Sports Chapter 13 Sports Shane Murugen Associate Director, PwC Southern Africa Jerry Varachia Senior Manager, PwC Southern Africa The sports market consists of gate/ticket revenues for live sporting events, media rights fees paid to show sports on television stations, sponsorships (which include payments to have a product associated with a team or event as well as naming rights) and merchandising revenues (which includes the selling of licensed products with team or league logos and/or other intellectual property). Overall spending also includes sports betting, which consists of the house win or the revenues retained by sports books. 278 | South African entertainment and media outlook: 2012-2016 PwC | 279 Sports Sports Outlook ... at a glance ...in brief • Despite troubled economic times, sport has continued to thrive, with major events being more popular than ever. The 2012 London Olympics staged recently as well as the 2014 FIFA World Cup to be hosted in Brazil, will boost revenues over the forecast period. Lower- 2012-16 Sports total 2011 2016 tier events will have to work harder to attract supporters. CAGR(%) spending (R millions) 11 160 15 285 • Closer convergence is occurring between the sport and entertainment industries, as both 6.5 sectors continue to rise to the challenges of new digital technologies. • Sponsorships and media rights emerge as the main engines of growth, with gate revenues under pressure. There will need to be much more focus on developing sophisticated measurement techniques to demonstrate the returns on this investment. • Sponsorship is the largest contributor to PSL revenue, with Absa as the PSL’s title sponsor. Vodacom recently concluded its revised sponsorship of Orlando Pirates and Kaizer Chiefs, amounting to R1 billion over five years. 2012-16 2011 2016 CAGR (%) • Understanding how the media habits of sport consumers are changing is important for all Gate revenues 3 550 4 050 2.7 commercial stakeholders in sport – broadcasters and content buyers, sports federations, Media rights 1 775 3 350 13.5 clubs, sponsors and brands. Sponsorships 3 600 5 300 8.0 • Total spending on sports is projected to grow at a compound annual growth rate of 6.5% Merchandising 535 610 2.7 over the forecast period, from R11.2 billion in 2011 to R15.3 billion in 2016. Sports betting 1 700 1 975 3.0 Total sports spending 11 160 15 285 6.5 Overview Revenues associated with the FIFA World Cup in 2010 left the market in 2011, leading to a 42.6% decrease in sports spending, down to R9.5 billion. When sports betting is included, the market totalled R11.2 billion, down 39.7% from 2010. While the FIFA World Cup provided a major one-off boost to the market in 2010, and a major one-off decline in 2011, the underlying sports market in South Africa is healthy as media rights and sponsorships continue to grow. Furthermore, the legacy and infrastructure that the FIFA World Cup left behind certainly provides South Africa with opportunity. The Premier Soccer League (PSL) has a media package that puts South Africa in the top 10 media rights earners in the world and is the leading league in Africa. A new PSL deal that goes into effect in 2013 will further boost media rights. The sponsorship market is also thriving, as companies look to sports to forge relationships with their customers. Vodacom renewed its sponsorship deal with Kaizer Chiefs and Orlando Pirates, effective from mid 2012. The deal, the largest of its kind in South African sports, is worth approximately R1 billion over five years. Even the gate market, which is relatively weak in South Africa, is expected to expand, benefiting from added teams in Super Rugby and from international events that may be shifted to South Africa because it now has the infrastructure to host such events. We project the sports market to grow at an estimated 7.1% compound annual growth rate to R13.3 billion in 2016. When sports betting is included, total spending will reach R15.3 billion in 2016, a 6.5% percent compound annual increase from 2011. 