Issue: The Sports Business The Sports Business By: Joe Lapointe Pub. Date: September 4, 2017 Access Date: September 28, 2021 DOI: 10.1177/237455680326.n1 Source URL: http://businessresearcher.sagepub.com/sbr-1863-103855-2836922/20170904/the-sports-business ©2021 SAGE Publishing, Inc. All Rights Reserved. ©2021 SAGE Publishing, Inc. All Rights Reserved. Is it a bubble about to burst? Executive Summary If the U.S. sports business has two mainstays, they are the National Football League and ESPN, the dominant league and pre-eminent television network in a $60 billion industry. Yet both are facing serious challenges, with the NFL confronting a drop in television ratings and ESPN grappling with a decline in subscribers as fans find alternate ways to watch their favorite sports. Some observers view these trends as warning signs that the decades-long expansion of sports’ popularity – and profitability – is about to end. Others disagree, saying the industry can adapt to changing fan preferences and remain prosperous because of strong interest in its basic product. Here are some of the key takeaways: The advent of smartphones and streaming services has cost ESPN more than 12 million subscribers and $1 billion in lost revenue in the past six years. The NFL suffered an 8 percent decline in its television viewership last season and is cutting down on the number of in-game commercials in response. The fraught relationship between sports and gambling will enter a new phase when a pro hockey team moves into Las Vegas in 2017 and an NFL franchise follows suit by 2019. Overview The prosperous partnership between the NFL and ESPN is being tested by new trends in sports viewership. (Scott Cunningham/Getty Images) As a television executive for the sports network ESPN, Burke Magnus stays aware of changes in video technology. But a recent moment in the family car showed him the speed of the evolution. As Magnus drove, his teen son rode with him, watching a football game on his smartphone screen. If his son lost the signal for 30 seconds, Magnus says, he got frustrated and said, “What a pain in the neck!” Magnus – ESPN’s executive vice-president for programming and scheduling – chuckles at the memory. “I’d say to him, ‘You do realize you’re watching a live college football game in the car on your phone?’ ” Magnus says. “Can you imagine having that ability when you were a teenager? I can’t. Because it didn’t exist.” As the warning says on the side of the car, “Objects in mirror are closer than they appear.” The digital device in the hand of Magnus’s son – a technology barely a decade old – certainly will disrupt the way ESPN has done business for almost 40 years. And, at the very least, the digital revolution will rattle the business landscape that includes the National Football League (NFL) and other sports leagues enriched by television money. “The only question now is ‘How do you make the most money getting the signal to the eyeball?’” says Rodney Fort, a sports management professor at the University of Michigan. “This is causing heartburn, I’m sure, for people who are heavily invested in old-style capital.” It isn’t the only change in sports television or in the business of sports. The NFL, coming off a season of lower TV ratings, is tinkering with digital delivery and reducing commercial interruptions that try the patience of viewers. “I’m glad that the TV contracts aren’t up again for a few years because that will give everybody an opportunity to assess where we are,” says John Mara, co-owner of the New York Giants. “Things are changing rapidly. We want to be ahead of the curve as much as possible.” They have a money cushion that can buy some time. According to Forbes magazine, the sports market in North America was worth $60.5 billion in 2014 and will be worth $73.5 billion in 2019. 1 Citing data from a 2015 sports industry report by PricewaterhouseCoopers, Forbes concluded that the business in good shape. 2 The report took into consideration the new, digital technology for showing events. “Related initiatives involving a la carte and streaming media are allowing consumers to purchase specific content (i.e. media rights for a single game or season package for a specific team), watch games in a condensed format shortly after completion, and watch replays on league platforms before they are available through general media,” the PricewaterhouseCoopers report said. 3 Other currents in the stream of the sports business include: The entry into Las Vegas of pro football and hockey leagues and the possibility that the U.S. Supreme Court might legalize single-game betting. The growth of “fantasy sports” in which fans draft players and can bet on how their “team” fares for a season or a day, an activity that appeals to both the urge to gamble and the shorter attention span of the Millennial generation. The continued race to build elegant, gentrified stadiums and arenas that attract big spenders and doom many existing, functional buildings as “outmoded” after only two or three decades. Page 2 of 16 The Sports Business SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. The chance that the soccer World Cup could return to the United States in 2026 to boost the domestic growth of that international sport. All this is transpiring amid doom-and-gloom predictions that followed the latest round of ESPN layoffs last spring and lower NFL ratings during the 2016 season. “At best, televised football is no longer a growth industry, but merely a strong business that has peaked,” wrote Derek Thompson, a senior editor at The Atlantic. “At worst, this is the beginning of a period of steady decline for the one thing on traditional television that was never supposed to waver.” 4 Breitbart News speculated that a TV disruption could cascade through the sports industry. “If this trend in sports TV broadcasting continues, the financial strain won’t just be relegated to sports broadcasters,” the website predicted. “This bubble could very well spread and burst across cities that spend – and some contend waste – tax dollars on stadiums. These costs could even cascade to the unseemly amount of money teams already charge at ballpark gates.… This will likely cause a downward spiral in professional sports. Eventually, the increasing ticket prices will keep fans at home and, with fewer people attending games.” 5 One skeptic of this bubble-bursting theory is Paul Anderson, director of the National Sports Law Institute at Marquette University. He says he hears that warning every five or 10 years. “There’s no bubble,” Anderson says. “The cable network paying for sports, that may change. But sports in general? No.… I think it’s going to keep growing. It’s going to change, yes. The way we consume sports is going to change.” He says consumption of sports online will reflect the model in the music industry, a business that many once feared would be ruined by the internet. “Well, the music industry went online and they have iTunes and things like that,” Anderson says. According to William Sutton, director of the sports and entertainment management program at the University of South Florida, the change is generational. People under 35, he says, consume sports differently than their elders. “The NFL has a three-hour broadcast with 12 to 15 minutes of action,” says Sutton. “That’s not lost on this generation. They’re not going to sit there. They’re either going to watch the RedZone channel [which shows in-game cuts when teams approach the goal line] or they’re going to follow it online. They still follow it. They’re still fans. They just consume it totally differently. It’s never going to swing back.” Growth and change have been consistent themes in an industry that began to boom almost a century ago, when World War I ended. But the growth was not evenly paced. In the summer of 1960, there were just 42 teams in the four major sports leagues – 16 in baseball, 12 in football, eight in basketball and six in hockey. In autumn 2017, when an expansion team called the Vegas Golden Knights joins the National Hockey League (NHL), it will be the 31st team in its league and the 123rd in the four big leagues. At the start of the 1960s, hockey ended in April, pro football in December, baseball’s World Series was played entirely in the afternoon and pro basketball featured teams such as the Minneapolis Lakers, Cincinnati Royals and Syracuse Nationals. But the birth of the American Football League in 1960 led to a television gold rush that has not yet ended. ABC and, later, NBC, subsidized the new league. It was over the air and it was black and white, but it sold, and it eventually forced the merger of the NFL and the AFL. Media Rights To Be Top Sports Revenue Source Projected to surpass ticket sales in 2018 Note: Figures for 2016 through 2019 are projections. Source: David Broughton, “Media rights to trump ticket sales by 2018,” SportsBusiness Journal, Oct. 19, 2015, https://tinyurl.com/y9gjoqxh; “At the gate and beyond: Outlook for the sports market in North America through 2020,” PwC Sports Outlook, October 2016, https://tinyurl.com/yc4a2tbb. Media rights will outpace ticket sales as the greatest source of revenue for the North American sports business by 2018, according to a projection. Page 3 of 16 The Sports Business SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved.