Business: Sports gambling opportunity in the North American market

In 2018 PwC Outlook for the sports market in North America through 2022 PwC focuses on the impact of the legalization of sports gambling on various revenue streams during the Outlook and beyond. 

The conclusion of PwC work is that while we are only a few months into legalized sports wagering in certain states, it is clear that the opportunity for teams and leagues to monetize it can be great. Whether it is through media or sponsorship, combining wagering with increased fan engagement could also increase ticket revenue or retail revenue. In the long run, the stakes are high.

According to a September 2018 Nielsen sports study, commissioned by the American Gaming Association (AGA), NFL media rights are projected to increase by nearly 18 percent because of the appetite of bettors looking to consume live sports events.

Teams, fan engagement and participation 

• In addition to receiving their portion of any league wide integrity fees or sponsorships, teams are free to enter into sponsorships with sportsbooks (subject to any league restrictions). Initially, these opportunities may be limited to teams in states where sports gambling is legalized; however, as national/international gaming companies become involved, sponsorship opportunities may arise for all teams (whether sports wagering is legal in their states or not). 
• There is the potential for teams to adopt more of a European approach to sports gambling in the future. In the English Premier League, a number of casinos are shirt sponsors. Casinos also have sportsbooks located on the premises of the venue allowing for wagering on the match.
• Teams are able to participate in revenue sharing with the sportsbooks. Online gaming is also available. All of this has the potential to lead to increased fan engagement and participation.

Fan engagement, Apps 

• With the increased quality of the in-home experience, together with the rising cost of attending professional sports events in person, leagues in the US face the challenge of incentivizing fans to continue to attend live sports events. Imagine a future scenario in which a sports gaming company pays to sponsor a professional sports team. 
• The gaming company partners with the team to design a world class app that allows fans to wager on a variety of team and individual outcomes during a game. Further, to incentivize fans to attend the game live and use the app, the app could apply a dollar credit to the fan’s individual account to be used for wagers. 
• The team could also offer food and beverage credits, or retail credits, for fans who arrive early and wager, or stay after the game and wager. 
• This unique experience could be made available only to those attending the game (or at higher incentive levels to fans attending in person versus those fans watching at home). Fans could wager from their seats in the stadium. 
• The opportunities for additional partnerships with technology companies to improve the digital experience are significant. Sports wagering has the potential to increase fan engagement, provide benefits to fans who participate and offer additional entertainment to fans on game days and beyond. 

Continuing regulatory battles

• Post-PASPA, Congress has slow-walked potential federal legislation dealing with sports gaming, leaving legalization to the states. 
• Each state has its own unique approach to the issue, and leagues and gaming interests may be forced to navigate fifty separate legislatures while fighting to secure the most advantageous regulatory environment. 

References:

PwC, PwC Sports Outlook (October 2018), At the gate and beyond, Outlook for the sports market in North America through 2022, October 2018, link: https://www.pwc.com/us/en/industries/tmt/library/sports-outlook-north-america.html.

Business: 2018 PwC Outlook for the sports market in North America through 2022, Opportunities

PwC projects the sports market in North America will grow at a compound annual rate of 3 percent across the four segments analyzed, from $69.1 billion in 2017 to $80.3 billion in 2022. 

Media rights officially became the industry’s largest segment in 2017, a year earlier than anticipated due to slower growth for gate revenue than previously forecasted. With key deals underlying the media rights segment locked in until 2022, the growth of rights in the near term are driven by contractual escalators within the national deals, as well as the run-off of 16 regional sports network (“RSN”) deals across MLB, NBA and NHL through 2020. 

Gate revenues are projected to increase at a compound annual rate of 2.2 percent, from an estimated $19 billion in 2017 to a projected $21.2 billion in 2022. Despite benefiting from league expansion and new facility development, gate volume metrics (ticket sales and game attendance) have leveled off—and even decreased—as competition from game broadcasts and price pressure on certain ticket buying segments have continued to increase. 

Sponsorship is estimated to surpass the $20 billion threshold in 2022, at which point it is projected to close its market size gap to within $1.1 billion of gate revenue. Future segment growth, projected to be the second highest across the four segments, should be supported by new inventory related to gambling, digital media platforms, uniform rights, and incremental in-venue signage and naming rights opportunities. 

Licensed merchandise sales are projected to increase at a compound annual rate of 1.2 percent (from an estimated $14.4 billion in 2017 to a projected $15.2 billion in 2022). The segment remains a relatively saturated market in North America with broad coverage of key consumer product categories and deep penetration of traditional buyer segments.

