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DAZN’s ‘logical’ interest in UK launch is hard to square with commercial realities

  • Rumours swirl around DAZN’s interest in UK media rights
  • Streaming service targets profitability after three years in most markets
  • Estimates suggest it would be a lofty goal in the UK, where cost of rights is prohibitive

In October, DAZN executive chairman John Skipper described the UK as “a logical DAZN market”, pinpointing three potential avenues of entry: rights to the English Premier League, boxing, and tennis.

“In Italy we have Serie A. If you have Serie A, you have a business. In Germany we have a Bundesliga game and the Champions League. In Spain we have MotoGP. In Canada we have the NFL and the English Premier League. You don’t do this with niche sports. You will not get scale with niche sports. You get scale with first-tier rights,” Skipper said.

Media rights to the Premier League, French Open, Australian Open and Matchroom Boxing all become available in the UK from 2022, but rumours are swirling around DAZN’s potential interest in Uefa Champions League rights, which are currently on the market.

Experts and insiders surveyed by SportBusiness unanimously believe that DAZN either won’t or shouldn’t bid for Champions League rights in the UK this time around and say that DAZN should treat the UK market with caution. However, the streaming platform is considering every option for the UK including a Premier League-driven offering, a global boxing offering that incorporates Matchroom Boxing rights in the UK, as well as steering clear altogether.

Most experts believe the latter to be more likely, but everyone spoken to by SportBusiness for this article agrees that the ongoing sales process for Uefa Champions League rights from 2021-22 onward – in particular the outcome for incumbent BT Sport – will be crucial to how DAZN’s UK plans take shape.

The pay-television broadcaster is currently under pressure from shareholders to minimise spending on sports rights, which could reduce its ability to compete with rival pay-television broadcaster Sky for the rights. If BT loses Champions League rights to Sky, experts say it would catalyse a wider withdrawal from sports broadcasting, clearing the path for a new competitor to take its place.

“I don’t think it stacks up for DAZN to run a service that’s competitive to BT and Sky, and I think if BT were to vanish then it would create a vacuum for DAZN to fill,” says one insider. “I think this Uefa Champions League tender will be the bellwether for what BT’s intentions are. That’s the key for DAZN’s future in the UK.”

Jordan Henderson of Liverpool lifts the Champions League Trophy (Matthias Hangst/Getty Images)

Entry strategy

With few exceptions, DAZN’s successful launches have come in markets where competition for rights is low or rights fee growth had stalled.

In Germany, Austria and Switzerland (DACH) and in Spain, the dominance of a single telco – Sky Deutschland and Telefónica respectively – had allowed rights fees to stagnate.

In Japan, sports broadcasters were reluctant to compete aggressively against one another for top-tier rights, fearing that the increased costs would affect their margins.

In Italy, it took advantage of pay-television operator Mediaset’s commercial decline to acquire a package of rights to the top tier of domestic football, Serie A. On the back of this, it secured a carriage deal with the country’s dominant pay-television operator, Sky Italia.

Just over three years after their respective launches, DAZN’s businesses in DACH and Japan are understood to be profitable or breaking even, in line with the company’s initial expectations. The Spanish and Italian businesses are losing money but have only been operational for five and 15 months respectively.

Speaking to SportBusiness in 2015, DAZN Group chief executive Simon Denyer said: “We would hope that within three years that the initial territories are profitable. Whether the actual division is profitable depends on whether we’ve launched in other territories. If we’ve launched in another five countries, most countries will be loss-making for at least the first two, maybe three years.”

DAZN’s launch in the US is regarded by most experts as running counter to the company’s profitability targets.

“There were emotional and financial reasons why they went into the US market,” one expert says. “They’re readying themselves for a sale at some point in the future and they can’t achieve that without being active in one of the world’s largest markets. It was particularly important to get Wall Street excited about them because the US markets are so US-focused.”

Could the UK be added to the list of anomalies?

“I think the UK is proportionately so much more expensive for the relative size of the market that it doesn’t make sense,” the expert adds. “If you’re going to spend $300m on rights to ‘Canelo’ Álvarez fights in the US, it vaguely makes sense. If you look at the size of the major rights deals in the US, they’re huge, but on a per-subscriber basis they’re small in relation to what UK broadcasters spends on sports rights.”

Canelo Alvarez is DAZN’s premier star in the US, but that entire deal is worth less than one season of exclusive rights to the Champions League in the UK (Steve Marcus/Getty Images)

How long can DAZN spend to expand?

