Sorrell sees sport having to adapt for digital giants, private equity and data
By Simon Ward
The leading digital platforms will become increasingly involved in sport, and, with the growth of the sector having accelerated in a turbulent 2020, it may be time for rights holders to more effectively segment their offering, according to advertising luminary Sir Martin Sorrell.
At a time when sports governing bodies, leagues and clubs are analysing how to navigate their way through the crisis brought about by the coronavirus pandemic, Sorrell (pictured), the long-time chief executive of WPP, foresees the likes of Amazon, Facebook and Google becoming regular competitors for media rights, an intensified debate on the role of private equity and a recognition of the growing importance of data.
The 75-year-old Sorrell left WPP in controversial circumstances in April 2018 but the high-profile UK businessman has lost none of his appetite for the advertising industry, having since acquired and built up digital specialist S4 Capital, a company already valued at £1.2 billion ($1.5 billion).
He is also an interested observer in sport having worked with various brands that have been involved in the activity, and was on the board of Formula 1 until it was bought by Liberty Media from former promoter Bernie Ecclestone in a $4.4 billion deal at the start of 2017.
Speaking in an online interview at the WFS Live event on Monday, Sorrell reiterated his belief that the Covid-19 situation has only fast-tracked developments in media, particularly with regard to the digital transformation, and that this will be felt in sport as much as other businesses.
He said: “The move towards digital is accelerated… This is a pressure cooker, this is a petri dish, this is an escalation of everything that we’ve seen. There may be some new stuff that comes out of it but I think this accelerates every trend, good and bad, that you saw before.
“So if you're managing a football club, or you own a football club, and you were worried before or you were thinking about it and you saw an opportunity, you should be more worried if you were worried, and if you saw an opportunity you should be even more aggressive.”
On top of developing their own content, the digital giants have already dipped their toes in the sports rights market, prime examples being Amazon investing in English soccer’s Premier League in the UK, the Uefa Champions League in Germany and tennis’ Roland Garros in France.
Sorrell is “certain” these platforms and Chinese players such as Alibaba, Tencent and TikTok “will become more involved,” and that this could lead to changes in the way that premium rights are bought and sold.
He said: “This creates big issues for the rights holders. The rights holders have tended to go long. You have the Olympics going out to 2032 with NBC [in USA]. It may now be more important for the rights holder to segment the rights, to decide, for example, to sell the analogue rights to one group of competitors, and to sell the digital rights to others.
“Amazon has made inroads into football. Facebook bid for the IPL [cricket] in India, and now owns 10 per cent of Reliance Jio, Mukesh Ambani’s telecommunications network. Google will, I think, be a participant in buying sports rights. Alibaba is already an Olympics sponsor. Tencent is heavily involved in sports, and not just physical sports but esports.
“All these things are going to cause huge changes, and for people who run clubs and own rights or leagues, this is going to become a much more complex and therefore much more professional area. There is going to be no place for altruism.”
In an earlier interview on Monday, Javier Tebas, the president of Spanish soccer’s LaLiga, claimed that the return of the top leagues after coronavirus-enforced breaks had reduced the possibility of the long-mooted breakaway European Super League, as it had shown “that strong national leagues together can organise the calendar. Together we’ve tried to ensure the audiovisual rights don’t lose value.
“We’ve realised that together we can do things a lot better, that Uefa and the big clubs should not go on their own. I think that has weakened the Super League project quite a lot because many clubs have realised that it was very important to maintain their national market and to save it during this situation.”
However, Sorrell believes the current structures are under increased financial pressure, and that there is momentum for change at the top in the sport.
He said: “In my view, and I’m sure I’m going to get a lot of hate mail for this, there are too many football clubs. They have to be consolidated. Players are probably overly remunerated, they will have to be remunerated in different ways. The leagues are going to have to be run more efficiently and professionally because the competition is going to be huge.
“For example, what happens if we have a super club championship, worldwide or Europe-wide? That’s going to come at some point in time. The ramifications of that are huge.”
New formats in soccer and other sports are likely to be driven in part by investment from private equity firms, which see potential for increased media rights revenue as the digital platforms increase their outlay.
As of last week, eight funds and one bank have expressed interest in partnering with Italy’s Serie A. CVC Capital Partners is thought to be in the box seat having submitted a €2.2 billion ($2.48 billion) offer in May for 20 per cent of a new company that would manage the league’s broadcasting rights for 10 years from 2020, as well as the international trademark for the league, and its commercial development.
However, Sorrell claims rights holders seeking outside investment will have to reconcile their long-term goals with the usually shorter-term ambitions of private equity companies.
He said: “CVC was the owner of Formula 1 but their usual holding period is around five years. They’ve now gone into rugby and it’s an open secret they were one of the private equity firms that were interested in the [proposed revamped Fifa] club world championship.”
Sorrell continued: “Private equity is short term and I think this is something that rights holders have to think about very carefully because they’ve always operated, at least in their own minds, with the long-term view.
“Private equity, and this is not a criticism, it’s a fact, tends to have a five-year view. It is not a long-term view. There is the potential for a conflict in views, and I think that’s a really important thing to understand.”
Given that S4 Capital lays great store by first party data, Sorrell is a great believer that sports bodies, leagues and clubs can benefit commercially from learning more about their audiences, especially as the digital platforms are reducing information collection in the wake of privacy concerns.
He said: “Data on fan behaviour, clubs and performance, whatever it happens to be, will become more and more valuable, and not only in telling you what’s going on but it being a source of data for other people.”
Outside sport, he highlighted the models employed by digital entertainment platform Netflix and consumer products giant Procter & Gamble to connect with consumers and create messaging to respond to their needs.
However, Sorrell claims that, because of its nature, elite sport still benefits from many big-money commercial deals that are not based on hard-nosed analysis.
He said: “The argument for data is that it provides you with a statistical justification for what are very big investments. To be a TOP sponsor of the Olympics is a very expensive exercise, to be a World Cup sponsor or a Champions League sponsor is a very expensive exercise.
“A lot of this is done for emotional reasons, it’s not done in a rational way. Now, you may say, ‘it’s impossible to do it totally rationally.’ But, you have to balance it, and I continue to be amazed at the number of decisions I’ve seen in football and Formula 1, not so much the Olympics, that are made for emotional reasons, rather than rational ones.”