Sport: A money pit or cash machine?
Sports fans are the type of consumers brands want. They are fanatics, followers so welded to teams that their attention never waivers.
This is not lost on media players who like to serve up sport to their audiences at regular times and then serve those watchers, or readers, or listeners to advertisers.
The value of a fast-moving sporting code to a media player is all in the content. The key issues are exclusivity and cost, and they have a deep relationship. If you are the only place to go for exposure to a popular sport, the price of advertising goes up.
Buying rights to broadcast sport can make a lot of economic sense, as long as the overheads can be held on a tight leash.
An hour of television drama in Australia can cost anywhere between $800,000 and $2.3 million, according to federal government agency Screen Australia. An hour of first-class sport can be a lot less than that and, some argue, more exciting and fun and with greater scope to bring in advertising revenue.
An hour of AFL costs around $350,000, according to calculations made five years ago by Heath McDonald, now the head of the School of Economics, Finance and Marketing at RMIT University. Production costs go on top of that, but at first glance the numbers appear to work commercially.
In June this year, eased restrictions on COVID-19 social distancing allowed the return of live sport. The NRL and AFL had to accept lower fees in the face of a reduced season because the broadcasters, who had paid up big for the pleasure, wouldn’t pay the same for fewer games.
But pressure to reduce fees paid to sporting codes for the right to broadcast had been building long before the pandemic.
In May 2019, Morgan Stanley analysts, in a note to clients: “TV sports rights may have peaked — what will that mean for the AFL/NRL/cricket?”
The investment bank has a database to track the inflation in TV sports rights in Australia. This data shows a compound annual growth rate of 15 per cent in fees paid for rights by cable TV, and 10 per cent by free-to-air (FTA) during the past 20 years.
More than a year ago, analysts at Morgan Stanley questioned whether this steady year-after-year rise in the cash paid was sustainable.
At issue is the declining profitability of
