Sport in 2007/ Trends: Richard Gillisexamines where all the money is going in big-time sport, and outlines developments which will change what we watch and how we watch it.
In 2006, the sports world divided still further between the rich and poor, the haves and have nots. Those at the top made fortunes, whether they be the stars, the famous teams or the owners of the biggest events. Below the top tier, however, life was more challenging, leaving most federations to fight for exposure on television and hawk their sports around town in the hope of inspiring a would-be sponsor.
A few examples. In soccer, the FA Premier League sold their television rights to the British market for £1.7 billion (€2.5 billion) to Sky and Setanta, a 65 per cent increase on the previous Sky deal.
In Europe, Real Madrid showed the power of their brand by negotiating a television rights deal worth a staggering €1.1 billion. Chelsea snared Samsung as a shirt sponsor for £50 million (€75 million) over five years.
Outside of soccer, Jacques Rogge, the IOC president, was quoted as saying, "We expect a 40 per cent increase in broadcast revenue for the 2012 London Games".
To this can be factored in further interest from sponsors. In 1988, the Seoul Games garnered $96 million in sponsorship revenue. In Athens 2004, the figure reached $866 million (€666 million).
Similarly, for the 2006 World Cup in Germany, 15 top-tier partners paid between €37 million and €67 million each. In 2010, the South Africa event will reap even more: six "Fifa partners" will pay between €220 million and €370 million each.
Simple then. To make money you have to guarantee that people will watch what you have to offer. But more than that: they have to watch the match live, and the result must matter. Television executives have several names for this. They call it "appointment television", the ability to create "watercooler moments".
In short, a television network needs to know that when they sell advertising they can guarantee an audience, whether for the All-Ireland final or Big Brother. The big money goes to "killer content".
This is becoming a more difficult promise to keep. With hundreds of channels, fewer of us are watching RTÉ or UTV. We are getting our news online or over the mobile.
So, given this background, what were the most significant moments of the past year? What happened that will alter the way the sports business operates? Here are a few to be going on with.
1: Murdoch buys MySpace.com
It's just over a year since Rupert Murdoch's News Corporation, one of the great powers of old media, paid $1.4 billion (€1.1 billion) for several internet companies, notably MySpace.com, the social networking site. It's a move that validates the second coming of the internet, otherwise known as Web 2.0. NewsCorps' digital landgrab is the clearest sign yet that the web presents a viable business model. This feeds a dream of many sports federations: the ability to bypass television and reach fans directly via the internet. Some sports, such as squash and sailing, have already built a following online.
2: Real Madrid 0 Arsenal 1
What will be the long-term effect of Real Madrid's exit from the Uefa Champions League in March 2006? Will it deter clubs from buying players based on their market value? Or, will the tournament be changed to accommodate the commercial goals of the major clubs?
Following Arsenal's defeat of the galacticos, Real president Florentina Perez resigned, citing the club's poor form and a trophy-less 2005 season. This has been hailed as the moment that his strategy aimed at building a team of marketing superstars officially failed. Interestingly, a few days before the Arsenal game, Real topped a league of a different kind, Deloittes' Soccer Rich List, usurping Manchester United for the first time in the annual round-up of the game's commercial winners and losers.
In 2006, G14, the group comprising the leading clubs in Europe, began to flex their muscles, demanding that clubs be given a "fair percentage" of World Cup revenues and pushing the club v country debate to the top of the agenda.
3: Apple launches iPod Video
The iPod changed the music industry forever by driving demand for digital download services, primarily iTunes. Now that Apple has turned its attention to video content, it will lead a revolution in the way we consume sport.
Apple's new gadget, along with Sky Plus and other Personal Video Recorders (PVR), will encourage people to watch most sport "on demand", when and where they want. This is already having a significant effect upon the value of television rights. The premium demanded by elite live rights will increase as broadcasters seek large audiences at a given time and place. Rogge expects a 40 per cent increase in TV revenues for 2012, compared to 2008. In similar vein, Fifa expect 2010 and 2014 to bring in a staggering $1.2 billion (€900 million) in television rights fees.
4: Marcos Kyprianou speaks out
Food became the new tobacco in 2006, or, to be more specific, the move toward a ban on sponsorship by junk food and soft drink companies gained momentum. Sport received around €800 million in sponsorship income worldwide from companies such as Coca-Cola, Pepsi and McDonalds.
Kyprianou is European Commissioner for Health and Consumer Affairs, and as such, deals with the EC's legislative response to the obesity time bomb. Part of Kyprianou's brief is to formulate a strategy relating to the advertising and marketing of junk food and sugary drinks to young people. Recently, Ofcom, Britain's media regulator, called for a ban on advertising to children. Currently, the EU is pursuing a co-operative approach to the issue, being seen to seek the views of the fast food companies and valuing the contribution to grassroots sponsorship made by the big food companies.
5: Allianz opens the World Cup
The first game of the 2006 World Cup was played at the Allianz Arena, the new home of Bayern Munich and München 1860. This, along with the opening of Arsenal's Emirates Stadium,heralds a new era, kick-starting the European stadium naming rights market, the biggest untapped sponsorship opportunity in sport, according to one major brand director.
Arsenal's naming rights contract is worth close to €150 million, but still small fry compared to the sums spent in the US: the Houston Oilers receive €320 million over 32 years from Reliant Energy, and FedEx pay €240 million for 27 years of association with the Washington Redskins.
Richard Gillis is author ofThe Future of Sports Marketing , a new report from SportBusiness Group.
