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Chris Russo | Key considerations for media companies in sports betting deals

Chris Russo, founder of Fifth Generation Sports, takes a look at what media companies need to think about before making deals with sports betting organizations.

Chris Russo

The recently-announced Barstool Sports transaction with Penn National illustrates the power of sports media in the emerging world of legalized betting.

As a result of this lucrative deal and other arrangements between betting and media companies, many sports media operations with significant audiences or strong brands are now seeking to capitalize on the sports betting boom.

Betting operators are expected to spend billions over the next few years on marketing initiatives in order to attract new customers in the US, thus creating a robust ad sales and sponsorship opportunities for media properties.

Beyond ad sales, companies such as Barstool Sports and Fox Sports are developing even deeper arrangements with betting companies that involve equity investment and/or brand licensing. As media companies pursue their strategies in sports betting, several key factors should be considered in evaluating potential arrangements:

Short-term v long-term arrangement: Some high-profile media companies have chosen to enter into long-term betting-related agreements. For example, “Penn National will be Barstool Sports’ exclusive gaming partner for up to 40 years.” Similarly, The Stars Group/Fox Sports deal involves “a commercial agreement of up to 25 years.”

There are certainly benefits to a long-term deal, including the potential for significant economic consideration and the ability to develop a truly strategic relationship which facilitates meaningful collaboration and investment of resources. On the other hand, many media properties seek to better understand the nascent US sports betting market and the prospects of the various betting operators before making a long-term commitment to one partner.

Exclusive v non-exclusive arrangement: A media company may be asked to provide certain types of exclusivity to its betting partner, especially if the arrangement involves a large rights fee, an equity investment, and/or brand licensing. Similar to the short-term v long-term analysis, media companies must weigh the value received from an exclusive arrangement against the opportunity cost of working with a number of partners in a market that is still very early in its formation.

Definition of sponsorship/advertising category: Some media companies seek both a “sports betting partner” and a “daily fantasy sports partner.” This approach could yield significant revenues and enable a media company to monetize two lucrative categories. However, given that the leading daily fantasy companies (i.e. FanDuel, DraftKings) also offer sports betting products, it may be difficult for media companies to develop and maintain deep, exclusive partnerships with one company in the daily fantasy space and another company in the sports betting space over the long run. (Note: The distinction between the “daily fantasy sports” category and “sports betting” category may be further complicated by last week’s New York state appellate court ruling that essentially characterized daily fantasy as gambling in New York state.)

Use of media company brand: In the case of Fox Sports and Barstool Sports, the use of these well-known brands appears to be an important part of their respective betting arrangements. TheScore is another media company leveraging its brand for sports wagering. Beyond these examples, other major US media companies have been reluctant to use/license their brands for betting applications.

Ultimately, as the betting industry matures and media companies refine their wagering strategies, more companies will pursue branded betting products. A key question is whether the “early adopters” such as Fox Sports, Barstool Sports, and theScore will be rewarded disproportionately or whether a “follower strategy” is more beneficial for certain sports media companies.

Level of content integration: As with other categories of advertising, a more integrated approach to the marketing of betting services is expected to yield better results in terms of customer acquisition (i.e. using content executions v standard advertising).

To accommodate this integration, a number of media companies have begun to bolster their betting related content, launching new television programming and digital features. This integration may ultimately reach live TV broadcasts of major sporting events, as betting “calls to actions” could be used to generate in-game wagering. While this messaging could be very effective in building a betting business, media companies must be careful not to alienate the millions of fans that are not interested in sports betting.

Consideration structure: There may be opportunities for media companies to receive a wide array of consideration in sports betting arrangements, ranging from sponsorship fees, to ad buys, to equity, to performance-based compensation.

Beyond the business analysis, certain types of arrangements and/or consideration may require government-entity licensing or vendor registration, including on a state-by-state basis. Media companies must consider the implications of these requirements and should consult their legal advisors to ensure compliance with applicable laws and regulations.

Given the large number of betting operators and the intense competition to secure new customers, media companies that strategically embrace gaming will benefit immensely from the US sports betting boom over the next several years.

Unlike standard ad buys, the types of arrangements between betting companies and media properties will be complex and involve multiple variables and considerations. The most successful media companies will recognize the transformative and unique nature of sports betting and assemble the best team of internal and external resources to optimize the opportunity.

Fifth Generation Sports LLC is a sports business consulting firm

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