Emerging Trends and Disruptive Forces in Sports PDF

EMERGING TRENDS AND DISRUPTIVE Prof. Tomislav Globan FORCES IN SPORTS Sports Economics INTRODUCTION Emerging trends and disruptive forces which may influence the economic and financial landscape of professional team sports in the near future:  breakaway leagues  OTT broadca...

EMERGING TRENDS AND DISRUPTIVE Prof. Tomislav Globan FORCES IN SPORTS Sports Economics INTRODUCTION Emerging trends and disruptive forces which may influence the economic and financial landscape of professional team sports in the near future:  breakaway leagues  OTT broadcasting platforms  private equity firms  governance and regulation reform  esports  cryptocurrency, socios, NFTs, Metaverse BREAKAWAY LEAGUES IN PROFESSIONAL TEAM SPORTS Breakaway leagues are not a new concept. The English Premier League broke away from the old First Division in 1992 and the Rugby League Super League was formed not long afterwards. Yet, these breakaways were driven by collective influence, with all clubs agreeing that a new competition structure was required. The modern day “breakaway” or “super league” concept is quite different and driven by individual clubs as opposed to collective action. They have always been talked about and threatened in power struggles between leagues and clubs but have never formally materialised as an actual concept.  Most examples are drawn from European sports because the structure and format of American team sports almost makes them immune to this concept. BREAKAWAY LEAGUES IN PROFESSIONAL TEAM SPORTS In football, breakaway super leagues have mostly been threatened by the big European clubs, mostly when they are trying to squeeze more from UEFA and Champions League. This was exactly the case in April 2021, when we came as close as we ever have been to seeing a European football super league come to fruition. The European Super League (ESL) was a proposed seasonal club football competition that initially would have been contested by 20 European clubs, 12 of them being the competition’s founding members. It was organised by the ESL Company, S.L., a commercial enterprise created to rival the UEFA Champions League. EUROPEAN SUPER LEAGUE The 12 founding members:  6 teams from England (Arsenal, Chelsea, Liverpool, Manchester City, Manchester United, Tottenham Hotspur)  3 teams from Italy (Inter Milan, Juventus, Milan)  3 teams from Spain (Atletico Madrid, Barcelona, Real Madrid). Three other notable big clubs in Europe, Bayern Munich, and Borussia Dortmund from Germany and Paris Saint Germain from France were also reportedly offered to be part of the founding group of member clubs but all three rejected involvements in the competition, publicly condemning the concept. The format was said to be inspired by European basketball’s EuroLeague. 15 clubs, the 12 founding members plus the 3 invited others, would be permanent members, who would govern the competition’s operation. The remaining 5 places would be given to clubs through a qualifying mechanism focused on the teams who performed best in their country’s most recent domestic season. Each year, the competition would see the teams split into two groups of ten, playing home-and-away in a double round-robin format for 18 group matches per team, with fixtures set to take place midweek to avoid disrupting the clubs’ involvement in their domestic leagues. EUROPEAN SUPER LEAGUE At the end of these group matches, the top three of each group would qualify for the quarterfinals.  teams finishing fourth and fifth from each group would compete in two-legged play-offs to decide the last two quarterfinalists. The remainder of the competition would take place in a four-week span at the end of the season, with the quarterfinals and semi-finals featuring two-legged ties, while the final would be contested as a single fixture at a neutral venue. Each season of the competition would feature 197 matches (180 in the group stage and 17 in the knockout stage). EUROPEAN SUPER LEAGUE ESL idea drew interest from American investment banking giant JPMorgan Chase, who were said to be willing to offer around $5billion in debt finance to get the competition up and running. Long-term, participating clubs would have had access to uncapped solidarity payments → to increase in line with league revenues and be higher than those of existing European competitions, rumoured figure stated as being more than €10 billion during the course of the initial commitment period of the clubs. Founding clubs would receive €3.5 billion (some of which was linked to the investment from JP Morgan) to support infrastructure investment plans and to offset the impact of the COVID-19 pandemic. Revenue distribution:  founding clubs would share 32.5% of commercial revenues,  32.5% distributed between all 20 participating teams, including the five invited teams,  20% allocated based on performance in the ESL,  15% shared based on broadcast audience size. EUROPEAN SUPER LEAGUE Clubs allowed to retain all revenues from gate receipts and club sponsorship deals. The ESL claimed it would generate income across football and increase overall revenues that would allow bigger clubs to invest more in smaller clubs through transfer fees  annual solidarity payment of €400m to the other clubs “to save football, by the great and the modest”. ESL presented a proposal for a solution to the problems related to FFP through a more efficient economic control. ESL clubs were promised €200–300m as a “welcome bonus”. EUROPEAN SUPER LEAGUE ESL was met with significant backlash from a wide range of stakeholders including fans, players, managers, politicians, and other clubs. UEFA & FIFA were furious and even some national governments criticised the project. Much of the criticism against the ESL was due to concerns about elitism and the lack of competitiveness within the competition, as it would have consisted of only high- ranking teams from a few European countries. In short, it was never about the “greater good” but only for the good of those involved. As a result, the ESL collapsed almost as quickly as it had entered.  