Picture the stereotypical owner of a sports team. Back when you were growing up, it’s probably an oil tycoon, maybe wearing a cowboy hat, glad-handing in a private box at the stadium, with plans to pass on the team to their children some day. It was either buy a couple of yachts and a fleet of sports cars or buy a sports team.
But that has largely changed in the last decade or so. Sports teams are now multi-billion dollar entities that attract some of the most sophisticated moneymakers and moneymaking institutions in the world. And with the new equation, stuffed with more zeroes and commas than ever, the level of innovation, analysis, and disruptive investment is more accelerated than ever.
It’s in this dynamic new era that JohnWallStreet resides, analyzing the biggest questions, trends, and themes that are driving the greater sports business industry forward and are on the minds of the industry leaders shaping this evolution. Corey Leff, the founder and editor of JohnWallStreet, articulated the new normal in sports, in which teams and leagues are investment assets that demand the same level of innovation that has shaped the other multi-billion dollar businesses in the world.
“Forever sports was just like a hobby that rich people did,” said Leff, who worked in equity research prior to starting the newsletter and sports business advisory resource JohnWallStreet. “And these weren’t investments, these were largely teams that were passed down. But as the valuations, which corresponded with media rights [deals], have skyrocketed over the last 15 years, you’ve had a different class of owner come in because who can afford to buy $2 billion teams.
“With these enormous purchase prices, you get this different class of owner that’s taking a different approach and making sports business a lot smarter and are thinking about things like the fan experience and how to improve and integrate sports tech. So that’s opened up this whole world of venture and investment and all the things that we write about now.”
And then the million, nee, billion dollar question becomes, Leff noted, “To generate any semblance of return on them, we have to monetize them. So we need to do a better job than we have in the past. I think it all goes together.”
While the massive valuations have largely been driven by increases in live television rights (more on that later), a variable area ripe for growth in the tech-infused, increasingly connected and mobile world, is fan experience and fan engagement. While your parents and grandparents may mostly recognize the game on the field or the court, there is so much more new and novel about going to a game. Sure, you can get still get a hot dog and peanuts, but now you can also get a signature dish from a local restaurant favorite from a renowned chef — and order and receive it without leaving your seat. Forgetting the tickets on the kitchen counter is a relic of the past, it’s all mobile now. The game listed on the ticket is still the ‘main event’ (don’t worry, Red Zone is on in the sports book on the concourse) but you might really be going for the postgame concert or the pregame beer-tasting event. Needless to say, some things have changed since those halcyon days of years past. Things had to change, fans have too many other options on which they could spend their discretionary dollar or enjoy a night out.
“There’s a broader trend of fans going less and spending more on those experiences and looking for that premium experience,” said Leff, whose daily JohnWallStreet newsletter involves deep dives analysis and interviews on sports business stories, topics, and developments. “So that’s not where this conversation or even the trend we’re talking about started about why they initially started trying to improve the fan experience, but it’s all on the same kind of wavelength.
“Right now that’s what fans are looking for. They’re looking for that one night [to be] memorable, this is the night of the year type of experience. And that’s why they’re spending a couple grand to go to Taylor Swift. It’s all about memories, Instagram, social, creating experiences that stand out and are not just one of a million.”
The competition to attract fans to come to the games is just one battle, however. The greater challenge at hand is the rapid evolution of the heretofore endless spigot of cash coming through media rights deals. It used to be so easy — just about every household spent their entertainment hours consuming programming one of a few cable bundles and both leagues and networks enjoyed virtually unfettered, lucrative access to every fan.
But now that built-in audience can no longer be taken for granted. The number of households in the traditional cable bundle is only going down from here on out. Those regional media rights deals are increasingly being replaced by direct-to-consumer platforms or smaller deals. But this paradigm shift can be both a feature and a bug. Because while broad reach may get a little tougher, many teams will have more direct relationships with more fans than ever before.
“I think reach has become an increasing focus for sports properties, recognizing that the everybody’s not in the cable bundle anymore,” said Leff, who recently published a piece on the possible rise of FAST (Free ad-supported television) platforms for games. “There’s like 35 million people that now are outside the pay TV bundle. So I think there’s just an industrywide focus on reach.
He contnued: “I think there’s an increasing shift to understanding or trying to understand who fans are, and if you can understand who fans are, then you could start focusing on what’s the lifetime value and increasing the lifetime value of those fans.
