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Pay to play: how sports bodies keeping winning the TV great rights battles

Mark Hawthorne

If anyone needs a reminder of the bond between sport and commercial television in this country it should be remembered it was the 1956 Olympics that finally brought TV screens into our lounge rooms. After two decades of prevarication by politicians, the Menzies government bit the bullet in 1953 – after Melbourne had been named as host of the Summer Games – and amended the Broadcasting Act to allow for the granting of commercial television licences.

For the next decade, the major sporting bodies and television networks enjoyed a cosy if not lucrative relationship, until the arrival of 1970s saw sport and television form an unrivalled symbiotic relationship.

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Did Murdoch, Seven pay too much for AFL rights?

Australian Financial Review sports business reporter John Stensholt breaks down the $2.5 billion AFL broadcast deal.

The 1967 NSWRFL grand final, between South Sydney and St George, was the first football final of any code to be televised live in Australia, after the Nine Network paid what now seems like the modest sum of $5000 for the broadcast rights. Adjusting for inflation, it is the equivalent of $61,000 in today's money. 

Just a decade later, Melbourne's HSV7 paid $1 million for the rights to the VFL grand final. The deal was $500,000 for the live match, and a further $500,000 for the replay rights. All up, that's the equivalent of $5 million in today's money. 

Australia's sporting bodies have never looked back. The major commercial networks were by now competing with the ABC and each other for the broadcast rights to cricket, tennis and the major football codes. 

Legendary Australian ad man Harold Mitchell, who has tracked Australia's sporting market for more than four decades, says there is no end in sight for the rise of rights deals, despite the difficult times the free-to-air networks are enduring.

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"Live sport is one of the most valuable assets there is, and it has been for decades," says Mitchell. "Look at the top-rating television shows in any given year and you will see the list is completely dominated by live sport."

Mitchell is right. Last year, the top five rating televisions shows in Australia were, in order, the AFL grand final, game one of State of Origin, the NRL grand final, game two of State of Origin and then episode one of Molly, the mini-series documenting the life of Ian "Molly" Meldrum.

According to the ratings figures, live sporting events were six of the top 10 television programs, and 32 of the top 50 television events for the year.

Ralph Rivera, managing director of Eurosport Digital, summed it up at a conference in London this week. "Sport, unlike any other content type, still drives scale and passion in terms of live viewership," he said. "If you were to create the pyramid of content types that are really driving that level of engagement and scale, sport would have to be at the top of that."

Set and forget

The audience numbers have resulted in a golden era for Australia's major sporting codes.

In August 2015 the AFL finalised a colossal six-year, $2.5 billion broadcast rights agreement with Seven, Foxtel and Telstra, running from 2017 to 2022. The new deal lifted the AFL's broadcast rights from $250 million a year to $418 million a year.

Just two months later, after a drawn-out and sometimes hostile negotiation, the National Rugby League signed a $1.8 billion five-year television rights deal covering the 2018-2022 seasons. Under that deal, Nine and Fox Sports share live matches on big-screen formats, and Telstra has the digital and mobile device rights.

Football Federation Australia and Fox Sports have struck a six-year deal, worth a reported $346 million in total, for the A-League.

Netball Australia has a deal with Nine and Telstra for big-screen broadcast rights on commercial television and Telstra TV. Big Bash

Of the major sporting codes, only domestic cricket remains in play. It has been reported that Fox Sports is set to bid for cricket broadcast rights for the Big Bash League, potentially partnering with incumbent international rights holder Nine, to take on Ten, which has enjoyed a huge success over the summer with the domestic T20 game. Some suggest Cricket Australia could be staring at a $300 million payday for a sporting competition that didn't even exist only a few years ago.

With the majority of contracts locked in, 2017 should be a season of "set and forget" for the major sporting codes. But one of Melbourne's most experienced sports negotiators, who has been in the room with major networks and sporting codes for more than a decade, says that couldn't be further from the truth. Matt Golding

"I can tell you that, right now, the AFL and NRL have dedicated teams looking at the future of sport rights, what is happening all over the world, and have an eye to what the playing field will be like in 2022," says the industry veteran, who cannot be named due to contract obligations. 