English clubs withdrew within 48 hours and within a few days the only clubs that remained were Barcelona, Real Madrid, and Juventus.  They have since pressed forward with legal action against UEFA and the fallout is still ongoing.  OPINION OF EUROPEAN COURT OF JUSTICE ▪ UEFA remains the gatekeeper of European football competitions, whose authorization is required to start a new pan-European competition; ▪ UEFA needs to adjust their authorization rules to be transparent, objective, non-discriminatory and proportionate. ▪ Openness and merit-based participation is a necessary requirement for any entity to start a new competition. UEFA has a right to refuse to authorize a closed European Super League; ▪ If someone proposes an alternative competition, founded on the same general principles as the current UEFA Champions League, but owned and administered by a different entity instead of UEFA, UEFA does NOT have a right to refuse to authorize that competition. NEW SUPER LEAGUE PROPOSAL A22 sports management company announced in Dec 2024 a new ESL proposal – Unify League. To include 96 clubs in four tiers, with promotion & relegation between them:  Star (16 teams)  Gold (16 teams)  Blue (32 teams)  Union (32 teams) UEFA REFORMS The threat of ESL made UEFA restructure the Champions League from 2024.  scrapping of the 32-team group stage, replaced with a 36-team “Swiss model” league.  each club plays 8 games, the top eight will advance automatically to a 16-team knockout round, and the next 16 teams will go into a play-off round to decide those final eight slots.  new allocation of extra slots → it is conceivable that there could be, e.g. 6 clubs from England in the new format of the competition. Playing more games on the European stage (and driving up revenues as a result) is a big positive of this restructure for the clubs. Breakaway super leagues and competition restructures will continue to disrupt competitions and markets in professional team sport → the aim of greater revenue generation for teams being at the heart of the decision-making process. BROADCASTING PLATFORMS AND COMMERCIAL SHIFTS The way in which people consume sport in a digital sense is changing almost daily, and the “on-demand” TV companies and social media companies have a huge role to play in shaping this future landscape.  Amazon has the potential to become a disruptive force in this market, and we will highlight some examples of how they have impacted the market already in recent years. Over the top (OTT), sometimes also called streaming TV, represents any content that is delivered directly to viewers via a streaming video service over the internet, bypassing the traditional set box and typically viewed on a TV.  e.g. people paying an internet provider for internet access to watch Netflix, without paying for cable or satellite TV.  OTT should not be confused with video streaming. YouTube is the most popular platform for video streaming.  OTT is when premium content and a superior experience is made available by an OTT provider, like Netflix, Disney+, Hulu, etc. ADVANTAGES OF OTT PLATFORMS The fundamentals of OTT sport platforms will be hyper-personalisation through data collected on what the user wants vs. what producers think they want. Development of pull vs. push viewing experiences.  users will be able to pull the content they want to receive from the central platform to whichever device they want to receive it on, in which ever circumstances they want to watch it.  This could include any camera angles to watch a game from, data analytics from the players, behind-the- scenes experiences, replays of any moment they want to relive, rather than the producer’s opinion on replays, etc.  It completely changes the viewing experience for the consumer as it is strictly on “their terms”. Example of golf:  you can now watch every single shot live from the PGA tour. Not just the shots of the top players via a producer on screen in broadcast, but every shot played by any player in any PGA tournament, live.  This is an amazing advancement and particularly benefits a sport like golf where players are spread out across a huge course. ADVANTAGES OF OTT PLATFORMS The majority of hyper-personalisation features are enabled by the progression of live production in the cloud  enormous cost savings and other general efficiencies on location of personnel required to produce an event.  the switcher can be in Rio de Janeiro in Brazil, but the sound engineer can be in London in the UK.  further benefit for the provider in the form of data collection from users → more hyper-personalisation occurs, creating “stickiness” in the viewership.  