With virtually all professional sporting events postponed or canceled due to the coronavirus pandemic, global broadcasters are facing massive subscription losses and extreme revenue drops: "There is no conceivable loss cap."
With the new coronavirus, the business of sports is a whole new ballgame.
From Major League Baseball to the NBA and the Tokyo Summer Olympics, professional sporting events worldwide have been delayed, postponed or canceled outright amid the global pandemic, raising questions about the financial damage the outbreak will wreak on networks dependent on live coverage of tremendously fit folk running, throwing, kicking and catching all manner of round objects.
In Europe, all professional soccer leagues have been put on hold, mid-season, as has the lucrative pan-European Champions League. Euro 2020, a pan-national soccer tournament held every four years, was pushed back until the summer of 2021.
Networks worldwide are scrambling to sort out licensing and sponsorship deals linked to sporting events and to calculate the likely damage.
Comcast’s NBCUniversal, which holds U.S. rights to the Tokyo Summer Games, and Discovery Inc., which holds Olympics rights through 2024 in 50 European markets via its Eurosport network, have both previously said they had purchased insurance policies that would cover losses. NBCUniversal booked a record $1.25 billion in ad sales ahead of the Tokyo Olympics, selling out 90 percent of its national ad inventory before the IOC announced the delay.
According to a SEC filing made public Wednesday, Comcast has raised $4 billion through a debt offering to offset the impact of the COVID-19 outbreak on its businesses.
"The impact of coronavirus disease 2019 and measures to prevent its spread are affecting the company’s businesses in a number of ways. For example, the company has closed all of its theme parks; the company has delayed theatrical distribution of films both domestically and international," Comcast said in the regulatory filing.
S&P Global research director Deana Myers told The Hollywood Reporter even smaller leagues and tournaments could have a major knock-on effect on broadcast revenues. She estimates nearly $1 billion is at stake for CBS and Turner Sports from the cancelled NCAA Tournament alone, as last year's tourney generated $968 million in advertising revenue.
"That's gone this year. If this goes on for a long time, it will have a really big impact on al the network and sports league and advertisers with a ripple effect," Myers said.
Discovery on Tuesday, reporting its financial results, retracted its full-year 2020 performance outlook, saying the coronavirus pandemic would have an "unknown impact" on its business. The group revealed it recently drew down $500 million from a revolving credit facility to shore up its balance sheet during the crisis. Discovery CFO Gunnar Wiedenfels told investors on an earnings call in February that the company took out insurance on the Olympics long ago and that a disruption of the Games is “not going to have any adverse impact on our financials.”
For European networks, the impact of the delay, and possible cancellation, of the professional soccer season could be more dire. Broadcasters reliant on live matches have already been hit by the shutdown. Comcast-owned pay TV group Sky has stopped charging commercial clients like pubs for its Sky Sports package and has given household subscribers the option to pause their subscriptions, suspending payment for sports channels even if under contract.
A report published Thursday by London-based Ampere Analytics estimates Sky in the U.K. generates £2.1 billion ($2.5 billion) from sports, around 22 percent of its overall U.K. revenue. In a worst-case scenario, where coronavirus concerns lead to all sports coverage, both British and international, being suspended for the next four months and all subscribers pausing their contracts, with wholesale clients being allowed to follow, Ampere forecasts Sky would lose $837 million from the current crisis. By the same measure, BT, the U.K. telecom and broadband provider that also carries professional soccer matches, stands to lose a maximum of $273 million.
Counterintuitively, if the coronavirus crisis continues into the summer, and pay TV networks can postpone or suspend rights payments for major sporting events, the channels could actually start saving money, the report concludes. “Historically, sport has been a loss-leader” due to high-priced rights deals and the cost of coverage, Ampere writes, noting that the cost of sports' rights is cross-subsidized by Sky’s basic TV subscription and by BT’s broadband bundles. But, Ampere notes, sports is a key driver of subscriptions for pay TV companies and without it, “operators may struggle to replace the 10 percent-plus of subscribers churning every year.”
The report expects major pay TV groups across Europe, including Sky in Italy and Germany, Canal+ in France and Telefónica’s Movistar+ in Spain, to face a similar sports-driven financial blow.
Even harder hit will be all-sports networks, which face extreme revenue drops and wholesale massive losses of subscribers. For groups like London-based DAZN and France's BeIN Sports, “there is no conceivable loss cap,” says Ampere, noting the prevalence of no-contract, cancel-anytime 30-day subscriptions means customers can quickly drop their all-sports services while they wait for the games to resume.
“Sporting events have been on the front line of disruption and there are many conversations taking place with government, health authorities and sports organizations about the safest and best way to move forward,” DAZN said in a March 16 statement, noting it was in “daily contact” with rights holders and partners “to understand and manage the impact of the virus on our industry, service and customers.”
The coronavirus pandemic has slammed the brakes on DAZN's expansion plans. The group, which operates in a handful of countries, most prominently in the U.S., Germany, Italy and Japan, was on track to roll out a new service in 200 territories by May. With little live sports left to show, DAZN is pushing its catalog content as well as original sports-documentary programming.
But the coronavirus has not stopped business entirely. On Thursday, Nordic Entertainment Group (NENT) announced it will launch its Viaplay streaming service in Iceland on April 1, albeit without live sports for the time being. NENT, which operates Viaplay across the rest of Scandinavia, responded to the cancellation of live sporting events by dropping the price of its sports bundles for all its subscribers.
Speaking to The Hollywood Reporter, NENT president and CEO Anders Jensen said it was "absolutely the right decision" to cut subscription costs for sports programming during the shutdown and that Viaplay has seen "very little churn" as a result. "Sports subscribers are using our film and TV services more, we've seen a 40 percent jump in usage there and use of our TVOD service, for movie rentals, has gone up more than 100 percent [since the start of the coronavirus crisis]," said the exec. "If the crisis goes on for just two months, and the Premier League, the Champions League, the NHL, Formula One will back as normal during the summer, we expect it will be almost a zero-sum game for us."
Jensen admitted he also has a "worst-case" scenario, should the coronavirus outbreak continue for several months, even into 2021, with the cancellation of more major sporting events: "I do have that plan in my drawer here and that would require more draconian measures, where we'd have to start thinking about shouting some things down. But we're not there yet."
