Sources of Revenue: Broadcasting Rights

The consistent generation of revenue is important for the success of any sports league. If the organizers of any of these leagues have to spend a large amount of time and resources to collect revenues, then they will not be able to focus on organizing the game. This is where the broadcasting rights come into the picture.

Broadcasting rights have become one of the largest sources of revenue for major sports league games in the world in recent times. Right now, broadcasting rights amount to about 50% of the total revenue generated by sports leagues. The overall share of revenue has been continuously expanding over the past few years.

In this article, we will have a closer look at how sports league franchisors and franchises are able to generate revenue by selling broadcasting rights.

Why are Broadcasting Rights Important?

As mentioned above, broadcasting rights account for close to 50% of all revenue generated by major sports leagues in developed regions such as the United States and Europe.

It is important to note that broadcasting rights are sold much before the actual event takes place and as a result, the league is assured of a large sum of money. This gives the organizers the required confidence to plan the event.

It is also important to note that the revenue generated by selling broadcasting rights is huge since the revenue generation potential does not have any geographical limitations. The sporting event could be held in any part of the world but the broadcasting rights allow companies to leverage the fan following and monetize the event irrespective of geographical differences.

Buyers of Broadcasting Rights

Over the past few years, the amount of money being paid by broadcasters has seen an explosion. This is because of two primary reasons.

1. Firstly, the communication industry in most parts of the world was controlled by the government. However, of late, the communication industry has been privatized. This means that the number of industry participants vying to obtain broadcasting rights for an event has increased.

   The increased competition amongst different market participants means that the sports league is able to generate more funds. It is also very important to realize that earlier the broadcasting companies did not have much money to pay to the sports leagues. This is because of the fact that they were government entities operating in a monopolistic environment with very little competition.

   However, nowadays, broadcasting companies are not reliant on subsidies in order to pay the sports leagues. They are able to generate revenue using advertisements and as a result, can afford to pay large sums to the content creators i.e. the sports league.

   Broadcasters are able to derive revenues in various ways. Some of these broadcasters sell advertisements on their platform whereas others charge users a fixed amount to access content on their platform.

2. Secondly, the number of media outlets where sports leagues can be broadcasted has also seen a rapid increase. For instance, sports leagues can now sell digital rights to broadcast content to many different kinds of participants.

   Sports leagues can sell broadcast rights differently for television, radio, over-the-top (OTT) platforms, and even websites. This is very different from the television and radio-only rights which were sold earlier.

   More media outlets mean that the content can reach a wider channel and can help sponsors monetize the sporting event by leveraging a larger audience base.

How Does Advertising Revenue Fuels Broadcasting Revenue?

It is important to know that almost all of the revenue which is being generated by broadcasting is fuelled by advertisements. It is interesting to note that almost all of the advertisements which are broadcasted are trying to target the same market niche i.e. young adult males.

It is important to realize that due to the proliferation of media, the viewership of young adult males has been split up among various media channels. There are very few other media channels that claim to have an exclusive viewership of this segment. It is for this reason that advertisers who want to target this segment do not have too many options.

Since large-scale sporting events virtually guarantee high viewership and attention from that segment, advertisers are willing to pay a premium in order to be able to reach that segment.

Advertising Vs Pay Per View

It needs to be understood that advertising and pay-per-view are both business models which are used to generate broadcasting revenue. However, they are both on opposite sides of the spectrum. This is because advertising relies on maximizing reach.

If a large number of people watch an event, the advertisements for that event will become expensive. Hence, the objective is to increase the number of eyeballs.

On the other hand, the pay-per-view model imposes an economic cost to view the content. Subscribers have to be willing to pay to watch the particular sports league even if they have the option to watch other content for free. Hence, here the number of eyeballs i.e. viewership gets restricted which is the opposite of what an advertisement-based model would hope to accomplish.

The bottom line is that technological advancements and regulatory reforms have created a huge opportunity for sports leagues to monetize their broadcast revenue.

Several business models have been created by leagues to be able to make maximum use of this opportunity.