Football TV rights - MLS: A big deal or just a good deal?
Published 19 October 2011 By: Iain Taker
This, the first in a series of articles looking at various aspects of sports broadcasting, focuses on the emerging television market for US ‘Major League Soccer’ (MLS). Whilst the United States is well known for its entertainment and sports industries, football (or soccer as it is better known in North America), has yet to experience the growth that many predicted.
The 1994 World Cup held across the United States was meant to give the MLS a ready-made fan-base. However, the reality is that MLS has continued to be unable to match the interest levels, viewing figures and exposure of more traditional American sports such as NFL, NBA and Major League Baseball. The 3 year $30 million new MLS television deal is still minimal in comparison with those of the English Premier League (3 year domestic and overseas deal reportedly worth $4.7 billion) and the UEFA Champions League (3 year deal $3.5 billion), but does at least show that the sport is still seen as having some growth potential.
Major League Soccer Structure
MLS was formed on 17 December 1993, with the first season beginning in 1996 with 10 teams. MLS is a single entity centrally planned legal structure under which a limited liability company houses all the teams. The investors (each franchise team has an owner-operator) in MLS each hold an undivided share in the entity and have control over the financing and operation of MLS. All property rights rest with the entity rather than at a club level, which ensure that a single franchise owner can not have undue influence over the remaining franchises. MLS was expanded in 2011 to 18 teams (16 in the United States and 2 in Canada) with a 19th team (Montreal) being added in 2012. The league format means that each team currently plays 34 regular season games, with the winner being awarded the MLS Supporters Shield and given an automatic place in the CONCACAF Champions League. The CONCACAF Champions League brings together the best teams from Mexico, United States, Canada, Central America and the Caribbean in a competition that is based upon a similar format to the UEFA Champions League. In addition, to the regular season MLS matches, 10 teams qualify for the MLS Playoff Cup (being the league winner, the top 3 teams from each conference and an additional 4 teams determined through a wildcard system). Although there is no promotion or relegation in MLS, the playoff system maintains a high level of interest throughout the season by effectively limiting the number of ‘dead rubber’ games (the target audience traditionally have little enthusiasm for meaningless games).
Although MLS has become a more recognisable brand in recent years due to the increased numbers of world famous overseas footballers playing in MLS as a result of the designated player rule (which exempts their salaries from the salary cap imposed on the franchises), it nevertheless remains only the sixth most watched league/sport in the United States - significantly behind NFL, NBA, Major League Baseball, NHL and NASCAR. It is reported that the distribution of the television monies by Soccer United Marketing, who hold the media and commercial rights and retain a significant portion of the revenue, is split equally between the franchises. The level of television revenue currently received by the franchises is believed to be less than a $1m per season which is not sufficient to enable any team to be financial viable and therefore they are reliant upon other sources of revenue. A significant issue with this is that the fan-base of MLS remains very US centric with the league receiving very little brand exposure outside of North America, save for the publicity created by the presence of internationally renowned players such as David Beckham and Thierry Henry. A significant problem faced by MLS is the popularity of the other major non-US leagues (including, for example, the English Premier League) which have attracted significant audiences throughout the United States. By way of an example, the Manchester United v Barcelona friendly held at the FedEx Field in Washington D.C in July 2012 had an attendance in excess of 81,000. Given that the attendance of last season’s MLS Playoff Cup was 21,700, the challenge is clear.
The new MLS television deal
MLS is actively seeking to increase its domestic reputation, viewing figures and general exposure and wishes to utilise the new television deal to achieve these goals. One significant aspect of the new deal (discussed in greater detail below), is the MLS’ willingness to embrace new technology platforms such as internet TV, mobile and tablet devices to drive its success particularly within the younger age ranges (with reference to this sentence there sound be a detailed discussion below about the various platforms and what pitfalls need to be looked out for, opportunities that can be exploited etc). The latest television deal, commencing at the beginning of the 2012 season, is the latest sign of MLS’ strong desire to become accepted as a more ‘mainstream’ brand of entertainment switching away from a soccer only channel to a national broadcaster. MLS is the most recent addition to the National Broadcasting Company (better known as NBC) Sports’ portfolio. The announcement on 10 August 2011 of a multi platform three year agreement with MLS, commencing at the start of the 2012 MLS Season, highlights the confidence held by this prominent broadcaster in the potential expansion of MLS. Under the agreement NBC Sports Network (currently branded Versus) has agreed to broadcast 38 regular season games, 3 playoff matches and 2 USA international matches. NBC itself will also broadcast 2 regular season matches, 2 playoff matches and 2 USA international matches. The total consideration paid/payable by NBC is reported to be $30m over the three year term. An interesting aspect of the deal is that NBC Sports Group will have control over digital rights across all platforms and devices for these games. Although MLS ultimately aims to expand the US game internationally, its initial focussed on domestic growth. By partnering with a world renowned media outlet, MLS aims to reach out to a wider audience through a number of (as yet) under exploited platforms. MLS Commissioner and Soccer United Marketing CEO Don Carber described the partnership as “a significant step forward for MLS and US Soccer”.
