To The Moon

Software is about to eat live sports. The signs have been coming for some time. Apple$Apple(AAPL)$ pioneered the trend by buying the rights to Friday night baseball and MLS soccer. It is rumored to be interested in Sunday Ticket for NFL streaming. Now Amazon$Amazon.com(AMZN)$ is strongly favored to buy the rights to one of the biggest football competitions in the world — the UEFA Champions League — in one of its biggest markets — the UK. This follows the deal announced in March, an 11-year deal, valued at $1bn (£824m) annually, for Amazon to broadcast live NFL football in the US. These deals highlight the next stage in the competition between broadcast, cable, and satellite networks on one side and streaming giants on the other. Live sports and live news are the only significant content that consumers want and streamers historically did not have. The value of live sports to a rights owner is that it compels sports fans to buy subscriptions to services that host their favored events. Rupert Murdoch pioneered the approach with Sky Sports when building out his BSkyB franchise. It required every football (soccer) loving home to install a satellite dish and set-top box. And they did. Now Apple and Amazon are playing their game and have very deep pockets for doing so. The key to understanding how to play the game is to understand its value. I am familiar with the English Premier League so using it as an illustration here are the facts. The EPL has 20 teams. Between them, they have over 2 billion global fans who have 380 games per season. That is a total market available of 760 billion viewers. The EPL is currently planning tosell the rights for £10.5 bn ($14.2) for 3 years: For the 2022 to 2025 rights cycle, The Times says international deals will be worth UK£5.3 billion (US$7.1 billion), up 30 per cent, while domestic deals bring in UK£5.1 billion (US$6.9 billion), with commercial partnerships taking the total to UK£10.5 billion (US$14.2 billion). That makes $4.73 bn per year. On a per viewer/game basis that is point six of a cent per viewer/game in revenue. Games Per Week 10 Total Fan base 2,000,000,000 Number of Weeks 38 Total viewer/games 760,000,000,000 Rights per year $4,730,000,000 Revenue per viewer/game $0.006 Of course, the rights buyers monetize the games at a multiple of their cost, by selling subscriptions and advertisements. The total value of the league measured in income is unknown. But clearly, it is well over $4.73bn a season. Perhaps 9–10 times that. The income goes to the rights buyers, not to the League. So if streamers gain control of the EPL, how much might it be worth? Let us assume that 50% of the fan base watches one game a week and pays $1 a game. That would be as follows: Total Fan Base 1,000,000,000 Number of weeks 38 Games Per Week Per Fan: 1 Viewer Games Per Week 1,000,000,000 Price per game: $1 Weekly Revenue: $1 billion Seasonal Revenue: $38 billion Revenue per viewer/game $1 So at 1 game per week, at $1 a game, streaming could generate $38 billion per season. In reality, the price per game can be higher and most fans would watch more than one game per week. The untapped fortune here is what I call digital seats. Liverpool FC can fit under 70,000 fans into its Anfield stadium. But over 500,000,000 would pay to watch live games. Double that for Manchester United. Streamers can create these digital seats. Over time they can deliver a better than stadium experience to those seats. This means that the price Amazon is paying for European football is very small compared to the opportunity. Beyond that, the EPL itself should probably retain the rights and offer ticket-based streaming directly to fans globally. In that case, the revenue would come back to the EPL and not be placed into the hands of middlemen. The real promise of streaming is to cut out the middlemen and simply pay for production and transport, as a cost. Movies, TV series, News, and Sports will all go that way. This week Amazon is shining a light on this.