The Twilight Zone for sport.

The holidays are officially in the rear mirror. We always know that when the football seasons in Europe and the US start back.

This isn’t a snide comment on other sports, but it’s just that both codes of football have a societal role in the everyday lives of the normal Joe that just dwarfs everything else. All reflected in media rights values.

Most sports are a leisure choice. Football is much more. It is who you are.

 

What did we learn on the holiday beach?

Any summer should always be more than just a chance to get yourself a tan and read a book. It must be considered important as a distinctive break from routine, that works very well as a needed moment of reflection.

I insist on a lot of time being spent,

almost every day,

to just sit and think.

 

 – Warren Buffett

And there has been a great deal on which to reflect this Summer of 2024. Not least because we seem to have travelled back in time a full 30 years.

Lydia Deetz is again the queen of the Venice Film Festival, and the Gallagher brothers have definitely decided to actually look back in anger. Maybe!

This is all about monetising an older audience from 1995. A richer and more loyal customer base. Compare that to all our angst around Gen Z business models now.

So, in that nostalgic theme, and to ease softly into these new Columns, we should sun-bathe just a wee bit longer, to honour the glories of the Italian holidays.  Like Jude Law in Mr Ripley, everyone should spend at least one full summer here, letting the entire experience wash over them. It will change you forever, and you will never think the same way again.

It goes like this.

In Italy, and the Med in general, even if you want to keep your shoulder to the wheel, no one will actually be around. Globalisation and international trade maybe have diluted all of this a little bit, but it is still a deep part of the culture, comically not really understood in the more Anglo-Saxon countries. 

 

Un’Estate Italiana.

The summer comes at you from over the horizon. You will be obliged to “change your wardrobe” entirely early May, as any garment of weight will need to be mothballed in the attic, and you will retrieve with a smile all those lovely light trousers and T-shirts you bought in previous years. Sadly, many won’t fit.

Living on a narrow peninsula, all Italians can get to water, so weekends in June will start to be dominated by trips to the seaside. The Sicilians will start first, with the Milan/Turin Northerners hitting Ligurian beaches last of all. The Adriatic will start seriously welcoming Anglo-Saxons late June, and the Bolognesi men will obviously all migrate there.

 

Sex and scandal.

About this time, the TG news bulletins will start rolling out the same annual reels with advice on drinking enough water, avoiding the first strong sun, and of course eating right to get into that swimsuit with confidence. No issue with fat-shaming here.

Schools will close, and many mothers will start to leave the city with their kids, to a family summer home at the sea or mountains, often with the grandparents. The men will remain in the city through June and July, maybe enjoying a certain liberty for their away-games with sundry young ladies and secretaries. Traffic eases and the towns empty. TV presenters are swapped-out for the sad replacements to the main stars, who themselves will already be in Porto Cervo, Forte dei Marmi, or Formentera, filling the gossip magazines with their latest flirts and scandals. Italy loves a skimpily-dressed juicy sex story played out in public. Where do you think the idea for Love Island came from? 

But it’s in August when really the country closes and everyone hits the beach; often the exact same one every single year. Stessa Spiagga Stesso Mare. Here is Mina.

On that familiar beach, the men will follow the transfer market speculation in the football daily papers. Reading the pink Gazzetta headlines, with an espresso, every so often lowering shades to check out the passerella of fillies at the water’s edge, is one of life’s priceless experiences. This is the deepest of national cultures.

 

Summer Lovin’!

For younger teens, this is where they will likely have their first romantic heartbreaks, meeting the boy or girl from the family in the next sunbeds, then forced to tragically separate when the month ends. That whole story arc of summer love has been the bedrock of Italian popular music and film for decades.

A narrative sometimes stolen by others, admittedly with a certain panache. 

PS. RIP Sandy. 

Italians don’t really do running around in the heat, so the “Sporting Summer”, as intended by the English, just doesn’t exist here, apart from every second year when the Italian Azzurri (men’s) football team habitually thrills the nation. At least until recently.  

All this vibe reached the zenith of its expression in 1990. It was, at the same time, the sweetest and yet most bitter summer of all. Italy, with its beaches and cities the centre of the world, hosting a million sporting stories, all in a tapestry of truly beautiful sun, sea, wine and women. Those of us who were there will never forget Summer 1990 in Italy.

The searing pain in Naples, as Diego ripped apart the heart of his adopted city, the tears of a Geordie clown, called Gazza, the Irish wonderfully charming the cities with their colour.  Big Jack, Packy Bonner.

If you close your eyes, you are back there in an instant. Your nostrils remembering the salt of the sea, the smell of the pesto in Alassio.

All of this iconic theatre accompanied by an immortal song called so simply An Italian Summer. A very very special Italian Summer. 

 

Summer is, indeed, the perfect time to reflect.

But you will need fresh raw material. New voices.

Over the years in these months, Como and its lake have always been a popular retreat for our children, with friends and lovers. More the latter these days, rightly enough. A curmudgeon may selfishly say that all they do is upset the rhythm and privacy of the household, but in fact they always come bearing gifts.

How they, in their early 20s, discuss today’s popular culture, content, entertainment, politics, is truly illuminating and educational. Sure, our Como visitor demographic over-indexes on intelligent, university-educated, international, cross-cultural, but it’s still a good and representative sample.

What is watched and read, how and when it is consumed, what they would ever consider paying for? And, especially, what is “cringe?

They give plenty food for thought for attentive eyes and ears. All utterly germane for our sports industry.

Overhead in Como this July: “ The only subscription I pay for is Premium OpenAI”

 

We don’t really understand Gen Z.

It is amazing how many of the things Boomers and Millennials think will work in sport are just dismissed with disdain by the cool kids. One notes, for example, the recent FIFA experiment on Roblox. Cringe and failure to the max.

Six followers is so dramatically bad a number that you need to stop and reflect. You have to. There are some truly horrendous errors in what FIFA has done. All too intense to discuss in the last days of summer.

Luckily AYNE guest Jo Redfern from Web 3 Sports Ventures sends this…

This awful Roblox ”miss” by FIFA aside, here we have the biggest and most successful Gen Z game in the world that still doesn’t make money. That’s not a positive.

An important summer reflection right there. You can still make pots of easy money serving re-heated nostalgia to 1990s audiences, but you can’t make a thin dime off of Gen Z?

Will that ever change?

 

These young adults can’t be understood, or sold to, easily.

That’s why just listening to them around a table is so interesting.

The first thing to realise is that they are no longer “kids”, and are in fact starting to dominate the world in all aspects of culture and politics. They vote. They protest. And they make you reflect.

The evidence of this intense counter-culture, so reminiscent of the 1967 Summer of Love, is all around us, and history always shows us the probable future. Haight-Ashbury ended with Charles Manson, ushering in the grime, pessimism and (racial) strife of the socialist 1970s.

It’s all back, isn’t it?

Many, including myself, have described these exact moments as a Turning, the Fourth in the cycle in this case, but maybe that term is just getting boring and repetitive now.

Maybe, they are better described as The Twlight Zone, and this thought is today’s Sunday Column.

The Twilight Zone was/is an American media franchise based on the anthology television series in which characters find themselves dealing with often disturbing or unusual events, an experience described as entering “the Twilight Zone”. The episodes are in various genres, including fantasy, science fiction, absurdism, dystopian fiction, suspense, horror, supernatural drama, black comedy, and psychological thriller, frequently concluding with a macabre or unexpected twist, and usually with a moral. – Wikipedia.

Twilight is the flickering changing colours in the half-light between first sunset and dusk. A moment of transition, describing perfectly the sport media and entertainment sector today. The sun has set on the bull market a good two years ago, but we aren’t yet in the full darkness of dusk.

 

Sport’s Twilight Zone.

That Wikipedia description is bang on for sport.

Confusion, uncertainty and suspense are all around our sector. Lawyers everywhere are at the centre of psychological thrillers and courtroom dramas, any of which could utterly define the future of the industry, with endless possibilities for macabre twists in the tail.