While DAZN’s initial performance in launch markets has matched Denyer’s expectations, the company has found things more difficult in Southeast Asia and Latin America, where planned launches were aborted.

In Latin America, DAZN planned to launch a streaming service on the back of rights to the English Premier League and the Copa Sudamericana. It successfully acquired Premier League rights but was blindsided by pay-television broadcaster DirecTV’s acquisition of Sudamericana rights, which DAZN viewed as essential to its launch plans. It has since sublicensed its Premier League rights to pay-television broadcaster ESPN.

In Southeast Asia, the streaming platform acquired rights to the Uefa Champions League and Spain’s LaLiga but is yet to launch its product. The company has not offered a formal explanation but has sublicensed Champions League rights to pay-television broadcaster beIN Sports and LaLiga rights to multiple broadcasters across the region.

While these episodes are far from disastrous in isolation, the fact remains that DAZN is losing money in most of its active markets. The company’s post-tax losses grew to £370.3m in 2018 and there are signs that its majority shareholder, Len Blavatnik, is no longer keen on bankrolling the business.

In April, DAZN Group sold a majority stake in Perform, its B2B data and betting division, for a fee believed to be between £500m and £600m. This money, along with anything raised from an upcoming funding round, will be used to fund its streaming businesses.

As of the beginning of this year, DAZN’s total committed spend on sports rights was over $6bn. If DAZN was to enter the UK market with a mission to build a large subscriber base it is reasonable to assume that committed spend would increase to over $7bn.

Making it work?

With losses mounting and stock being sold to fund the company’s existing businesses, any UK expansion would almost certainly have to adhere to Denyer’s original expectation: profitability in three years. Money is tighter than it used to be and a US-style play aimed at attracting investors in the UK simply wouldn’t work in the same way.

As Denyer told the Evening Standard in December 2018: “A guy in Old Street can have the same idea as a guy in Silicon Valley and I guarantee you that nine times in 10 the guy in Silicon Valley will make it work before the guy in London because there’s tonnes of funding available.”

Creating a premium, standalone sports broadcaster in the UK is a huge risk given that premium sports rights have largely been a loss leader for triple-play and quad-play telcos in the past decade – especially BT. To make a standalone sports streaming business profitable in the UK, DAZN would need favourable market conditions for buyers, a critical mass of subscribers and a relatively high price point compared with its services in other countries.

In order to achieve critical mass, DAZN would need exclusive rights to at least one package of Premier League rights. Modelling a DAZN launch on the back of acquiring exclusive Champions League rights shows how it would be near impossible to build a profitable business in the time frame originally set out by Denyer.

BT is currently paying £295m per season for a package of 32 live Premier League matches per season, from 2019-20 to 2021-22, and £394m per season for exclusive rights to the Champions League and Europa League.

If DAZN were to acquire a similar Premier League package for a similar amount, they would realistically need to charge £19.99 per month in order to have a chance at profitability. However, if they are forced to compete against Sky, BT and Amazon, it’s reasonable to think they would be forced to pay more than BT does currently for such a package.

In the unlikely event DAZN attempts to accelerate BT’s exit from the UK market by paying a premium for Champions League rights, the number of subscribers needed to cover the cost rises dramatically.

At a price point of £19.99 per month, DAZN would need around two million monthly subscribers with a zero-per-cent churn rate in order to break even or become profitable on the back of winning exclusive Champions League rights. It would need between 1.2 million and 1.3 million subscribers on the same conditions to offset the cost of a small package of Premier League rights.

“I don’t think acquiring one Premier League package works for them,” says an expert that has sold media rights at agencies and rights-holders in the UK. “They would have to acquire all four to make it work as a standalone business.”

Denyer has suggested DAZN would be interested in acquiring Premier League rights in the UK, but only if the league made more games available and ditched the 3pm blackout.

In December 2018, he appeared to pour cold water on any future UK launch unless the situation changed.

“UK rights have been overinflated because of Sky and BT, they’re broadband operators and utility businesses, and it’s just a very expensive market at the moment. We can get much better value for money elsewhere,” Denyer said.

One insider told SportBusiness: “If you look at recent events, the company is looking for outside funding and is selling assets. I wouldn’t expect DAZN to be spending the proceeds from that to accrue even bigger losses.”

If John Skipper asserts that the UK is a ‘logical’ DAZN market, one has to ask: what kind of logic is that?

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