Just for sport: where is the sports TV industry headed?

The prices paid for the rights to televise sports are rising in dramatic fashion all over the globe. Attendance at Sportel, the market for the sports TV industry, has been rising at a rate of roughly 30 percent a year as more TV companies scent the money to be had in sports and join the game. Many in the TV industry feel that sports are the key to digital television, that without those soccer matches and football games the expensive technology will fail to attract the requisite viewers. Sports and TV have become tightly intertwined and together are growing faster than the average height of a pro basketball player. What's behind this growth and where is it leading?

In the opinion of David Short, media editor of The European, the prices of sports rights in Europe have escalated primarily because of competition among pay-TV channels. He noted that sports like Formula One racing didn't used to command such high prices because they simply went to public broadcasters. In addition, Short said, the European Broadcasting Union (EBU) acted as a sort of cartel, setting the prices for these events. Then there was a bidding process, he said, and the prices increased ten- or twentyfold.

What kind of numbers are we talking about? The rights income from Formula One car racing, for instance, has been estimated at $12 million per race, or more than $200 million a year. Earlier this year, ITV Sport in the U.K. secured Formula One rights from 1997 to 2001 for $112 million (70 million), or 10 times what the BBC had been paying for the same rights. Kleinwort Benson forecasts estimate that by 2000 pay-per-view sales in Italy will reach $56 million and pay-per-view sales in France will reach almost $37 million.

Of course, car racing is not where the big money is internationally. Soccer is. Germany's Kirch Group secured rights to World Cup soccer from 2002 to 2006 for $2.36 billion. Rights to English Premier League soccer from 1997 to 2001 went to Rupert Murdoch's BSkyB for $1.14 billion. Tim James, publisher of Soccer Analyst, commented that the Premier League deal is the one everyone wants to imitate. "You look back a few years, and the clubs weren't getting a tenth of that amount of money," he said. People are looking up to the Premier League not because it has the best play or the best players but because it made the best deal, James noted wryly.

Other soccer deals include Sport 7's $650 million expenditure on Dutch Premier League soccer from 1996 to 2004 and the $580 million the Kirch Group's SAT-1 paid for German Bundesliga soccer from 1998 to 2000. In Spain, Grupo Prisa and a group of other companies paid $300 million for Spanish league soccer rights, and Sogecable and Cable Antena between them paid $192 million for live rights for two seasons. The EBU spent $135 million on the 1998 World Cup. In Argentina, in the heartland of the sport, soccer rights are estimated to be a $100 million to $150 million business.

Another big sport is the Olympics. NBC paid $4 billion for U.S. rights to all the Games from 1996 to 2008 with the exception of the Winter 1998 Games. The EBU paid $1.44 billion for the Games from 2000 to 2008.

This is a game in which a relatively small sport like skiing can command a premium price: the EBU bought rights to the Alpine and Nordic World Championships until 2005 for what is estimated to be more than $600 million. In the U.K., the BBC bought rights to three seasons of the Five Nations rugby championships for roughly $65 million (40 million), or some $3.6 million (2.2 million) a game.

Some companies do not even have a particular sport in mind: Digital Television Network in the U.K. has put together a $1.6 billion (1 billion) war chest for buying sports television rights.

A lot of this has to do with the proliferation of channels, and with the threat of all those digital channels to come and the desire for something attractive to fill them with. In the opinion of Peter Sprogis, managing director and founding member of Prisma Sports & Media in the U.K., the sports fights price escalation is all about digital. "The only way they're going to drive the decoder boxes is through the purchase of sports," he said."The male consumer tends to dominate the decision about whether a decoder is bought in the house." Sprogis doesn't foresee any abatement of the price escalation over the next 10 years; he believes that digital TV will drive the price of sports rights up even more.

James feels that the growth is in some way cyclical. If people perceive sports rights as key for getting subscribers, then sports rights will be in demand, he said. But he believes that there is another reason for the escalation: "I think sports are marketing themselves better, and that's increasing the value of the rights." For example, James said that the management of U.K. sports clubs has lagged behind management in the U.S. and continental Europe but that now the clubs are becoming less amateur and more commercially driven.

Are sports essential to the success of digital platforms? Sprogis feels that they are. Movies by themselves are one-sided, he said, but the passion for sports worldwide is amazing. Sports are "crucial to the development of digital broadcasting," Sprogis said. "That's why Murdoch is so aggressive in pursuing sports rights."

James isn't so sure that digital TV's success is dependent on sports. "I think certain people agree that sports is going to be a big driver of TV," he said, adding that certainly Rupert Murdoch seems to feel that way. But, in James' opinion, "the expansion of digital isn't going to be just driven by sports - there's going to be a deluge of channels."

There is also some question as to whether soccer rights are the key to getting subscribers internationally, to the exclusion of any other sport. Soccer is "the most important sport in the world," said Dan Molina, president of Spin International. "As a [sports] producer or programmer, if you have anything related to soccer, it's probably the key product that you have."

Sprogis, however, feels that other sports have a role to play. For instance, he noted that in the U.K. Sky has captured some 20 percent of homes with soccer; in order to get into another 30 percent to 40 percent of homes, Sprogis said,you need to use second-tier sports. If a company just took baseball in the U.S., he explained, it would miss out on the percentage of homes where they don't like or watch baseball.

The key to finding other winning sports, according to Sprogis, is to analyze local tastes."The world is small, but the world is very local. ... You look globally to see which are the mass sports and you look locally to see what the tastes are," he explained. He noted that in Greece the popularity of basketball exceeds that of soccer and that in India cricket is king. "In the U.K. rugby and cricket have increased their rights tremendously because they're of interest to the viewers," Sprogis observed. Soccer Analyst's James feels that not enough people play cricket but that ice hockey has some international potential, as does baseball, particularly in the Far East. "The other one that people are investing in is rugby," James commented, referring to the fact that Murdoch signed a deal with the English Rugby League Association with the purpose of turning it into an international game. James said that he doesn't know that anything will become as big as soccer, but that as all these sports get increased exposure through changes in the TV industry like more channels, viewer interest will grow and the sports will become more lucrative, commanding increased rights.

Sprogis feels that digital TV is not the only thing that will drive the price of sports rights in the future. Everyone's concentrating on broadcast digital now, Sprogis said, but he doesn't think that cable is out of the running. Once cable catches up in the digital race, he said, it will have 20 or 30 channels where it once had one; ergo there will be more need for sports programming. He also believes that Internet development will play a part, as will the telephone companies being allowed to compete in video-on-demand. These, said Sprogis, will be the second and third and fourth waves driving the price of sports rights ever upward.