DirecTV's NFL Relationship Creates Winning Formula For Sports Partnerships
By Adam Grossman
One of the most commented-on stories this year in sports business is that NFL year-over-year ratings have declined during the 2016 season. Some have wondered if this a long-term problem or a short-term issue caused by one-time events, including the 2016 presidential election the and the Chicago Cubs run to a World Series championship.
While there are likely long-term challenges facing the NFL’s broadcast success, DirecTV’s success indicates that this could be more of a short-term problem. As Mike Snider of U.S. Today explains, “DirecTV added 323,000 net new subscribers in the July-September period, according to research firm the Leichtman Group. That brings its subscriber numbers to 20.8 million, the firm estimates. Overall, the pay-TV industry lost more than 255,500 subscribers during the quarter.”
The success of DirecTV in this adding subscribers leads to two important potential insights. The first is that having relationships with major sports leagues can be an extremely valuable asset. Arguably the biggest differentiator between DirectTV and other pay-TV providers (think other cable or satellite companies) is the NFL Sunday Ticket package. DirecTV provides a unique service offering that enables fans to stream out-of-market games through different channels including television sets, computers, Apple TV, Amazon Fire, Xbox One and Samsung smart TVs. Having the NLF Sunday Ticket has given DirecTV a competitive advantage that appears to be driving subscriber growth.
In our book The Sports Strategist: Developing Leaders for a High-Performance Industry, my co-authors and I show that sponsors are looking for direct ways to monetize their partnerships with sports organizations. DirecTV is an example of how partners work with sports organizations to achieve this goal. One could argue that DirecTV’s, which was purchased this year by AT&T for $48.5 billion, value comes almost entirely from the NLF Sunday Ticket because of the competitive differentiation is provides from other pay-TV providers. While not every partnership will be able to provide this level of result, successful sports organizations will be the ones that able to clearly deliver direct business benefits to their sponsors.
The second insight is that sports content is valuable in particular when it can be accessed across multiple different devices. Over the past five years, the fees for sports media rights deals have increased substantially for many large sports organizations. Critics have argued that sports content is actually not that valuable and these deals will not drive tangible results. In particular, these deals will become increasing difficult to profit from as more people move away from traditional television.
DirectTV’s deal with the NFL shows that this is likely not the case. There is still a significant demand for sports content, especially when it can be consumed through different channels. DirecTV has worked hard to make NLF Sunday Ticket available on multiple different platforms. Combining a comprehensive channel strategy with unique sports content has played a significant role in expanding DirecTV’s subscriber base.
This is not to say that all sports content will keep increasing in value or that criticism of media rights deals is without merit. ESPN and FS1 have lost millions subscribers over the past few years even with several new media right deals being signed. In addition, rights fees for some smaller sports properties have declined in 2016 because they have not achieved their subscriber / revenue goals. These are not small problems and will need to be addressed in the future.
However, it is clear that premium sports content can deliver premium results. This is the reason that companies such as Amazon, Netflix, Twitter, and Yahoo have or are exploring media rights deals with large sports organizations. As John Ourand of Sports Business Journal states, “Live sports rights still are critically important to television networks. Live sports is the most advertiser-friendly genre on television. The programming is DVR-proof, meaning that viewers can’t fast-forward through the commercials.”
While media rights deals create a clear business case for media partners, it is only one asset that sports organizations have to generate incremental growth. Sports organizations should (and often do) look for more opportunity using its intellectual property to create a win-win relationships for the team and its sponsors.