roger mitchell
2 June 2024

Reasons to be cheerful. Part 3.

roger mitchell
2 June 2024

Back in the old days, you unabashedly called people like Ian Dury what he factually was: a “cripple”.

Generations born in between falling bombs never seemed to bother too much, or sweat this small stuff. They just got on with making the best of it.

Polio had “gifted” this punk artist/poet significant physical disadvantages, but he was ultimately hugely successful, and always very cool. A completely authentic star who, despite the fact that life dealt him a very bad hand, gave others reasons to be cheerful.

Look at that smile. Optimism is always attractive. But it’s not always right.

For the curious, there is no part 1 or 2!

Instead, people who spray hosepipes of pessimism are never popular, or even welcomed. They are told to look on the bright side of life, or to get laid more often!

 

So OK, for the sports industry, here it is.

Here is the optimistic “bull” case.

In the age of AI and deep fakes, there has got to be, at some point, a premium put on true Humanities. Something completely opposite to the infinite digital worlds of loser loneliness, where young kids hide behind an avatar, in an attempt to live out a life less ordinary, being someone else.

Someone cooler, like Dury.

Just like Kodak didn’t sell film, but memories, the sports’ industry doesn’t sell broadcast rights and logos. It sells emotions.

That’s our product. The more intense and feral, the better.

Whether a tired trope or not, we can learn a lot from the old music business. They are 20 years ahead of us, along the same road. That industry used to make its money selling plastic for people to consume, mainly alone in their rooms. But now the serious cash is in “live”, near the band, in a crowd, feeling close human emotion.

Music lost its main CD revenue streams, with the arrival of digital and piracy, and so ultimately will we. Sport will see a big reversal of the glorious 30 years growth in serving the TV coach potato. Not necessarily because people won’t want to watch it, but because it’s going to be very hard to find a monetisation model. Those are two very different arguments.

So maybe we now need to go back to the bleachers and terraces, because that simply is where we are at our very best, and this 👇 is the elevator pitch for that.

 

Sport will soon be the only place where you will still feel the sweat and irrational passion of true humanity!

Yes, the real value and USP of sport is in the intense human interaction of a crowd, the last defence to stop our kids being sucked dry by the TikTok Dementor.

At some point, someone important will actually admit that living on a phone screen is a societal disaster, because today Gen Z/Alpha have their most basic interactions digitally there, with fake personas on IG and dating apps.

 

That’s not good. Eventually you will need to get off your phone and actually meet real people. Descend from the galleries, from where you film and post others, to dirty your hands with actual life.

Sport is the ideal outlet.

The uniqueness of our industry is in facilitating the meeting of flesh-and-blood humans, widening their palette of emotions, testing them at the extreme, and building a data-lake of shared life experiences.

Authentic life.

Hamlet explains all this humanity best in Act III, Scene 1. To be or not to be?

Make no mistake, humans and their emotions are soon gonna make a big comeback. Peter Thiel knows, and references times of revolution. Like today.

This is for sure the best optimistic case for a florid sustainable future of our games, but sport needs to be very ready and tooled-up for that moment.

Today, it absolutely isn’t. It is just too optimistic, finding too many reasons to be cheerful.

 

The obstacle to grasping all this is believing in “evolution”.

Over these last years of commentary on our sector, one often hears people conclude:

Yes, but it’s evolution not revolution. I’m not as pessimistic as you. It’s not as dramatic.

They throw some examples at you, both anecdotal and statistical. You nod in agreement, not wanting to burst their bubble on the more comfortable idea of slow-managed change. Then, you sigh when you see an article like this.

Or the news that, overnight, the big bad debt fund now owns Inter Milan.

Please just don’t say you are surprised.

You were all warned… by one of those “pessimists”.

 

Pessimism isn’t a weakness, it’s a superpower.
Truly, only the paranoid ever survive. 

The best thing the industry of sport could do is to completely forget this absurd  “evolution” line, because it’s in reality a fig leaf for the complacency and cowardice that will eventually kill us.

Don’t cling onto analyst reports (no matter how well done) which show that sport is holding up on TV better than anything else. That it’s never been most popular in the cultural zeitgeist. Coz that’s what they were saying at the record labels around 2001. There is no optimism in merely being the cleanest shirt in the dirty laundry. It just means you will die last, as a business.

It’s also a good idea to be sceptical of experts who downplay change, when their ongoing livelihood depends on some version of the status quo. Look out for skin in the game bias.

“Revolution” thinking needs to be embraced, and the evidence is all around us. A snoozefest like the Montecarlo F1 Grandprix, was shocking.

 

But, again, being there “live” was very different.

It is still the most sought-after ticket in F1. The deals that get done there. Sponsors etc. It is vital to F1 ecosystem. It is not a problem. It is essential to F1. Race is secondary. – Elliot Richardson

Whatever the answer, there is no place for “evolution”, and that has to be a core message of today’s Sunday Column. Pick up that comfort blanket, and just throw it out the window. Get paranoid.