this is a challenge for free-to-air and cable operators because they only have data on who is paying the bill and not who is watching and therefore personalisation is a challenge. Creation of additional content, e.g. behind-the-scenes documentaries, or a day in the life of a player type documentary which helps to build audience.  e.g. LaLiga TV or NFL Gamepass  Amazon has made a big play in this area → multiple behind-the-scenes documentaries titled as the All or Nothing series → each season has covered a professional sports club or national team:  Dallas Cowboys, Carolina Panthers, Philadelphia Eagles, Los Angeles Rams, New Zealand national rugby union team, Toronto Maple Leafs, Manchester City, Tottenham Hotspur, and Juventus. FORMULA 1 AND „DRIVE TO SURVIVE” ON NETFLIX Behind-the-scenes look at the drivers and races of the Formula 1 World Championship. It first launched in 2019. Season four (covering the 2021 season) attracted the biggest audience to date, breaking into the weekly top 10 rankings in 56 countries. Drive to Survive is credited with significantly increasingly the popularity of Formula 1 in the United States:  record attendances at the US Grand Prix in Austin, Texas;  addition of the Miami Grand Prix in 2022 and the Las Vegas Grand Prix in 2023;  increasing viewership year-on-year on ESPN. DISRUPTIVE POTENTIAL OF OTT Clubs selling their own broadcasting rights to their own matches? Big football clubs know they could make more money through selling their own rights packages. However, collective league selling TV rights have made them richer in the first place. Individual match passes during the Covid-19 pandemic:  iFollow in the English Football League which allowed fans to buy one off match videos at a £10 fixed fee, so that they could watch the game live on their computers or tablet devices.  Deal was agreed at league level, but there have already been calls for clubs to be allowed to do this more freely  Conversations about scrapping the traditional 3 pm Saturday TV blackout in English football which has been in place for decades to protect lower league matchday attendances.  Imagine the revenue potential for e.g. Liverpool FC to sell match video passes to their fans all around the world (of which there are millions) at £10 a match. DISRUPTIONS IN COMMERCIAL REVENUE The nature of companies sponsoring sport may also change. Questions regarding the ethics behind the sports relationship with gambling companies, many of which provide front-of-shirt partnerships for the clubs. There may be government intervention here that will ban this in the future, and football will have to look elsewhere for sponsorship money. This is nothing new → In the 1980s and 1990s, sport sponsorship (not just in football) was dominated by tobacco and alcohol → banned later on. PRIVATE EQUITY FIRMS An alternative form of private financing, away from public markets, in which funds and investors directly invest in companies or engage in buyouts of such companies.  primarily from institutional investors and accredited investors, who can dedicate substantial sums of money for extended time periods. They make money by charging management and performance fees from investors in a fund, driving performance improvement through board and governance influence. In sport, this can manifest itself as new competition formats, cost control, and expansion into new commercial revenue streams. Advantages:  facilitating access to liquidity, it being less likely to incur high interest charges,  venture capital supporting early stage development,  provides opportunity for growth outside the spotlight of public markets. Drawbacks:  it can be difficult to liquidate holdings, and you must undertake a search for a buyer in the first place.  such investment will be seeking an exit strategy where it can satisfy its return-on-investment goals. PRIVATE EQUITY FIRMS One of the biggest movers in this market is CVC which invested in Formula 1 back in 2006.  In 2021, CVC also invested in La Liga that will give them 11% of the league’s television rights revenue for up to 50 years  In 2022 CVC also agreed a deal for an investment stake in the French Ligue 1. The French League Body (LFP) sold 13% of profits on its future TV rights to CVC for €1.5 billion.  More than ten private equity groups originally submitted early stage, non-binding expressions of interest for this deal, but CVC was the preferred partner.  The French and Spanish deals made CVC the world’s biggest sports private equity investor in 2022. Other significant private equity investment:  Manchester City → American company Silver Lake invested $500m for a 10% stake in the City Football Group in 2019  Elliot Management’s €400m loan-to-own acquisition of AC Milan in Italy in 2018.  Kosmos Holding, an investment company founded by FC Barcelona player Gerard Pique, committed $3billion over 25 years to the redevelopment of the tennis Davis Cup in 2018  Bridgepoint sold its stake in MotoGP owner Dorna to another Bridgepoint fund which then owned it alongside the Canada Pension Plan Investment Board in 2019. GOVERNANCE AND REGULATION REFORM UEFA’s Financial Fair Play reform to Financial Sustainability (2022):  deviation from break-even rule has increased from €30m to €60m over three years;  clubs allowed to sustain an extra €10m in losses a year if they are “in good financial health”;  squad cost rule → limits spending on wages, transfers, and agent fees to 70% of club revenue.  