Sport is currently undergoing a fundamental transformation. The proliferation of channels makes it incredibly complex for rights holders to market and monetize sporting events. Strategic decisions often have to be made on the basis of little information. It is all the more important to know the value of sports media rights – even if only in the context of a certain order of magnitude.
The goal of this blog post is to present a simple yet effective formula that serves exactly that purpose. At the same time, it enables people to talk about sports rights and make informed decisions.
An abbreviation often helps to remember a formula: In this case “I=DEM”.
The “I” stands for income and is of course our target value. More income is better, but it results from underlying drivers that all sports events are seeking to individually and collectively improve.
The “D” stands for Demand and is simply the number of users of an offer. Let us assume that you are responsible for media rights to a single sports event, taking place on one weekend. On average, 2 million people watch the event for 2 hours (we’ll need that in the next section). So, your “D” for demand is simply:
The “E” stands for engagement, but simply expresses the average time users spend on the offer. In the above example, it’s those 2 hours that viewers spend on the weekend:
The commitment is therefore not further qualified here. There aren’t two hours of “high” or “low” engagement, but of course, we assume fewer users spend less time on an unattractive offer.
An interesting variable, however, is the “M” for monetization, which expresses how much money can be generated per time and user, directly or indirectly. This number is critical and merits a separate blog post. Different activities have very different monetization values, enabling or preventing business models and strategic decisions. But let’s assume a value of 15 US cents for 1 hour of engagement, which is a typical value for advertisement-driven free-to-air consumption.
Now we have all the ingredients to estimate the target, income:
As the media rights manager for the event, you should – more or less – expect this value as revenue from the market. If you’re getting a lot more than that, you’re a sales genius, and if you’re doing a lot under that, you’ve got some room for improvement.
The formula has proven itself for us for decades. Especially in times of social media and gaming, it has become a lot more important. We will report on this in a separate blog post. But first we would like to use a concrete example to show that the formula works
The biggest sporting event in the world
The FIFA World Cup is one of the biggest sporting events in the world and every four years it keeps the world in suspense for several weeks. At the same time, FIFA reports transparently on viewership and income, which is why we use the FIFA 2018 World Cup in Russia as an example to prove the formula.
So we know we have 64 matches. FIFA reported that an averaged audience of 191 million people watched a match during the 2018 World Cup (1). We can assume that they each spent roughly 2 hours on a game. And we use the monetization approach of 15 cents per hour per viewer. This gives us a monetization potential of around USD 3.7 billion:
The actual reported value is $3.1 billion (2), which is well within the realm of monetization potential. We refrain from entering into an in-depth discussion as to why the actual value is lower than our estimate – precisely because it is only an estimate. In the absence of actual values, however, our formula provides good first approximations that can inform both strategy and implementation.
(1) FIFA, 2018 FIFA World Cup Russia Global broadcast and audience summary
(2) FIFA 2018 Financial Report