"You only have to look overseas, where telecommunications companies and internet companies are becoming major players in sports rights. Who's to say that Nine and Seven won't be competing with Telstra, Apple and Facebook in five years?"

NRL chief executive Todd Greenberg admits the sporting codes are already looking at what the future landscape of sport rights may be like. International Cricket

"We think we are just at the forefront of this technological revolution, but there is so much room to grow," says Greenberg. "We also have a lot to learn as well, about the behaviours and habits of our fans. There is a lot of learning to be had. It's not just learning to be had by rugby league. We talk regularly with Gill McLachlan and his team at the AFL. We are all in close collaboration with them to understand consumer behaviour, because we are all trying to answer the same question. How will consumers want to watch sport in the future?"

For McLachlan and his team at the AFL, a valuable lesson was delivered in round one of the newly launched AFL Womens competition. "We had 2.6 million minutes of womens AFL football streamed by Telstra in round one," McLachlan says. "That's 2.6 million minutes of a brand new product, going to a new audience."

The rise of the telcos

Telstra sports streaming. From left: NRL CEO Todd Greenberg, Acting Chief Executive of Netball Australia, Marne Fechner, NRL player James Tedesco, netball player Kristina Manu'a, AFL player Isaac Heeney and AFL CEO Gillon McLachlan.

(From left) NRL CEO Todd Greenberg, Acting Chief Executive of Netball Australia, Marne Fechner, NRL player James Tedesco, netball player Kristina Manu'a, AFL player Isaac Heeney and AFL CEO Gillon McLachlan. Photo: Peter Braig

Rupert Murdoch's British pay-TV empire is already feeling the heat from new players. BT Group, the privatised corporation formed from the old British Telecom, had not broadcast a single sporting match as recently as 2013.

That year, BT Sport acquired the rights to Serie A, Ligue 1, Brasileirão and Major League Soccer, all of which were previously held by  ESPN. BT then stunned the sporting world by securing the rights to 42 Premier League matches per season, as well as paying £897 million ($1.467 billion) for exclusive rights to the UEFA Champions League and UEFA Europa League. Soccer

In 2015 a bidding war between BT and Sky drove the value of the live TV Premier League rights to more than £5.14 billion over the three seasons, the equivalent of £10 million per game.

Then, earlier this month, the bidding war reached a new level. BT Sport paid £1.18 billion to beat out Sky for Champions League football rights in the UK, nearly £300 million more than it paid in 2013. The deal has, for the time being, effectively taken Champions League football off free-to-air TV in the UK.

In an ironic twist, just days after announcing that deal, BT boss Gavin Patterson spoke at the annual Enders Analysis conference in London and told the audience that "rampant inflation in sports rights" has to end because the increases in prices could not persist. "Naturally when we came in [to the market] there would [always be] be some inflation," he said. "The sport market is pretty saturated in terms of viewers and consumption today. I do hope at some point in the future we can find a stable equilibrium." 

Telstra makes its move

In February, at its season launch, Telstra put AFL chief executive Gillon McLachlan and NRL CEO Todd Greenberg on the same stage, along with Netball Australia's acting CEO Marne Fechner. The thought of the bosses of the NRL and AFL sharing a stage to launch their seasons would have been unthinkable just a few years ago. "It probably says something about the power and attraction of Telstra," says Mitchell, who is chairman of Free TV Australia. 

For Mitchell, it is no surprise that the two major winter codes, the AFL and NRL, have formed long-term alliances with Telstra. NRL

"You look overseas, at what the telcos and technology companies are doing, BT in England, at the new players in the market, and you know it is coming here," Mitchell says. "The digital age is bringing the greatest change to sporting rights deals we have seen in decades, and it is wonderful news for the sporting codes. All you need in a market is competitive tension. It is pretty easy to see where the competition is coming in the next five years. Live sports is the most valuable viewing asset out there, and the technology companies will want to be part of it."

According to Michele Garra, executive director Telstra Media, the growth in the digital audience is already happening in Australia. 

Viewers on Telstra's NRL app increased 26 per cent from the 2014 season, and then a further 127 per cent last season.