The multi-platform deal grants MLS its widest television exposure since its inception. The previous deal with Fox Soccer had been going since 2003 and was worth approx $3m per season (from 2007 until 2010), for which Fox had the rights to show 31 regular season games and 3 playoff matches, it however ultimately proved an unhappy marriage which resulted in a forced and makeshift 1 year agreement to cover the current 2011 MLS season (reportedly worth up to $7m).
The move away from Fox Sports Channel to NBC increases the number of viewers, with access to the channel, to approx 80m from the existing 38m. In addition NBC has been widely credited for its coverage of NHL in the United States and is a well respected sports broadcaster. NBC have immediately shown a willingness to actively promote the MLS brand through its adverts during their NFL coverage on Sunday Night Football a lucrative advertising slot. The initial reaction of fans of the new deal has been very positive and has brought an expectation of a more professional slick coverage than MLS have previously had.
MLS’ rationale behind having a 3 year deal which expires at the end of 2014 appears to be to maximise a potentially lucrative opportunity by consolidating all MLS televisions rights (the other existing MLS television contracts, namely the ESPN and Univision deals for Spanish language programmes expire in 2014 and the international overseas television deal with MP & Silva expires in 2013). MLS would then have the option of re-packing the television rights deals (probably based on English and Spanish language products) or to consider launching its own cable network in the vein of the other top flight sports such as Major League Baseball, NFL, NBA and NHL.
That said, the platforms and devices through which match footage is consumed is changing and might well be expected to change further by 2014. Matches are no longer only watched through traditional TV television stations but through a vast number of dedicated channels and devices (including, for example, the internet, mobile phones and tablet based devices). Whilst these new media forms are available to increase viewing figures the commercial revenues associated with such media forms have yet to be fully exploited or indeed widely recognised. For example in the United Kingdom in 2010 the entire video on demand market was worth $94.86 million compared to TV worth $4.75 billion.
A potential issue that occurs with the increased prevalence of using new media is the threat of digital pirates who seek to exploit rights which they have not paid for. Whilst more commonly seen in the film and music industry copyright infringement is on the increase, with sites offering live streams of games without permission. A difficulty with this is in bringing actions against such pirates who often hide behind unknown IP address and regularly change the website address through which they host the infringing material. The process to shut down these sites can often be very slow and costly despite significant legal protections being available under the Digital Millennium Copyright Act. Whilst the process of shutting down sites can be laborious by rigorously pursuing infringers a strong message is sent out to other potential infringers. An example of this was shown recently with UFC (Ultimate Fighting Championship) launching legal action against Justin.tv for showing pirated streams of UFC’s fights to in excess of 50,000 people. Under United States law an infringer of copyright can be subject to both civil and criminal punishments, which act as a significant deterrent particularly where the infringer themselves are receiving little or no economic benefit from their actions.
New media devices such as mobile and tablets are as yet under utilised platforms which have the potential to not only significantly increase the viewing figures, as they reach new and younger audiences, but also to attract avid and active fans. The use of social media has developed away from its origins as a one way experience (from broadcaster to fans) to an increasingly two way interactive experience. The potential for expansion is indeed significant; NBA for example currently has over 120m followers on Facebook and Twitter alone. If MLS and NBC were able to replicate this success even on a much smaller level it would be a significant factor to increasing the fan base of MLS and in turn increasing the financial returns available when negotiating deals with commercial partners. One potential danger to the increased exposure through social media is the extents to which MLS will be required to relinquish content control to the broadcaster or brand owner. As the level of control held by MLS is lowered there is an increased reliance on the commercial partner to manage and maintain the relationship with the customer base.
