Making the Most of Media Rights
By Ross Chumsky and Adam Grossman
Over-the-top distribution of sports content has dominated industry news over the past few weeks. Amazon’s new NFL deal to stream Thursday Night Football, Twitter’s new agreements to stream live content from various leagues, and ESPN’s decision to lay off approximately 100 employees all have arguably been focused on the changing consumption patterns of sports fans. The reason that distribution channels, rather than the sports content itself, have taken center stage is that most sports leagues already have long-term media rights deals in place in traditional channels. For example, the NFL, NBA, and NHL all have television deals that extend into the 2020s.
There is one significant exception to this situation. Last summer, the sports media agency, WME-IMG, purchased the UFC and its parent company Zuffa, LLC. for approximately $4 billion, the largest ever figure for the sale of a major sports franchise, by a significant margin (about $2 billion). Much of the impetus for WME-IMGs massive investment stemmed from their expectation that they will be able to broaden the scope the UFCs media rights, both domestically and abroad. With media rights fees skyrocketing throughout the sports world, WME-IMG is looking for the UFC to be the latest sports franchise to capitalize on this trend.
The UFC current media rights deal, signed in 2011 and expiring in 2018, has Fox Sports paying the UFC an annual average of $115 million. Since the deal was signed, the UFC has grown significantly in popularity. In addition, the UFC “[is] appealing to media companies looking to grow their audience with the UFC’s fans, who are coveted by all networks because of their youth and passion.”
Prior to the UFC-Fox Sports deal’s 2018 expiration, Fox has an exclusive window, beginning in late 2017, for negotiation of a new deal. In its next media rights deal, WME-IMG reportedly intends to set the price point at $450 million per year for ten years. While the $450 million per year figure would represent a 219% overall increase in annual media rights fees, it is below MLB’s current media rights deals with ESPN ($700 million annually) and Turner Sports/Fox ($850 million annually combined).
With more and more people eschewing traditional television in favor of digital streaming services such as Netflix and Hulu, media companies are searching for unique content to attract viewership and buck this trend. Live sports content continues to draw large viewership numbers facilitated the recent increase in sports media rights fees. WME-IMG is in a prime spot to negotiate a higher fee price because media rights for other major sports leagues being under contract and unavailable for the foreseeable future. Couple the increase in sports media rights fees of late with the UFCs building popularity, and the result is enviable negotiation leverage for WME-IMG.