The Business of Sports Embraces the Future

Who would have predicted ten years ago that your phone would be your primary source of receiving and consuming sports content?

Sports viewership has been upended by changes in the media industry. Sports industry changes have also been profound—from fan engagement to virtual reality to esports. The sports landscape is continually evolving and expanding.  

Looking at the future of the sports industry, several game-changing trends are emerging. The following are the issues and opportunities likely to affect the industry in the coming year.

Esports

There are many ways in which esports is mirroring traditional sports: TV and online tournament broadcasts; advertising sponsorships of segments and broadcasts; analysts with in-depth breakdowns of in-game action; and franchised teams, with certain leagues establishing franchises in specific geographic locations.  

As esports’ popularity grew, game development studios such as Blizzard Activision, Riot Games and Valve began implementing game features specifically geared to spectators, and new titles have been developed with professional leagues in mind. Most of the successful professional leagues are run by the game developers themselves. Blizzard's Overwatch League, Riot's League Championship Series and Valve's The International routinely draw sell-out crowds filled with die-hard fans who root for their teams along with millions watching around the world. These tournaments have million-dollar, performance-based prize pools for both players and teams.  

Esports is unique in other ways. Hundreds of thousands of people are online at any given moment to watch content on Twitch. Twitch streamer Richard Tyler "Ninja" Blevins routinely has more than 100,000 viewers tuning in. These viewers can subscribe to his channel for a monthly fee—revenue shared between the streamer and Twitch—or can donate to him directly. Forbes recently estimated that Ninja was earning approximately $500,000 per month in subscription revenue alone. Ninja has more than 9 million YouTube subscribers (almost three times the NFL channel)!   

There is plenty of room for investment and growth, and several big names have taken notice. Many esports organizations have received outside investment from current and former professional athletes, such as Rick Fox, the owner of Echo Fox, as well as traditional sports teams’ owners, such as James Dolan, executive chairman of MSG and overseer of the New York Knicks and New York Rangers (Madison Square Garden invested in Counter Logic Gaming). Ted Leonsis, chairman and CEO of Monumental Sports and Entertainment, which owns the Washington Capitals and Washington Wizards, invested in Team Liquid. According to ESPN, there are 13 NBA, 9 NHL, 6 MLB and 3 NFL franchises already involved in esports.   

As the industry grows, look for more high-profile investors to enter this space. There is room for expansion on many different fronts, from starting new teams and organizations to sponsoring a tournament to partnering with a specific streamer who has a significant following.

Gambling

Sports gambling has always existed, but over the last few years it has taken center stage in the business of sports. Nevada is the only state authorized to offer sports betting in the U.S., but other states have recently introduced bills to legalize sports betting; and the state of New Jersey currently has a case regarding the legalization of sports betting in the Supreme Court. The American Gaming Association noted that Americans wagered more than $10 billion on college basketball’s March Madness in 2018. However, since sports betting is against the law in all states except Nevada, they estimate approximately $9.7 billion of that was wagered illegally. Legalization could lead to new revenue streams for the major sports leagues; one example is a negotiated commission on placed bets.

Let’s not forget the impact of technology. Gamblers often place bets—often in the arenas and sometimes illegally—via their smart phones. Take it a step further. If legalized, betting could take place in kiosks in arenas, similar to the ones at racetracks and casinos. This could also lead to additional revenues for sports teams or venues that could charge commissions on bets placed in arenas.

If online sports betting were legalized, blockchain could have a significant impact by providing bettors the security of knowing their bets are being guaranteed by smart contracts under a secure and trusted payment platform. Blockchain could also provide gamblers data analytics to facilitate data-driven decisions rather than using a hot tip from a friend.

Streaming

Will people continue to watch sports on cable television? The majority of viewers would say “no” due to the accessibility of sports content via streaming and social media. Many cable networks have developed applications so that viewers can watch programs at their convenience, literally on-demand. Sports, however, has remained the crown jewel of cable television because consumers want to watch sports live. Advertisers pay a premium for sporting events as the majority of consumers watch in real time, so there is less risk that consumers will fast forward through commercials. 

In 2017, Amazon paid approximately $50 million to the NFL to stream 10 Thursday night football games. This is up $40 million from the $10 million Twitter paid in 2016 for the same set of games. Streaming can boost the globalization of the NFL brand: The Amazon broadcast was available in 200 countries with audio feeds in many different languages to attract and accommodate new fans outside of the U.S. In 2018, Facebook entered into an agreement with MLB to stream 25 afternoon games on Facebook for approximately $35 million.  Facebook has an exclusive arrangement with MLB where it will be the only place to watch the games, focusing on weekday afternoon games where fans can view from their computers at work. Today’s generation likes to stay connected with their smart phones, and fans of teams love to chat live with each other on social media. Thus, social media companies can offer an in-game-like experience on the go. Add to the mix some interactivity and you may be looking at the future of sports program consumption.

Virtual Reality (VR)

New technologies are on the horizon that will change the landscape of both traditional sports and eSports.    As VR becomes more affordable and accessible globally, look for eSports and traditional sports leagues alike to leverage this technology to transform the consumer experience. What would you pay to be on the 50-yard line for the Super Bowl? Now imagine that same experience from the comforts of your couch. VR can not only transport a consumer from his or her living room to the stadium, but it also offers unique business development opportunities through virtual advertising and marketing content. 

A number of companies are already in the VR hardware space, including Google, Facebook, Sony, Microsoft and Samsung. Often, the hardware is only as good as the content, and we’re only in the infancy of VR in sports. The NBA has offered selected League Pass games in VR through the NextVR service, allowing the consumer to experience the game in an entirely new way.  

As mentioned, VR is not solely a consumer product. Companies are using VR to create immersive training platforms to help improve player performance. STRIVR is one such start-up. It has partnered with major brands, such as the NY Jets and the NY Rangers. This technology has given NFL quarterbacks the chance to re-live old plays rather than having viewing film being the only option; or have a NHL goalie get between the pipes in a VR simulation. Remaining ever mindful of consumer opportunities, STRIVR has also partnered with Walmart and Madison Square Garden to offer these fast-paced training experiences to end-users.

Private Equity

Sports is quickly becoming one of the most intriguing markets for private equity investing. This is driven by the changing sports technology ecosystem and the ever-growing appetite for sports consumption, which has surpassed $200 billion world-wide annually. From a social media perspective, 60% of Twitter’s traffic is sports-related.

Technology is constantly evolving in a variety of forms—from wearable devices to gaming to analytics. Private equity and investor dollars are fueling innovations in stadium technology, fan engagement, digital content and mobile ticketing, to name just a few. Sports continues to harness these new revenue streams, which are very attractive to private equity investors when combined with a stable professional league structure.  

Since 2013, investors in teams and sports-related startups have grown nearly 30% annually, and investors have placed more than $1 billion into sports-related startups in 2017. Investment is not expected to slow down anytime soon, which means exciting times ahead for the sports sector.