year earlier.

All of this follows a host of moves last year, which included Twitter agreeing to live stream MLB and National Hockey League games and YouTube broadcasting Champions League and Europa League soccer finals.

The flurry of activity represents an “awakening to the promise of sports,” former National Basketball Association commissioner David Stern recently told Bloomberg. With growth slowing in their traditional businesses, the tech giants are seeing dollar signs and strategic value in live broadcasting.

The really big moves are likely to come in a few years, with most of the major sports broadcasting contracts coming up for renewal between 2021 and 2025.

Advertising is and will be the biggest driver. Google and Facebook are completely dominating the digital space in terms of search and display – the two companies are expected to earn a combined $106-billion this year, or nearly half of the global digital ad spend, according to eMarketer.

The global TV ad market, however, represents a much bigger opportunity at an estimated $532-billion, according to IHS Markit. Sports are a key component to tapping into that jackpot.

“Sports have become the last bastion of live television that people watch and in so watching, have to watch the commercials,” Mr. Deninger says. “You have to pay attention during the game and that’s attractive to advertisers.”

U.S. pay TV providers lost 1.6 million subscribers last year while their Canadian counterparts shed 202,000, according to reports. In both countries, the cancellation rates have been increasing each year, with further acceleration expected in 2017 and beyond.

Sports networks are feeling that pain acutely. Disney-owned ESPN, for one, has lost 12 million subscribers over the past six years. For their part, the sports leagues are slowly coming to the realization that traditional broadcasting is increasingly looking like a sinking ship.

“You can’t see any long-term full-season [ratings] increases in any sport on television in the U.S. or Canada in the past two to four years,” says Kaan Yigit, president of trend tracking firm Solutions Research Group in Toronto. “It’s not panic, but there is concern over declining ratings on the TV side for sports.”

Despite that, players and observers on all sides are categorizing the slew of deals between leagues and tech companies so far as experiments. No one is sure whether these moves will pay off.

Analysts are thus expecting more partnerships and mergers between traditional players. Such mergers, to which smart investors should be paying attention, may be necessary for these companies to compete against larger, globally minded tech companies.

“It’s ironic because you’re a giant one day, but the next day you’re not because Google and Facebook are bidding against you,” Mr. Yigit says. “Some of these players don’t necessarily have the scale to survive.”

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