P(l)aying For Big Bucks: Why The Free To Airs Rely So Heavily On Sport

With the Commonwealth Games now over, and Channel Nine’s four-decade deal with Cricket Australia coming to an end – with the sporting body signing a new $1 billion deal with Foxtel and Channel Seven – IBISWorld examines the implications, values and trends 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.

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Revenue for FTA television broadcasting has fallen from $7.3 billion 2005-06 to a projected $4.7 billion in 2017-18.

IBISWorld senior industry analyst Nick Tarrant says that TV networks have focused on live sports broadcasts to stem falling revenue. “Sporting events remain one of the last must-watch-live TV programs, and broadcasters are using that to cash in on advertising revenue and sponsorship deals,” said Tarrant.

Sports broadcasts bring in significant returns in terms of advertising revenue and sponsorship for many television channels. In 2017, the highest rating programs included the AFL Grand Final, the State of Origin series and the Australian Open final.

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“As sports broadcasts are generally exclusive, they are ratings winners and therefore attractive for advertisers. 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,” said Tarrant.

Similarly, many sporting events are also timed to fit into the broadcast schedule of TV networks. For example, the AFL broadcast often runs directly into nightly news programs.

Tarrant said 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 AFL deal is currently the most lucrative in Australia. The deal for 2017-2022 brings in $418 million annually to the AFL. This is a 66.8 per cent increase compared with the 2012-2016 rights, which were for $250.9 million per annum,” he said.

In addition to the newly signed contract between Cricket Australia, Foxtel and Seven, other major changes include:

Nine Entertainment recently winning the rights to the Australian Open for five years, at a cost of $60 million per year, an increase of more than 50 per cent over the previous deal; and
the value of the Big Bash League being expected to triple during current negotiations between Cricket Australia and the TV networks.

Free-to-air TV networks spent $497 million on sports broadcasting in 2015-16, representing 26 per cent 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.

Risks to TV networks

The increasing cost of sports broadcasting rights represents a significant risk to TV networks. Profitability for FTA broadcasters has been in steady decline, with IBISWorld forecasting a slim operating profit of 3.1 per cent in 2017-18.

New players entering the sports broadcast market could cause a sports rights bidding war, further affecting margins. For example, Channel 10 is now backed by its foreign parent CBS, which has a significant sports presence in the US market.

Tarrant said new media players, such as Optus, have entered the market to benefit from the financial returns generated by live sports broadcasts. “Optus successfully outbid Foxtel for the streaming rights for the European Premiership League in 2016. This reflects trends in overseas markets, where other digital companies such as Twitter have bid on sports streaming rights. It’s an ever-changing and fascinating market to watch,” he said.

Tarrant noted that TV networks are unlikely to back away from bidding on sports broadcasting rights. “Programs that must be watched live are essential for the future of TV broadcasters – the advertising and sponsorship opportunities are too large to ignore.”

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