This is a time for radical, different thinking. Do they need to drive a smaller, differently-specced, F1 car around street circuits?

 

Please smell these coffee beans.

We are now well past catchy slogans. That time was a handful of years ago, well before Covid, when all the signals were already in view, but alas ignored.

(In fact, I definitively decided to write “Perfect Storm” after attending a SportsPro event in New York, where I heard two senior ESPN execs, (those types with a “name”), downplay piracy as “leakage”; a small cost of business. It wasn’t their complacency in itself that provoked the shock to write a book. Rather, it was watching a room full of nodding heads when they said it. They looked to me an industry totally adrift, in denial, not even seeing their own kids effortlessly finding pirate links and feeds for KSI. and Logan Paul. Or the latest Marvel offering.)

”Evolution” means gradually growing into where you want to be, bridging the gap with small steps of adjustment. That’s so so comforting.

Good luck with that.

Because in the sportsbiz the chasm between the two banks of the river is now arguably just too big.

No, this isn’t Jay Monahan.

In sport, on both the product and monetisation side, newer customers see things very differently from what has worked to date. Data tells us that kids need to be engaged with content within 2 seconds, or they will just swipe right. Sport, instead, is trying to sell products that take hours, if not days, to reach exciting jeopardy. And Gen Z will never pay for a subscription.

So our customers of the future don’t want the product we offer, and even if they did, they are hellishly difficult to monetise. Micro-payments, maybe, but that’s not how sport currently thinks.

One is reminded of the old joke about two people falling from a very tall building. In mid-descent, one of them comments that “this isn’t as bad as i thought”. Disaster isn’t linear. You often don’t know the reality until you actually hit the ground. Kids don’t watch TV. That’s the pavement.

 

Revolutions are always multi-dimensional.

Change comes at you from every direction, cutting off heads, but also creating opportunities.

We are in revolution, and every single datapoint leads us to conclude that our main revenue line, subscriptions to a live sports pay channel, are going to crumble much faster than most expect. Equally as quickly as those old CD revenues disappeared?

Dont be tempted by data about Under-35s. That’s a collective noun that means absolutely nothing, lumping together two completely different generations. A 34 year old was born in the same year as Gazza’s tears in Italy. They are old. Look only at data around digital natives. Those born after the invent of the smart phone.

The vast majority of people viewing the heavyweight boxing championship fight with Tyson Fury, did so through a pirate feed. Folks from DAZN estimate that this was five or six times the legal audience, and anecdotal evidence in the aftermath was everywhere.

This below, from a well educated investment banker in his late twenties, with high disposable income, shows a guy who knows the reality. This lad played high level youth academy football at Bologna. He gets sport, and cannot be dismissed as an outlier.

 

Ludicrous concept.

Wake up and smell the coffee.

The NCAA is another rights holder who believed in “evolution”. That’s clearly not what they got.

 

An American Revolution.

The antitrust lawsuit argues that players from the pre–name, image, and likeness (NIL) era deserve back pay, and the definition of NIL should expand to include broadcast revenue. The NCAA and power conferences will split $2.75 billion in damages paid to thousands of athletes, who played between 2016 and ’21. Each power conference school will start revenue-sharing around $20 million per year with players (or 22% of annual athletic department revenue) – a framework that could begin as early as ’25. Plaintiff lawyers estimated that athletes could earn around $20 billion in total over ten years.

😮😱😳

Here is a previous Column from your resident pessimist.

College football, college sports, is undergoing a revolution that will change everything in this industry in America. It’s now literally a whole new ball game. Shamateurism has the clock running down in the 4th quarter. No time-outs left.

No time-outs indeed. It’s now over, and this article was written only 4 months ago. But it’s already old.

If we are merely “evolving” as an industry, then it’s at a pretty serious pace. Feels like that “Alien” on the USCSS Nostromo, and we know how that movie ends.

American colleges are intensely important to that country, not least because they are the sole pathway for Big Sport, with all its wealth and cultural societal connection. Our old AYNE friend Gerry Cardinale is as usual ahead of the game and already positioning himself for this new world, where college players will need to be paid.

 

CAS addresses athletic departments’ need for near-term capital with additional operational expertise across strategies that can improve competitive positioning. – Gerry Cardinale

In plain English, he is saying that athletics departments now have a real cost of sales in their business (athlete payment) and will urgently need cash to fill that gap, certainly until they work out a new revenue model and monetisation. Gerry will provide it, and at a nice cost of capital.

Money is always made easiest when blood runs in the street. And run it always does, in times of revolution.

 

Hit me with your Rhythm Stick.

Dury’s song title is an appeal for some kind of human understanding and unity between difference backgrounds. Sport is instead splitting apart with the polarisation into Hollywood and Arthouse.

After NCAA realignment, we will see essentially two conferences (the SEC and Big 10), with most of the attention and money flowing up to the top clubs (like the big 6 in the EPL).

So, how does a big college generate a competitive advantage against its rivals when there is a de facto $20 million salary cap?

So, how does a smaller school compete with Michigan and Ohio State?