While we are only a few months into legalized sports wagering in certain states, it is clear that the opportunity for teams and leagues to monetize it can be great. Whether it is through media or sponsorship, combining wagering with increased fan engagement could also increase ticket revenue or retail revenue. In the long run, the stakes  are high.

What are the biggest drivers for any brand? To name a few: Reach. Immersion. Impact. What keeps professional sports leagues buoyant and profitable is access—as lucrative media rights deals have skyrocketed, more notably, player salaries have followed suit. 

Since the advent of television, major sports media rights have a handful of bidders—national networks and regional sports networks—the only suitors with the capacity to distribute so widely. But the game is changing. The digital revolution is attracting new entrants into this exclusive competitive space: these include the FAANGs (Facebook, Amazon, Apple, Netflix, Google) and both A’s are the only publicly-traded companies that have exceeded one trillion dollars in market capitalization.

Fans are paying for the opportunity NOT to watch an actual game, instead watching live moments from multiple games unfold simultaneously. At a time when many care more about their fantasy teams than their favorite teams, media rights bidders need to take notice.

No matter how consumers experience live sports (in 2023 and beyond) across their devices, channels and apps, one thing is for sure—all signs point to an increase in competition for sports media rights which could yield a significant rights fee increase.

References:
PwC, PwC Sports Outlook (October 2018), At the gate and beyond, Outlook for the sports market in North America through 2022, October 2018, link: https://www.pwc.com/us/en/industries/tmt/library/sports-outlook-north-america.html.

Business: 2018 PwC Outlook for the sports market in North America through 2022, Summary

PwC Sports practice

PwC offers a dedicated and distinctive sports practice with multi-discipline subject matter experts. Our sports specialists serve as trusted advisors to the industry and its investors; offering clients a wide range of assurance, tax and advisory services to address issues related to sport leagues, teams, facilities and major events. PwC professionals serving the sports industry include a national US practice and global network of industry specialists focused on advisory services as well as assurance and tax teams serving member clubs of the professional leagues in their respective local markets.

Segment definitions 

For the purposes of the report, the sports market consists of: 

Media rights— fees paid to show sporting events on broadcast and cable television networks, television stations, terrestrial radio, satellite radio, the internet, and mobile devices. 

Gate revenues— primary market ticket sales for live sporting events. Nonrecurring seat premiums and license costs are not included. 

Sponsorship— fees paid to have a brand associated with a team, league, facility or event, including naming and category rights. 

Merchandising— the sale of licensed products with team and league logos, player likenesses, and other intellectual property. Food concession revenues are not included.

At the gate and beyond 

Outlook for the sports market in North America through 2022

Overview

This year’s edition refreshes PwC five-year revenue forecasts through 2022 within four key segments of the North American sports market: media rights, gate revenues, sponsorship, and merchandising.

Sports gambling

One of the biggest sports industry stories of 2018 is the legalization of sports gambling in some US states. After the Supreme Court ruled that individual states could decide whether to allow sports betting, Delaware, New Jersey, Mississippi joined Nevada in legalizing sports betting with more states to follow. As the major industry players continue to iron out the finer points of potential integrity fees and revenue sharing/sponsorship deals, the signs point to legalized sports gambling being a boon for media rights deals between leagues and teams – an increase of 18% according to a recent American Gaming Association (AGA) study – due to bettors’ enthusiasm for viewing live sports events.

The Future of Sports Media Rights

The sports media rights game is in flux as the digital revolution is storming the gates of this lucrative sector and new entrants, the tech giants, are demanding admittance into this exclusive club. Due to changing viewer consumption patterns, particularly among younger viewers (18-49), sports rights holders are under pressure to create novel multichannel fan experiences that cut across digital and traditional broadcasting platforms. By 2022, sports consumption may look very different than it does today. 

References and contacts:
PwC, PwC Sports Outlook (October 2018), At the gate and beyond, Outlook for the sports market in North America through 2022, October 2018, link: https://www.pwc.com/us/en/industries/tmt/library/sports-outlook-north-america.html.

Contacts

Mark McCaffrey Partner, US Technology, Media, & Telecom Leader mark.mccaffrey@pwc.com
Shawn Panson  Partner, Private Company Services Leader shawn.panson@pwc.com
Michael Keenan Managing Director, Sports Practice Leader michael.keenan@pwc.com
Greg Peterson Partner, Sports Deals gregory.j.peterson@pwc.com
Andy Rey  Partner, Sports Assurance andrew.rey@pwc.com
Archie Fagot Partner, Sports Tax archie.fagot@pwc.com
Christopher Vollmer Partner, US TMT Global Advisory Leader, Entertainment & Media christopher.vollmer@pwc.com