close monitoring of commercial contracts clubs sign to make sure that they are real contracts with third parties who are paying fair value by benchmarking and using external agencies to advise on whether deals are being done at real market prices  the fallout of UEFA’s failed case to ban Manchester City from the Champions League in 2021.  UEFA believed that City had commercial deals linked to their owners that were artificially inflated in value. MULTI-CLUB OWNERSHIP City Football Group, owned by Abu Dhabi United Group (Sheikh Mansour) now owns:  majority stake: Manchester City FC (EPL), New York City FC (MLS), Melbourne City FC (Australian A- League)  minority shares: Yokohama F. Marinos (Japan), Montevideo City Torque (Uruguay), Girona FC (Spain), Sichuan Jiuniu (China), Mumbai City (India), Lommel SK (Belgium), ES Troyes Aube Champagne (France), Palermo (Italy)  all share same vision (on and off the pitch), brand, commercial partners… Fenway Sports Group Holdings owns entities in multiple sports:  Liverpool FC, Boston Red Sox (MLB), Pittsburgh Penguins (NHL)  broadcasting network (New England Sports Network) in America and the Roush Fenway Keselowski Racing team company in NASCAR racing.  NBA superstar Lebron James even holds a minority stake in Liverpool FC which has ignited other additional commercial deals. MULTI-CLUB OWNERSHIP Other examples:  energy drink company Red Bull owns four football clubs around the world, namely RB Salzburg (Austria), RB Leipzig (Germany), New York Red Bulls (America), and RB Bragantino (Brazil).  The Pozzo family own both Watford FC (England) and Udinese (Italy) and the King Power Group (Thailand) who bought Leicester City (England) in 2010 then further invested into OH-Leuven (Belgium) in 2017. Smaller clubs are also partnering up, sharing resources and data:  Brentford FC tie up with FC Midtjylland in Denmark which is based on data analytics and has links to the owner’s gambling background (Matthew Benham).  tie up between Barnsley FC (England), Nancy (France), Esbjerg (Denmark), KV Oostende (Belgium), and Thun (Switzerland) which has data analytics at its core and is more about developing and sharing talent than pouring in millions of pounds.  ESPORTS Predicted revenue figures for the esports market in 2024 are estimated to be in the region of $1.6 billion. The big question: do esports look to compete with traditional sports or join forces with professional teams and sports to grow even further? Some of the biggest professional esports leagues in the world are starting to look a lot like the NBA or NFL:  big-money owners, a structured schedule, minimum salaries and other benefits for players. European football clubs signing professional FIFA players to represent their teams in competition. It expanded:  Schalke 04 operates a League of Legends team in the European pro circuit  Paris Saint-Germain has its own Rocket League team.  in 2016 NBA’s Philadelphia 76ers became the first major North American team to get into the field when it acquired esports group Team Dignitas. ESPORTS AND SPORTS LEAGUES NBA has launched its own league, partnering with publisher Take-Two on the 17-team NBA 2K League. This kind of structure is designed to bring something new to esports: stability.  By having permanent teams that fans can become attached to and owners that can invest for the long term, these leagues can eventually compete with more established professional sports leagues. F1 Esports Series really began to grow during the pandemic → endorsed and competed in by big name drivers and celebrities  many Formula 1 teams now have their own branded esports driving teams  many potential drivers of the future in the physical sport are now being sourced through the virtual Esports Series. ESPORTS AND SPORTS CLUBS Wolverhampton Wanderers built a strategically focused esports business.  Wolves have seen growth in its followers in China since Fosun bought the club in 2016.  They are ~15th most influential club in China, and they owe most of that growth to esports (20m followers of their esports brand and team).  By creating followers, you can build the brand around the world and maybe look to monetise this in the future.  For clubs like Wolves, this is also about how they can differentiate. They cannot catch the already established “big 6” EPL clubs, so they must look to do things differently to grow revenue.  Esports provides a complimentary way to do this, and it is a path many other clubs will look to tread in the future. ESPORTS AND ATHLETES Steph Curry and Kevin Durant invested in esports companies, but some have gone even further. English professional footballer Jesse Lingard launched his own esports team in 2021 – JLINGZ Esports – after buying out Audacity Esports from Ubisoft and renaming it.  