How to Create the NFL’s Most Valuable Team

We won’t be discussing a potentially undervalued player or coach, nor stadium subsidies or team relocations. To create the most valuable team in the NFL, we need to focus on what pays the bills; distribution rights.

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In 2014, each of the 32 NFL teams received a payment of $226.4MM; an equal share of the $7.2b generated by the NFL, with the majority of those funds coming from the sale of that year’s television broadcast rights. The purchasers of said rights, CBS, Fox and NBC, along with DirecTV and ESPN, relied on a combination of advertising, licensing and subscriber revenue to recoup their investment and will continue to do so throughout the length of the current agreement that expires in 2022. Unfortunately for them, each of these revenue streams is under attack from every possible direction. Digital media ad sales will surpass that of television for the first time this year, viewers are abandoning their cable subscription at an ever increasing rate, and over the last two years, Disney’s crown jewel, ESPN, has lost 7MM subscribers. Despite all this, each of these companies is on the hook for their share of roughly $3.1b every year, for the next six years — and that’s only the NFL rights. When you take into account the rights agreements held by these companies across multiple sporting leagues, the numbers soar.

Despite each team receiving an equal share of whatever broadcast fees are secured, the broadcast value of each individual game varies greatly as it’s determined by the size of the audience an advertiser can reach. While the collective purchase approach benefits those teams that play in a smaller market such as the San Diego Chargers, the larger market teams including the Giants and the Bears are arguably receiving less than they should, relative to the value generated by broadcasting their games. Fortunately for the Chargers, the networks do not have the option to align themselves with specific teams; yet. Come 2022, when a new set of broadcast agreements are being negotiated, the NFL will be hoping to improve upon the price previously paid. What’s less known is whether the broadcasters will accept such a high price, or even be in a position to entertain the idea.

Spanish soccer clubs previously negotiated their television rights individually and the market priced their games accordingly. Heading into the 2015–16 season, Barcelona FC sold their television broadcast rights for $150MM. Contrast that to the $19MM received by the league’s smaller teams and you can begin to understand why major metropolitan-based clubs like Barcelona FC and Real Madrid dominate the league. The Spanish league has since agreed to negotiate their television broadcast rights collectively in order to increase the league’s competitiveness and ensure that all teams have the necessary funds to attract top talent. As an outcome, Barcelona FC is expecting to receive significantly less television money going forward, and they’re actively working to make up for the shortfall.

In July the club launched FCB Gamepass, a video-on-demand service that includes all of Barcelona FC’s 2015–16 games, archive footage, player interviews, behind-the-scenes coverage and more, all for a one-time payment of roughly $40. Given its recent launch, it’s difficult to determine how successful the offering might be. Fortunately for us, Barcelona FC is not the first club to produce its own content. English Premier League team Manchester United has been producing it’s own video-based content for the last 18 years. MUTV is the team’s own television channel that includes every one of their matches, player interviews, a number of talk shows and analysis segments for the equivalent of $10 per month. The two services differ in one key way. FCB Gamepass is IP-delivered and available on any device. MUTV is only available via a cable subscription, and not currently available in many of the world’s largest markets, including the US. So how has MUTV performed? In 2013 the club announced it had reached a staggering 8.5MM subscribers. If that number’s not large enough for you, what’s even more startling is that paid subscribers cannot view live games, on either service, as that would infringe upon the existing television broadcast agreements. Let me state that another way:

A single English Premier League football club, generates more than $1b in annual subscriber revenue by producing club-specific video content and they do not need to show their games live to do so.

Due to the reliance on the cable companies that distribute MUTV, the full $1b is obviously not finding its way back to Manchester United. This is where Barcelona FC’s strategy differs. Television broadcasters and cable networks used to have a monopoly on market reach. The internet has changed that and content creators can now reach their audience wherever they are in the world, without having to give away 90% of the revenue they’re able to attract, to do so.

I’ve said before that we’ll see multiple sporting teams launch their own television channel and that it will be distributed via a TV app. The success of MUTV and the investment Barcelona FC is making are extremely strong indicators that doing so can have a significant impact on a team’s bottom line. And to do so does not require the extensive leg work to negotiate broadcast rights with cable operators, the world over. Nowadays content can be made instantly available regardless of where the viewer may be.

And while this approach could add another one hundred million dollars to the bottom line of any NFL team, without infringing on their broadcast agreements, it’s also a hedging strategy. Broadcasters are feeling the squeeze. Ad revenues haven’t been what they once were and cable networks are paying close attention to their costs. It may not happen in two years or the next five, but broadcast rights purchase prices are not sustainable and they will come down. If that were to happen, almost every NFL team will very quickly find themselves in trouble. The teams that have built up their own paid audience will be the ones that can weather this shift. They’ll also be the teams that have the greatest international exposure and, if it makes financial sense, will be in prime position to broadcast their own games directly to those paying fans, live. If and when this future arrives, the team that has invested the time and effort to grow it’s own paid subscriber base by producing engaging and in-demand content will, without question, be the most valuable team in the NFL.

And what if this future does not eventuate and the broadcast rights are sold in 2022 for more than the current contract value? Based upon the performance of MUTV and the investments being made by Barcelona FC, sporting fans are willing to pay for content beyond just live games. This leaves very few reasons as to why an NFL team wouldn’t want to discover just how much revenue that content might command.

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