Anyone want to debate that Chelsea FC isn’t a black comedy, or that the Man City case might point to a dystopian future? Absurdism is all around us, if we are honest.

But the real horror for many sports is actually apathy!

After the sugar-rush of the Olympics, we now need to come back to reality. Ratings for some sport events are just so disappointing. This from the excellent publication Puck.

It isn’t just golf. Let’s look at the big show in Paris itself. The Gallup report on the Olympics tells the same tale. Look well at the split in interest by demography.

Apathy, especially among the young, poor, badly-educated audiences. Sport, as we intend it, means very very little to this demographic.

That is my moral to the story.

Optimists will point to how well the games have done for NBC Peacock and here for balance is an article of them talking up their own book. 

Indeed, the industry of sport and its executives now polarise nicely into those who read more into the Gallup numbers than the NBC ones. You pays your money and takes your choice. 

But absolutely do what Buffett asks, and think really hard about what all this means, because nothing is black and white in the Twilight Zone. And your career may depend on it.

 

“Where do you see yourself in 5 years?”

With many of us having kids now entering the job market, it is very interesting to see what questions are being asked by employers. And what aren’t. 

“Where do you see yourself in 5 years?” was always a question you needed to prep, back in the day. Not now, it seems. HR depts today seem more concerned with cultural and skillset fit of the here-and-now, as opposed to any projection into a future. A reflection of what is clearly the modern gig economy. What can you do for me today? 

This is a mistake, and every sportsbiz executive should be asking this question above all others. What does the future look like?  

“In 5 and 10 years, who will be watching us and why, and are they willing to pay for it?”

In other words, can you envisage a scenario in 5 years where your sport has appeal and a financial model for a world evermore dominated by digital-first Gen Z?  Will they watch and pay for the Olympics directly or indirectly? Will broadcasters see your sport as moving the needle for what they need? And will sponsors and advertisers pay to get around your audience in the formats you have always sold? 

 

The future has arrived. The Storm has hit. 

We are no longer dealing in theory and forecast. The brownie points for predicting a market change are already won, and in the bag. We are now reacting to harsh reality.

The French Ligue1 tender for their rights went no-bid, and eventually achieved values half of expectations. A shockingly bad outcome. Their TV offering is now fragmented and expensive, and piracy is always going to fill that particular gap with gusto (1.1m in the opening weekend).  Fans are now even actively promoting solutions of how not to pay for a subscription.

 

Yes, sport in Summer 2024 is finding itself right in the middle of what was always its obvious destiny.

It is this.

Broadcasters can’t and won’t pay for sports rights in anything like the way they did yesterday. None of them can afford the full-risk minimum guarantees that the current model of sport demands. Rights are only truly valuable now if they materially move a needle for customer acquisition, or prevent serious churn, at the media company.

Most don’t. 

Various mid-tier sports are now like a well-off person moving to reside in Montecarlo. There is a very quick realisation that you are not really that central and important in the grand scheme of things. And that there are very different levels of monetary wealth.

Equally, the NBA recently-negotiated riches should NOT be looked at as a comfort blanket for 90% of this industry, especially as the media companies winning those rights will have a massive task making the numbers work, as this excellent analysis of NBC/Peacock/Comcast shows all too well.

Ultimately, predicting sustainability is always all about the Benjamins. How rich is the guy who finances you? Will s/he stay rich?

Here is “yours truly” on an American macro finance podcast on exactly all of this. This one went down very very well. 

 

 

Most of sport is now commodity “filler”. 

Apart from the very top of the pyramid (like the NBA), broadcasters are now just choosing to pass on buying sports rights. Leagues, like Italy’s Serie A, really struggled to sell its international packages. Others the same, and the evidence is everywhere. We know that even the new celebrated women’s football league in England, the WSL, is not getting the uplifts in rights values it expected. 

Anyone who has ever sold rights knows that, inevitably, your final result depends on the number and financial health of the bidders. The more, the richer, the better. 

The English Premiership really kicked on in its rights values when BT Sport entered the market. But that game wasn’t about bidding the right intrinsic value of English football. It was a loss-leading marketing budget for the “triple/quadruple play” around selling broadband and telecoms services. Sky resisted the assault and Scudamore laughed all the way to the bank. 

Only a few years ago sports rights holders in the UK could hope to receive optimistic aggressive bids from Sky, BT Sport, DAZN, Eleven, Premium, Viaplay. And some others around the edges. 

 

Not today. 

Bidders are fewer, and they are poorer. So they are going to be more choosy, and they will bayonet the wounded. They just have to. Let’s look at a couple of specific examples of market-moving media broadcasters and follow the money. To see what the future holds for us all.

 

Warner Bros Discovery (WBD)

A hotch-potch of a company, the result of a collection of what looks evermore like senseless and desperate mergers of the past. They have assembled Discovery, Eurosport, BT Sport all with excessive debt. They have TNT in the States with some college sport, some baseball, and Nascar. All of this was centred around their dominant traditional position in the NBA, which they have just lost.

Consequently, their sports strategy is now a shambles and they are run by a man, David Zaslav, aggressively looking to make efficiency savings on programming across the board. He will terminate any sports rights not considered key. More importantly, his company’s business model is broken entirely, and he will now really struggle to maintain carriage fees on cable for his channels, especially with the NBA gone. His JV streaming hopes around VENU have been injuncted as a possible cartel in the FuboTV case. Those lawyers again. 

Whichever way you cut it, WBD is now a lame duck waiting impotently to see how it will eventually be broken up by others. Until then, it will be focussed on trying to survive by stopping the bleeding and managing down the debt.

WBD as an asset is dead, and the markets know this. It’s downgraded and priced on break-up value now. 

DAZN

In the bull market whose sun did indeed set 2 years ago, this pure-play subscription streamer was the Great White Hope for our industry. Spun out from the old Perform business, its global land grab to build subscribers atop a sports bundle offering has cost its owner, Len Blavatnik, 6-8bn, I estimate.

It went on a PR push 18 months ago to explain how it could realistically get to breakeven from a $1.5bn annual deficit, but noone, in truth, believed them. We all politely nodded.

The old guard like James Rushton, John Gleasure, Joe Markowski have all left or been marginalised, and the sports-media legend that is John Skipper also came and went, concluding (publicly on the AYNE podcast) that a stand-alone sports subscription business can’t work without some kind of bigger bundle.

Opinions vary as to where this company is today, depending I guess on who is paying your salary. I hear most of these from my hill on the lake. In confidence. And given that DAZN has put a major bid under sports for years now, I feel somewhat obliged today to offer a personal view of DAZN, similar to the IMG Column of the Spring.

This is only an opinion.

It’s just very tough to make money on renting sport rights, in this world of piracy. There is no getting away from that. I am NOT a bull on the DAZN model.

Breaking it down, I see them having a boxing business that probably does quite well, especially now that the Saudis have de-risked the costs. Their Asian business may even be making a little bit of profit but who cares frankly. The issue is simply European football, let’s be very honest.

Women’s soccer hasn’t worked for them. Serie A definitely in the past hasn’t worked for them. Even the new cut-price deal in France may not make a return with that level of piracy. Spain is meh. Germany is now extremely challenged, and becoming very acrimonious with those lawyers involved again.

That’s an ugly picture. They own the rights to the football leagues in Europe, when the new format of the UEFA Champions League is being introduced. What is that going to do to the appeal of the domestic leagues? Why would anyone ever be interested in Ligue1 in France, in that context? Even Serie A.

But, tbf, they are making progress. because they are doing two things: bidding less for rights, and really taking an axe to the central cost base. A wild guess of mine at the 2024 result would be a loss of £250m.

That’s still a lot.

They brought in a betting guy as CEO and that’s a trope in our industry now. Get your subscribers to pay you for other things. Merch, betting, all kinds of fan engagement through gamification. It makes sense. Sports betting, and its entry drug Fantasy, are exploding.