This is where the new revenue model dilemma meets knee-trembling structural change. Where the rubber hits the road.

The NCAA ain’t gonna “evolve” into a better future. It’s too hairy now.

Indeed, only two years ago, the world of college athletics departments was relatively simple. NIL was then mandated by the Supreme Court, and this generated the unregulated chaos of the Boosters and Collectives paying faux-NIL monies to attract linebackers. At the moment, even that chaos seems pedestrian.

 

They will now need “the big idea”.

To date, all sport’s attempts to monetise its “content” outside of the big broadcast deals, from DugOut, Otro, BarcaTV, and myriad DTC offerings, have all basically struck out; crushingly underwhelming in terms of revenue generation. In soccer, for example, the idea of Manchester United as a media company is not new, but it still hasn’t really got any traction. If anything, it’s companies, like OneFootball, who now own the best fan data and relationship (but that’s another Column).

Generating dollars from sport content is just dreadfully difficult, and for rights holders, the easiest answer is just lumping the assets in with what a sponsor gets.

One of our own portfolio companies, Horizm, focuses on making money in exactly this space. They are advised by veteran sponsorship expert Riccardo Fort, and working with him has been educational. He asks the big questions, from a position of experience.

What would a sponsorship cost if it didn’t include the boards and hospitality assets? Many sponsors don’t want those anymore, preferring engaging content that allows them to enter into a qualified conversation with fans, about whom there is rich data. 

So, the answer to content monetisation going forward is intrinsically linked to the modern sponsorship model, but a brand will only pay when content is done well. Sadly, that won’t necessarily be by the rights holder. It may be fan-generated, player-driven, more edgy stuff than the club itself can put on its feed.

 

This is the revolution now in act in the NCAA.

Despite US college sport being very big business, it’s still rather sleepy. That’s always what happens when business models don’t have a proper Cost of Sales.

Lazy and complacent.

In many ways they are way behind Europe in, for example, not having developed any kind of owned-and-operated media hub. Marketing giants like Learfield and PlayFly offer US university athletics departments big minimum guarantees to “commercialise” their brands, logos, and boards, but it’s still amazing to see how little they do with “content”.

That’s about to change, and the dynamics of the conundrum are super-interesting.

 

Universities will become content brands.

Schools are now being legally forced to pay athletes serious money for NIL, and the business challenge is how to get “real value” for that. Today, those deals are all a bit fake.

The answer is in creating a partnership to move from being an athletics department to become a genuine media company. Rather than see the $20m player wages as dead money, as cost, turn it into the seed capital for your newco content business, creating long term IP, with the athletes as your partners in a new social contract. Think Grantland and 30 for 30, but done by the universities themselves, having exclusive access to the athletes.

The cap table of these new entities will be complex, including the donors, Boosters, Collectives, the school itself, and the content company. Whilst it is very early days, things are already moving fast. Businesses like The College Sports Company already have a portfolio of such university partners in one form or another, including Penn StateOklahomaKansas State, and others. They’ve also signed a large multi-year agreement with an SEC school.

Right now we are seeing a Klondike rush in this space. Making good money when there is blood in the street.

There is always money in revolution.

 

Universities are really community businesses. 

What is unique and striking about where US college sport now needs to go, is that content will be even more important than just for new revenue and IP streams. It’s going to be a central key part of building the University’s elite network.

Exactly this is what the Column considers the juice for this Sunday.

If people now say that being at University isn’t really about the didactic courses (which are often free online), but instead belonging to an exclusive elite club and network for life, then maybe a good plan for US sport colleges would be to start explaining and marketing what their membership and alumni club actually stands for.

What is represents. Its Why.

Going forward, intelligent “students” will look for this type of evidence, because they know that most of them won’t make the pros, and they will only have the university window as their opportunity to build the foundations of a future personal brand, with monetisation optionality.

But that can only be done if you go to a University with a top media content hub.

So it is now an arms-race in the NCAA colleges to build the most attractive media platform as the centre of what is, in reality, their future “community business” with brand, and owned IP, that lasts as legacy. It’s a version of what has happened a level below, in American high school sports, with Overtime. The media content in the first instance drives brand, value and recruitment. Then, you can build leagues atop the athletes.

Never ever will Chelsea or Real Madrid try and sign a top youngster by pointing to the quality and exposure of their club media hub. But that’s is exactly what is going to happen now in the NCAA.

 

Some sports brands are better than others.

Gary Neville here doesn’t get Rooney’s answer of Glasgow Celtic, because he doesn’t understand what the Celtic brand stands for. A working class Catholic lad from Liverpool does.

As sport fragments, with challenger leagues set up, the battle to attract and retain the athletes will get ever fiercer. Much of that will be about money, of course, but not all.

The sense of belonging and community will really matter, especially if presented with class. And this is the revolution all around us.

In the deserts of Sudan, and the gardens of Japan. From Milan to Yucatàn, every woman, every man will want the visceral emotion of true human belonging.

And that’s a very good reason to be cheerful.


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