In 2022, JLINGZ Esports competed in the UK and Ireland National tournament. Other English footballers have taken an interest in esports such as David Beckham, Harry Maguire, and Dominic Calvert-Lewin. Esports will not replace traditional sport, but it does have the potential to compete with it → we will likely see the joining of forces in the future to protect the growth of esports but also to diversify revenue streams for professional teams CRYPTOCURRENCIES Many sports and teams look to partner with cryptocurrency-type firms. SOCIOS (FAN TOKENS) Socios.com in football, launched in 2019:  partnerships with Juventus, Inter, Paris-Saint Germain, Atlético de Madrid, Galatasaray, A.S. Roma, FC Barcelona, Argentinian national team, Portuguese national teams Man City, Arsenal, Everton, Leeds, Aston Villa, and UEFA.  fans can buy, through Socios, a special cryptocurrency (fan token) → gives them access to voting rights in areas the club determines.  clubs, leagues, and UEFA make money through this platform through fees → they receive a majority percentage of the transaction in the initial release of the fan token. They then get fees in relation to fan tokens involving their club.  Socios.com makes money via marketplace trading fees. As with cryptos, fan tokens are deregulated → potential exploitation of fans through the selling of fan tokens.  why should supporters risk their own money through unpredictable and unregulated digital currencies to have influence in football?  use of digital currencies to fool fans into a false sense of influence in the game → feigns genuine, meaningful supporter involvement in football. NON-FUNGIBLE TOKENS (NFT) NFT = a digital asset that represents a real-world object  bought and sold online, frequently with cryptocurrency  NFTs are one of a kind, or at least one of a very limited run, and have unique identifying codes.  they create digital scarcity, which presents the allure from investors to purchase these digital assets. NFTs are available to buy across multiple sectors:  artwork, GIFs, video and sports highlights, collectables, virtual avatars and video game skins, designer sneakers, music.  first tweet ever sent by Twitter co-founder Jack Dorsey being sold for more than £2m in 2021. Blockchain technology and NFTs give artists and content creators a unique opportunity to monetise their work.  artists no longer need to rely on galleries or auction houses to sell their art. Instead, the artist can sell it directly to the consumer as an NFT, which also lets them keep more of the profits.  artists can program in royalties, so they’ll receive a percentage of sales whenever their art is sold to a new owner.  equivalent of inserting a sell-on clause into a football player’s contract when they sign for a new team. NFT IN SPORT In 2022, Legia Warsaw (Poland) became the first European club to launch an official partnership with an NFT agency. Real Madrid and Brazil superstar Vinicius Junior partnered with an NFT firm called Overeality to launch a series of his own NFTs in the same year. Liverpool FC partnered with an auction firm and designing their own NFTs (digital images of the players) that they sold to their fans over a 3-day auction with the lowest price point at £57 per NFT.  aimed to sell 171,072 NFTs which would have raised the club £9.8m in total, but in the end 95% of the artwork was left unsold and the club only raised £1.1m. NBA Top Shot collection of officially licensed digital collectibles.  people can buy famous basketball videos of plays from down the years in the NBA and own them as a digital asset. In 2022, NFT investment group Wagmi United LLC purchased the controlling stake in English League 2 football club Crawley Town. PITFALLS OF THE CRYPTO WORLD In 2021, Manchester City announced a partnership with cryptocurrency firm 3Key Technologies → soon the partnership was suspended owing to fears over the company’s legitimacy.  their website contained no contact details, registered office, or company number. Its named staff also appeared to have no digital footprint. In the same week, websites associated with 3Key went temporarily offline. The volatility of these markets will remain as will other barriers to entry such as regulation and a lack of understanding. Fraudulent activity and exploitation pose a real risk → expected tighter regulation, not just in sport, but more wider at central government level. INTO THE METAVERSE “Infinitely-scaling virtual space”, “a virtual universe”, and a “real time 3D social medium”. A destination where people can enjoy being a fan or a player or a creator, but that destination is virtual rather than physical. Manchester City FC is set to become the first EPL club to enter the metaverse, because of a 3-year deal with tech giants Sony that will see the club build a virtual Etihad Stadium.  supporters will be able to visit the clubs virtually created 55,000-seater Etihad Stadium in a digital, immersive world.  Sony’s subsidiary, Hawk-Eye, will use image analysis and skeletal-tracking technology to, theoretically, enable fans to “attend” matches at their home ground from anywhere in the world. Fans will also be able to experience past matches as well. The move could have a profound impact on revenue generation for teams and the way traditional broadcasting deals are structured.  Clubs are likely to begin exploring the possibility of selling rights themselves, directly to consumers and potentially through their own metaverses.  This could mean unlimited stadium capacity which could also mean a drastically increased revenue stream. The wider tech trend will be disruptive, and it could signal the biggest step change in professional team sports that we have seen for decades.