The AFL app saw a modest 19 per cent increase from the 2014 to 2015 seasons, and then a massive 140 per cent rise last season. AFL

The numbers this year have grown again. According to Garra, Telstra will reach the 3 million viewer mark per round for the first time in 2017.  "Just in round one of the NRL, the Queensland Cowboys and Canberra Raiders saw us achieve a record number [64,000] unique viewers for a match," Garra says. "Our customers want to use our product to complement the live game, and also as a primary way to watch the game live when out and about."

For Rivera, the growth of digital channels – such as Telstra's apps – is the future of sports viewing around the globe. 

"Digital is not a business strategy, but simply a reaction to how the consumers are choosing to access the content," he told a London conference. "They're looking at digital-first experiences because they can get a richer experience that goes beyond just the video … If you get the video, you get the data, you get the social layer around it, and you get the right sort of calibre of stream on a tablet. I'm choosing that before I choose plain old television." 

Greenberg can watch the seeds of change in his own lounge room, where his own teenage children consume their sport and entertainment almost exclusively on handheld devices, even if the same match is on the big screen. 

"There is no doubt by the time we get to the end of this next deal, in 2022, that the behaviours of fans and how they consume the game will be massively different to what they do today," Greenberg says. "What the answer is to that I don't think anyone truly knows. If they tell you they know, they are guessing.  What we will do is listen and evolve really carefully, and partner with companies such as Telstra to find those solutions."

The view at home

The questions hanging over the major sporting codes in Australia are whether or not they will be able to land the same kind of growth in 2022 as they did for the last rights deals. And whether Foxtel, like British cousin Sky, will be priced out by new players. 

Australia has one unique factor that limits the kind of competition between BT and Sky that Britain has witnessed. It is the legally enshrined anti-siphoning list, which prevents culturally important sporting events from being snapped up by pay-TV.  The AFL and NRL competitions are both listed, along with events such as the Melbourne Cup. It is the reason why free-to-air networks remain central to the deals for the rights to the major football codes.

Greenberg admits the three-way deal the NRL has in place is a hedge, with a free-to-air partner, a pay-TV partner and a telco partner.  "I think a hedge is fair way to typify it, the future is a long way off," Greenberg says. "Telstra is the lowest base and the fastest growth of the audiences, but it is definitely the biggest opportunity of the three."

Mitchell, in his role as chairman of Free TV, is obviously defensive of those anti-siphoning restrictions. "The anti-siphoning laws do protect the interests of the average Australian," he says. But Mitchell doesn't think the list and their restrictions will prevent competition from giving both the AFL and NRL another remarkable payday in 2022.

"The digital and technology companies will want a piece of the action for the exact same reasons as everyone has wanted a piece of the action," Mitchell says. "All you need is a competitive market, and the clever football codes know this. They are working away in the background making sure they have a competitive market when they next go out to the market. Once upon a time that competitive market was the television networks. Next time the online and digital platforms will compete head to head."

Mitchell's view is supported by a man who has been at the heart of sports rights negotiations in Victoria for more than a decade, but who cannot be identified due to contract limitations. "Today is not what tomorrow will look like, but you can get a glimpse at some of things that will happen in Australia in terms of sports rights by looking overseas," he says. 

"Yahoo!, BT, Twitter, Facebook. The companies looking at sports content overseas is growing. It will come down to how the codes can slice and dice their content. The AFL made a very clever move in owning its production. That gives it options. In the end, the basics of market economics will dominate. When you sell your house, you want to get as many people as possible through the house to increase the number of bidders. By the time 2022 rolls around, and you can see the number of bidders being greater than now ... that's where telcos and tech companies will change the landscape."

And that could well leave Foxtel exposed. Optus has already struck a blow, stunning the market by spending $100 million to steal the rights to the Australian Premier League rights from Foxtel. 

One AFL insider points out that Foxtel's best audience for a sporting event was the All Blacks and Wallabies Rugby World Cup semi-final in 2011. "That was a long time ago," he says. "It was just over 700,000 viewers, and they haven't come close to that kind of audience since. You have to wonder, if Telstra sells its stake in Foxtel, what the future holds for pay-TV."

Mark Hawthorne is Senior Editor of  The Age

Twitter: @HawthorneMark