Therefore the importance of creating and policing a strong new media strategy is paramount should MLS seek to fully commit to such a market. In order to maximise potential viewers it is imperative to reach out to them through a number of different channels. The success of UFC's social media strategy based upon Facebook (where more fans ‘like’ the official page than ‘like’ the NFL, NHL and MLB combined) and Twitter has seen its appeal amongst the, typically technology savvy, male 20-30 year old population rocket. The advantage of using social media as a key component of increasing viewer figures is that it is a very quick and cheap way of accessing a large number of potential viewers. By enabling and indeed encouraging the franchises and the players to interact with their supporters (as occurs in England with Arsenal FC and Jack Wilshere for example) this helps remove questions over the emotional detachment of clubs and players from their fans. The key to the successful implementation of a social media strategy is not only to ensure accessibility and relevance at all times but to learn to communicate effectively with the consumers and react to their feedback and requests. Whilst it may not be economically viable, in the short term, to pursue all digital pirates (who are people that infringe intellectual property rights such as copyright in an online capacity e.g. unlawful streaming of matches) the care, time, effort and money spent on maintaining integrity in new media may pay great dividends in maintaining a higher quality offering to new fans that in turn help increase commercial revenue.
The new NBC deal should enable the MLS to obtain some valuable feedback as to the potential value of these new markets and channels. This knowledge can then be used to create future rights packages that will maximise growth and revenues. At the same time, the NBC all channels deal may well succeed in reaching out to a younger demographic which will in turn impact on future (long term) consumption of MLS rights/products.
So far so good or is it?
Although the new MLS deal is a step in the right direction both in terms of exposure and finance, the US soccer market is still in its relative infancy in comparison to other football leagues such as the English Premier League. By way of an example, the most recent domestic television deal for the English Premier League, split between Sky Sports (115 live matches), ESPN (23 live matches and new media goal highlights) and the BBC (television highlights), is worth a reported $2.8 (£1.8) billion over 4 seasons. In addition the English Premier League has successfully established lucrative overseas markets to the extent that 211 countries show the matches - the Singapore deal alone is worth $79 (£50) million per season.
The MLS, therefore, has a long way to go before it can start to close this gap. In order to do so, it must seek new ways to maximise its revenue (leveraging off the new television deal) including, for example, considering the sale of naming rights for the league. Selling naming rights can also boost exposure as the sponsor seeks to increase its return on investment. By way of an example, Barclays’ sponsorship of the English Premier League (which reportedly cost £82m for 3 years) has led to additional brand exposure as a result of international and domestic reporting on a regular basis of the League and its club matches. Naming rights per se are not a new concept within the MLS. A number of franchises have already sold the naming rights to their stadia – for example, Pizza Hut Park (FC Dallas) ($25m over 20 years), Home Depot Center (LA Galaxy) ($70m over 10 years) and Toyota Park (Chicago Fire) ($10m over 10 years). This illustrates that there is a potential market for sponsors to be associated with the MLS as a whole. The official sponsors of MLS already include household brands such as Adidas, American Airlines, Pepsi Max and Visa and the opportunity to have their name incorporated within the title of the league is likely to very appealing to these and many other brands.
The MLS faces numerous issues in its attempts to significantly grow the domestic television audience. Competition from more established domestic sports such as the NFL is a significant hurdle but there clearly is a market for soccer, as evidenced by the popularity of overseas soccer products (including, in particular, the Barclays Premier League and the Mexican Soccer League and the CONCACAF Champions League where in 2011 Real Salt Lake were the first MLS side to reach the final).
As mention above the following of MLS is from both the English and Spanish speaking population, which gives MLS the possibility of using high profile South American players as a driver to expand their following amongst the Spanish speaking population dramatically over the forthcoming years. This in turn will help to increase domestic viewing figures and increase the likelihood of attracting fans from football loving countries in Central and South America.
That said building new audiences and getting existing audiences to shift from overseas football leagues may well require these high quality “star” players. However, in order to attract such “star” players (particularly when they are in their prime) will require a higher standard of football and higher salaries. However, in order to provide these increased financial incentives there first needs to be an increase in the exposure of the MLS to drive available revenues. Whilst the future of MLS does not look in any threat at all the level of international success it can achieve is still open to question over the next few years.
Whilst MLS is still seeking to commercially grow in terms of revenue and viewers it will also face significant legal problems particularly in relation to protection of their rights on new media channels. Should MLS succeed in dealing with this problem they may well develop the brand and revenues in line with their ambition.
Iain Taker. You can follow him on Twitter @iaintaker
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Iain is a lawyer at Kemp Little LLP who specialises in commercial and sports law. You can follow him on LinkedIn or on Twitter (@iaintaker). An example of work Iain has been involved in is the recent shirt manufacture agreement between Warrior Sports and Liverpool.