Sports properties need to develop rights packages that are befitting of the digital age – and we think data, and the right intelligence, is integral to that
Gareth BalchGareth Balch is the chief executive of Two Circles, which he co-founded in 2011 as a sports marketing agency for the digital age, borne out of a desire to build direct relationships with sports fans using data.
What will be the impact of the coronavirus pandemic on sport’s revenue model, and how can it look to emerge for the better?
The short-term impact is considerable and largely unavoidable for any sport in the business of monetising live events. However, compared to most other industries, sport has proved to be recession-resilient, coming through crises like the global recession a decade ago relatively unscathed in the long-term. So while live sport is halted everyone in sport will feel financial pain, but there is every reason to suggest that once the pandemic subsides and live sport returns, whether that’s behind closed doors and or with full houses, sport will thrive once again.
Sport was clearly hit hard and early by the pandemic. For many sports rights-owners and others in their supply chains, this lockdown of live sport will result in cash reserves being drained and ultimately some businesses going bankrupt. We should also never look past the human challenges that come with that type of economic challenge. Equally, as a former athlete, the implications of lost opportunities for athletes will be hard felt, which is why our primary focus at Two Circles is on creating the healthiest environment for our people and supporting our clients to do similarly.
Long-term, there is also an impending scheduling battle looming. The cyclical global sporting calendar has been developed over decades through a fragile co-operation between sports rights-owners; the coronavirus has placed never-seen-before pressure on this co-operative. It’s every event for itself and a 'New World Order' for sport will develop. There’ll be winners and losers where the losers are the sports events that fans ultimately won’t really miss as much as others.
So, in short, put humans' livelihood first and sport will thrive, but the ecosystem will change, as will the balance of power.
What is the future for sport in the overall media and entertainment landscape?
Beyond coronavirus, we’re hugely optimistic about sport’s relevance in the world in the future and its ability to grow commercial revenues. But for the latter to happen sports properties need to develop rights packages that are befitting of the digital age – and we think data, and the right intelligence, is integral to that.
Take sponsorship as a case in point: we think sports sponsorship has been in the doldrums for the last 10 years and will undergo a revolution over the next 10 by fusing digital assets with physical assets to influence audiences better, and measure impact better because that’s what brands are crying out for.
We also think sports media rights are set to continue to soar because of platforms like Netflix and what they represent, not in spite of them. Growth however won’t come entirely in live long-form exclusive relationships that, at the moment, drive a vast majority of the revenue in the space – 86 per cent last year, according to our research. In the years ahead live rights will continue to be strong, but near-live and short-form rights will become a meaningful contributor to the next layer of growth, and their value will grow at a faster rate.
Those two revenue lines [sponsorship and media rights] are underpinned by having vibrant stadia and full houses. And, fuelled by the growing experience economy and investment by rights-owners into the live event through stadia and the service they deliver, people still want to attend sports events – as demonstrated by the UK’s record sports attendance in 2019. So sport as a live experience also has a healthy future.
If you put fans at the centre of your commercialisation strategy, and then think about developing your event inventory, sponsorship rights and media rights around that, you'll grow existing revenue lines and dilute the contribution of any single one through diversification
Can rights-holders reduce their dependence on media rights while still increasing revenue?
Generally they can, because the market is buoyant and we’re in for significant growth over the next period. If you put fans at the centre of your commercialisation strategy, and then think about developing your event inventory, sponsorship rights and media rights around that, you'll grow existing revenue lines and dilute the contribution of any single one through diversification.
Media consumption has changed hugely. How much more time do we now spend watching things other than live? Materially more. But sports media packages haven’t changed to reflect that.
Fundamentally that’s because media partnerships are tied up in long-term contracts drawn up by executives who are of a certain demographic and believe that is the only way to do things. But, as time passes, the big analogue sports marketing businesses will become disrupted by other challenges, and we’ll see there are other ways to make sports rights more valuable.
Last year, a Two Circles report claimed that sports rights-holders were missing out on £14 billion (then $18.3 billion) in potential sponsorship revenue each year. Why is the industry undervalued?
What we’re absolutely sure about is that sports sponsorship is an extension of the media mix, and the media mix has been transformed in the last decade by digital media consumption. Sponsorship hasn’t, and therefore the reason it is undervalued is because of the poor integration of digital assets alongside physical assets to deliver audiences for brands.
If sports rights-owners integrate digital intelligently into their sponsorship packages and deliver passionate audiences at scale – and demonstrate impact with a better methodology than an extrapolated made-of-eyeballs TV number – then sports sponsorship will increase its value. This is already happening with a whole host of our clients who are tier-one properties.
Will private equity firms continue to target sport, and what changes will there be?
It’s happened in the past with the likes of MotoGP and Formula 1, to name just two, but I think private money in sport will be one of the prevailing trends of the next decade.
The integration of digital, a stronger direct relationship with fans, and a rationalisation and a restructuring of the sporting schedule are three things already in play in the sports industry, and we believe they are the three biggest things that will allow the industry to evolve its commercial model.
Sport is at best a century-old as an industry, and immature enough to still have significant growth potential compared to other sectors. There’s also a complete oversupply of capital in the world. These two factors in combination provide the perfect market conditions for private money to come in.
The smart pioneers outside the top tier can win big because, in a time of disruption, there's opportunities for savvy and challenger-type entrants to the market
Is there a conflict between the short-term objectives of private equity and the long-term goals of rights-holders?
I agree that presents a tension, but if the gains are good enough, private equity won’t stick to a three-to-five-year model. It can be a little bit more pragmatic on the basis that the business model is still based on long-term sales cycles, which actually give really strong visibility revenue, something that private equity firms really like.
Below major properties such as soccer, what are the prospects for ‘second-tier’ sports?
As marketers and data geeks, we recognise that the big are getting bigger in all sectors right now. In sport it’s no different, where the bigger will grow faster. That said, the whole market has potential to grow. We’re really optimistic about that. And so that means in sport the smart pioneers outside the top tier can win big because, in a time of disruption, there’s opportunities for savvy and challenger-type entrants to the market.
Economically, it’s wartime not peacetime at the moment in sport. The landscape in every sport is going to change, if it hasn’t changed already in the last few years. That means there’s never been a better time to be a start-up.
So if you’re a newer sport or a newer format, like the W Series [in motor racing], or if you’re a new thing in an established sport like The Hundred [in English cricket], if you’re calm and smart and really understand your purpose in the world, you’re going to do really well.
Sportcal subscribers can access a recent article on Two Circles' plans under new owner Bruin Sports Capital here.