280 | South African entertainment and media outlook: 2012-2016 PwC | 281 Sports Sports Sports market (R millions) 2012-16 The global sports market 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CAGR (%) Across the world, we’re seeing closer convergence between the sport and entertainment industries, Gate revenues 3 500 3 650 3 925 6 600 3 550 3 595 3 710 3 810 3 920 4 050 as both sectors continue to rise to the challenges of new digital technologies, which shape the way % change 4.5 4.3 7.5 68.2 -46.2 1.3 3.2 2.7 2.9 3.3 2.7 we spend our leisure time. At the same time, sponsorships and media rights are emerging as the main Media rights 1 325 1 475 1 500 3 500 1 775 2 100 2 430 3 000 2 850 3 350 engines of growth, with gate revenues under pressure. There will need to be much more focus on % change 6.0 11.3 1.7 133.3 -49.3 18.3 15.7 23.5 -5.0 17.5 13.5 developing sophisticated measurement techniques to demonstrate the returns on this investment. Sponsorships 1 870 2 150 2 400 5 400 3 600 4 080 4 210 4 870 4 680 5 300 Despite the recent troubled economic times, sport has continued to thrive, with major events appearing % change 3.9 15.0 11.6 125.0 -33.3 13.3 3.2 15.7 -3.9 13.2 8.0 to become more popular than ever. However, lower-tier events have to work harder to attract support. Merchandising 525 550 580 990 535 540 555 570 590 610 We are also seeing more focus on providing value for money, for example by providing added % change 5.0 4.8 5.5 70.7 -46.0 0.9 2.8 2.7 3.5 3.4 2.7 entertainment through offers such as post-event concerts. Sports market total 7 220 7 825 8 405 16 490 9 460 10 315 10 905 12 250 12 040 13 310 The popularity of major events is supported by ongoing improvements in broadcasting and technology, % change 4.6 8.4 7.4 96.2 -42.6 9.0 5.7 12.3 -1.7 10.5 7.1 which allow for higher-quality coverage than ever before. At the same time, TV companies are Sports betting 1 860 1 640 1 610 2 005 1 700 1 740 1 790 2 150 1 900 1 975 embracing social media to engage with fans and deliver a greater intensity of experience. Meanwhile, % change 27.4 -11.8 -1.8 24.5 -15.2 2.4 2.9 20.1 -11.6 3.9 3.0 sponsors remain eager to contribute to – and be associated with − sports events and teams as part of Total sports spending 9 080 9 465 10 015 18 495 11 160 12 055 12 695 14 400 13 940 15 285 their marketing mix and are using sophisticated data mining techniques to gain increasing levels of intelligence and insight into their target markets. % change 8.6 4.2 5.8 84.7 -39.7 8.0 5.3 13.4 -3.2 9.6 6.5 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Within this generally positive outlook, challenges remain. While stadia, circuits and arenas are full for the big events, spectators face rising ticket prices – and corporate clients and sponsors face wider economic and regulatory concerns of their own. Meanwhile, broadcasters continue to wrestle with Figure 13.1: Total sports revenue (R millions) Figure 13.2: Sports revenue per category (R millions) finding the best ways to extract value from the new media. As sports search for new ways to keep on 16000 7000 growing their revenues, player costs − the single largest expense in most sports – continue to increase 6000 rapidly, putting pressure on the bottom line. 15000 5000 4000 Sports organisations are finding it increasingly difficult to balance the needs of all their stakeholders – it 14000 3000 used to be all about the fan who would simply vote with their feet, but now the fan has a louder voice via social media. At the same time a corporate world of sponsors and broadcasters, can shape the fans’ 13000 2000 1000 experience more than ever before. 12000 0 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 For the sponsor, all the benefits that an association with sport can have, can be destroyed by poor Total sports Gate revenues Media rights behaviour on the part of players and administrators, or by corruption, as in the recent spot-fixing Sponsorships Merchandising Sports betting scandal involving Pakistani cricketers and the governance saga surrounding Cricket SA. So where do sports go from here? Here are a few pointers to the future that our industry specialists Figure 13.3: Percentage sports revenue per category around the world are seeing: 2012 vs 2016 • As sponsors allocate increasing amounts of money to sport, there will be intensifying pressure for far Sports betting 13% 2016 more sophisticated measurement techniques to demonstrate the returns on that investment. Merchandising 24% 2012 Gate revenues 4% 26% • Sporting bodies and associations are increasingly seeking to introduce new regulations in an attempt 5% 30% to control the cost base and levels of debt in their sports and leave a sustainable business model for future generations. 17% 34% • All sporting bodies are walking a tightrope, as they attempt to balance increased commercial 35% Sponsorships 22% demands on their sports, with the often conflicting need to maintain the integrity and Media rights unpredictability that make sporting competitions so exciting and appealing to their supporters.