Even with its many regulatory issues, betting clearly seems to be more and more the implied growth lever for the entire sports industry. That is a tough thing to admit. But we see that a global brand like the English Premier League has over half its teams with squalid betting brands on the front of shirt.

Paris, instead, was dominated by LVMH. That isn’t a coincidence and is a major comment on football fans as a demographic. It’s the working man audience introduced at the top of the Column. He always likes a punt. Ideally with a beer and even a fag.

 

So can gambling save DAZN?

The jury is out, but I dont think so.

In general, the consumer is indeed maxed-out, and we are entering a world of tax hikes, with belts really tightening.

Specifically, the new DAZN betting business in Germany isn’t working at all, and I dont see that changing, new CEO or not. It’s a saturated regulated market.

DAZN needs an exit. Its asset is its European subscribers, not the loss-making contracts in European football. An American media company could buy it, and use it as a pipe to distribute a Disney+, or the new Paramount venture.

DAZN in Europe is not an IP business that can make profits, it’s a dedicated pipe to its subscribers.

Will Len’s patience end? My information is that it hasn’t yet. Maybe he cant let it go? Maybe, like what he did in Warner Music, being instrumental in the arrival of Spotify, he wants to be a player in driving the structural changes that this industry needs.

Either way, one thing is clear, they will no longer be bidding big for sports rights.

The streaming model will never be able to pay enough.

The absolute centre of the entire thesis of Sport’s Perfect Storm was that the standalone streaming version of broadcasting does NOT make enough margin to pay for the upfront risk of huge rights fees and minimum guarantees. It needs a wider bundle, be that ESPN/Disney, NBC/Sky/Comcast, Prime/Amazon, Apple, YouTube/Google.

This was written a good while ago now. But we are here.

Cord cutting and piracy eat into everything to do with the model of sports broadcasting as a business. Inevitably, this will devour the profits and margins at the macro, and ultimately affect every single media company. Streaming just isn’t anything like as attractive a business model.

So, sooner or later, all this dictates the need for an entirely new attitude of partnership from sport.

 

The new model is indeed starting to appear.

What happens to rights holders and their revenues if/when the likes of WBD and DAZN die, or decide to pay a lot less up-front? Most markets will go single-bidder in Europe, and Comcast/Sky is going to have a field day in lowballing?

Or something like this?

This is now a live example of a low or zero minimum guarantee paid to the rights holder (serie A) in exchange for a revenue share and data-sharing. One Football has 30m registered users and better knowledge about the true interest of blocks of football fans than most. This means they can go to Serie A and show the hard data to suggest a crafted offering of season pass, game pass and team passes. Their Napoli preseason PPV numbers also looked very good from the outside. 

All of this has not gone unnoticed with other teams and leagues, like Germany, the MLS. And I guess their rivals, like DAZN. Be very clear that DAZN’s main rival now is really OneFootball.

The Minimum Guarantee is finally coming to an end. Through necessity more than desire. And we know that sport NEVER changes, unless it has to.

 

This is the real Twilight Zone moral.

In five years, the revenue model for sports rights will need to accept a partnership approach with a media distributor that has deep deep data on fans desires and interest. Less, if any, upfront rights fees, will be offered, and broadcast will likely be structured as a joint-venture League Channel.

It may look something like One Football and SerieA. Or how Hollywood and Music majors distribute Indie productions.

This has always been sports’ inevitable destiny, and the real reason to write a book.

But the day after all this happens, leagues, clubs and franchises will need to reflect radically about how they can afford players, and manage squad budgets on this basis. Because a variable revenue line, with a fixed player cost base, just isn’t sustainable.

Sure, very smart financial engineers will find ways to package and securitise this risk, but ultimately a new model for player remuneration needs to be just around the corner.

Outwith the very top players, wages will come down, and be more performance-related. Clubs will push the risk and cost of injuries onto the player. Zone7 was five years too early.

No one sees any of this coming, and it is the big twist in the tail for today’s Sunday episode of the Twilight Zone.

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