P(l)aying for big bucks – why TV networks rely on sport
With the Commonwealth Games over, and Channel Nine’s four-decade deal with Cricket Australia coming to an end, IBISWorld's Nick Tarrant examines the true value of sports broadcasting rights.
Shifting consumer media patterns have caused Australia’s television networks to move away from traditional program staples such as sitcoms, dramas and movies.
Falling ratings and declining advertising returns have caused free-to-air (FTA) networks to adjust their business models.
Reality TV such as Married at First Sight is now favoured over the sitcoms that once dominated Australia’s airwaves
Revenue for FTA television broadcasting has fallen from $7.3 billion in 2005-06 to a projected $4.7 billion in 2017-18. As a result, TV networks have focused more and more on securing live sports broadcasts as they remain one of the last ‘must watch live’ TV programs, and their broadcasts being used to bolster advertising revenue and sponsorship deals.
Sports broadcasts bring in significant returns in terms of advertising revenue and sponsorship for many television channels and, as sports broadcasts are generally exclusive, they tend to be ratings winners. In 2017, the highest rating programs included the AFL Grand Final, the State of Origin series and the Australian Open final.
The halo effect, which allows for cross promotion of other programs, is also a large draw for TV networks. For example, Seven Network promotes its upcoming programs such as My Kitchen Rules during its tennis broadcasts. Similarly, many sporting events are also timed to fit into the broadcast schedule of TV networks, with events such as AFL games often running directly into nightly news programs.
Cost of major sports deals
| Code | Cost per year | Expires | Network |
| AFL | $418 million | 2022 | Foxtel, Ch7, Telstra |
| NRL | $360 million | 2022 | Ch9, Foxtel, Telstra |
| Cricket Australia | $160 million+ | 2024 | Ch7, Foxtel |
| EPL | $63 million | 2019 | Optus, SBS |
| Tennis Australia | $60 million | 2024 | Ch9 |
| A-League | $58 million | 2023 | Foxtel, Ch10 |
| Olympics | $50 million per games | 2020 | Ch7 |
While sporting events are proven ratings winners, the cost of acquiring sports broadcast rights has increased significantly over the past five years, as FTA TV networks, Foxtel and digital competitors have aimed to outbid each other to acquire key broadcast deals.
The most recent AFL deal is currently the most lucrative in Australia. The deal for 2017-2022 brings in $418 million annually to the AFL, which equates to a 66.8% increase compared with the 2012-2016 rights, which were for $250.9 million per annum.
Nine Entertainment also recently won the rights to the Australian Open for five years, at a cost of $60 million per year, an increase of more than 50% over the previous deal.
Free-to-air TV networks spent $497 million on sports broadcasting in 2015-16, representing 26.0% of total spending. Sports expenditure now outstrips news and current affairs programs (at $384 million) and overseas dramas (at $300 million). Sports expenditure is forecast to rise in coming years as sports broadcasting rights become increasingly expensive.
| Program expenditure | 2015-16
$ million |
% of total spending |
| Australian sport | 497.9 | 26.0% |
| Australian news and current affairs | 384.2 | 20.0% |
| Overseas drama | 300.5 | 15.7% |
| Australian light entertainment – other | 243.5 | 12.7% |
| Australian light entertainment – variety | 220.0 | 11.5% |
| Overseas – other | 113.4 | 5.9% |
| Australian adult drama | 95.2 | 5.0% |
| Australian other programming | 30.2 | 1.6% |
| Australian children’s – other | 13.1 | 0.7% |
| Australian children’s drama | 10.4 | 0.5% |
| Australian documentaries | 8.7 | 0.5% |
*Source – Australian Communications and Media Authority
Risks to TV networks
While major sports events continue to perform strongly for TV networks, the increasing cost of sports broadcasting rights also represent a significant risk. Profitability for FTA broadcasters has been in steady decline, with IBISWorld forecasting a slim operating profit of 3.1% in 2017-18.
New players entering the sports broadcast market could also fuel sports rights bidding wars, further affecting margins. For example, Ten is now backed by its foreign parent CBS, which has a significant sports presence in the US market.
Additionally, new media players such as Optus have entered the market to benefit from the financial returns generated by live sports broadcasts, with Optus successfully outbidding Foxtel for the streaming rights for the English Premier League in 2016.
This reflects trends in overseas markets, where other digital companies such as Twitter have bid on sports streaming rights.
Despite these risks, TV networks are unlikely to back away from bidding on sports broadcasting rights as the advertising and sponsorship opportunities are too large to ignore.
Nick Tarrant is a senior industry analyst for IBISWorld.
Another outsider providing weak insights on the future of the TV industry based upon regurgitated headlines from the press.
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European Premiership League…seriously
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Whilst there is a lot of external analysis of various industries with little basis, this piece seems a pretty sober look at the cost of sporting rights, what percentage of TV revenues and costs they account for, with some relatively unexceptional predictions of future trends.
Being an outsider isn’t necessarily a bad thing, which is why financial analysts don’t have to work in the industries they cover; they can look at the data dispassionately, without being concerned with how things are “meant to be”.
Megan Brownlow’s annual overview of the media industry is widely regarded as being essential reading (and for good reason), and yet I am pretty sure that she doesn’t make TV shows or sell ads for newspapers (or websites, etc…)
For sure criticise the analysis, but making sweeping criticism of any analysis because the individual doing it doesn’t work in an industry seems like a good way of potentially ignoring important and potentially useful information.
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I remember when sport was just a cheap filler in between the talent and singing shows and the news (and six hours of **ing golf after the “Saturday Morning Fun Pit”. Now it sucks up a quarter of the networks money for about 3% of the content.
Why ? Because all the TV execs are former footballers and private school jocks, not because of its inherent worth.
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+1
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I wonder how long until analysts start taking notice of esports and competitive gaming? Granted, the productions are in their infancy but the audiences are there and bigger than a lot of traditional sports getting a run on the networks.
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