“So we’ve seen these integrations, an increased focus on data and data insights over the last couple of years, but we’re still in our infancy; it’s still at the data aggregation and understanding data part of the process. Like, I don’t know that we’ve actually gotten to the part of the process yet where it’s actionable and driving new revenues.”
Driving new revenues is the end destination, of course, even if we’re still charting the path there. Because while massive reach it’s still available, it’s increasingly happening across different platforms. The fragmentation is part of the new normal, a side effect of the dilution of the cable bundle. Teams and leagues are reaching more fans than ever, all across the globe, but that doesn’t mean making money off all those fans will be easy. Leff and I talked about the unparalleled volume of fans of European football clubs, for example, who may have more individuals in the fans identified as fans — but, for a number of reasons, don’t drive anywhere near the revenue per fan of what, say, the NFL does (playing a sport that is largely confined to two countries in the world).
There is no prebaked paradigm for maximizing the revenue of each fan for a truly global sports team. As NFL and NBA teams increasingly seek global brand status, the Premier League clubs are just about there — but don’t quite have the revenue to show for it yet. There’s latent value for each fan, though, even more so with more direct, more increasingly necessary relationships. Leff noted the importance of being able to direct identify and engage fans.
“Especially these teams with global followings,” he said, “if you could put a per dollar value on what each of those fans are [their valuations would be much higher]. The problem right now is that, say, you got a gazillion fans, but you don’t know who any of them are, how do you go about monetizing them? The answer is you can’t.”
The backbone of monetization, as you’ve read (or already knew), has been the games, and It will continue to be that way for the foreseeable future. But it’s obvious the models by which games are monetized are evolving. There are still lucrative linear rights deals for many, but there are also streaming deals, direct-to-consumer offerings, a la carte purchases, and more. And there’s a generation of potential and emerging fans not accustomed to plopping themselves in front of the boob tube for three hours to watch the full game. They’re still fans, but it’d be naive to think the business models that have prevailed for decades won’t have to evolve along with the changing nature of fan engagement.
Leff addressed the narratives around the coveted and sometimes misdiagnosed young fan cohorts. “I think that younger generations will watch longer form content if the content is good. I don’t necessarily just believe that…,” said Leff, who has a six-year-old daughter himself. “There’s no doubt that it’s hard to fit [long live games] into people’s schedules these days. Everything’s more competitive, so you have to make it more attractive…I certainly do not subscribe to the idea that Gen Z’s are not sports fans; that’s a ludicrous idea. There are certainly sports fans, they just consume media in a different way…”
While traditional TV ratings seem to (remarkably) keep going up for live sports, most survey and behavioral data about Gen Z and Gen Alpha sports fans indicate they tend to prefer and consume more highlights and social media versus the traditional live broadcast. Herein lies another challenge, monetizing sports fans in the same ways when their consumption patterns change. There’s no magic formula that says one sports fan of your team = ‘x’ dollars per year in revenue, let alone lifetime value. But all the questions are moot without new ideas, experimentation, and flipping the innovator’s dilemma on its head, and being unafraid to disrupt paradigms that were so lucrative (and still are) for so long.
“Even if we put the monetization to the side, isn’t it about building that [fan]?” said Leff of the monetization of highlights and non-live consumption. “At least as I see it, for a six-year-old girl, it’s building the next generation of fans and fan engagement. [My daughter] doesn’t watch Sports Center like I did. I’m not sure that the ten-year-old or 12-year-olds are watching Sports Center, but they’re flipping on Roblox, so why not have the highlights airing inside the Roblox game?…
“in the context that I’m talking about, at least, it’s about talking to the next generation of fans. You’re not thinking about how to make the most money off of them today.
“You want to make sure that in 20 years, your team valuations are still going up because you still have a fan base.”
The reward for winning in sports (business) is as lucrative as it’s ever been. At the same time, the competition for discretionary dollars from fans and brands is only getting more fierce. The one constant has been, and will be, the fan. The fan is the sun around which everything else orbits. Without the fan, none of all this talk of innovation, experience, media models, and paradigm shifts matters. So while we continue to chase the almighty dollar today, nothing is more important than ensuring we’re cultivating the fans of tomorrow. It’s that emotional investment that will pay off on the fiscal investment in the long run.
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LISTEN TO THE FULL INTERVIEW WITH JOHNWALLSTREET | COREY LEFF
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