New Zealand: Key issues facing our sports broadcast rights market

Last Updated: 16 October 2016
Article by Emma Turner

Most Popular Article in New Zealand, October 2016

Business

Over the last two decades broadcast rights have proven to be a critical commodity for our sports associations, leagues and clubs. Negotiating the best position with strong and clear agreements, whether from the broadcaster's perspective or the relevant sport or league has never been more important.

Choosing the best broadcasting deal for your sport

For many of our major sports, over 50% of their revenue can be attributed to the sale of broadcast rights. Fan demand for sports content means those broadcasters who secure sports rights enjoy increased audience share, and in turn, additional advertising revenue. To pull in advertisers, broadcasters are willing to pay a premium to obtain exclusive rights to broadcast sports events.

That said there will be vastly different approaches between the big sports (e.g. rugby, cricket) and those struggling to gain exposure and promotion of their sport (such as football in New Zealand). The latter are often striving for a deal that assists with television production costs and provides the greatest exposure for the sport to audiences. Drafting clear and robust licence agreements is essential for all stakeholders. Parties need to consider what the important deal points from their side are, and ensure the licence agreement allows or requires the same.

Rights holders need to break down and narrowly define the rights being licenced to broadcasters to better protect their own right to exploit relevant digital media content. Broadcasters, on the other hand, will want to keep definition of rights wide to ensure exclusivity of the content.

Pitfalls of the wrong media deal

Considering the full picture is vital, a fact that the LA Dodgers have found out the hard way. Huge numbers of fans in California are currently unable to access television coverage of their beloved Dodgers' games due to a technical point not adequately dealt with in their licence agreement with Time Warner Cable (TWC). In 2013 the LA Dodgers struck a deal with TWC granting an exclusive licence to Dodgers games for $8.35bn over 25 years. The deal created a new Dodgers dedicated channel called SportsNet LA. The agreement did not set out the terms upon which TWC was to provide access to the channel through other Pay-TV providers (e.g. DirectTV), and when the other providers were not willing to pay the premium price demanded by TWC to carry SportsNet LA, it meant the network would only be available to customers of TWC, being a small percentage of LA Dodgers fans.

Structure of competition and impact on broadcast revenues

Sports appealing to their broadcast audience in order to increase the licence fees on offer can have an effect on the structure of a competition itself. While it remains a serious philosophical question whether it is right for media demands to influence a sport, unfortunately it is a commercial reality for our sporting bodies today.

Cricket is a prime example. After calls for changes to the international game being voiced for many years, the ICC are now working to finalise proposals that would mean a huge shake up for Cricket's international competition structure.

"This re-structuring of international cricket should be about providing a better sporting product for fans, players and broadcasters", FICA executive chairman – Tony Irish.

The new proposals envisage leagues for each of Twenty/20, ODI and Test match formats of the game. The ICC intends to pool the television rights for all 3 formats of the international game, which would mean richer cricket boards (ECB, BCCI and Cricket Australia for example) would subsidise the weaker countries, such as Afghanistan.

Members would benefit from better television rights deals in overseas markets, while retaining the right to sell broadcast rights in its own country. "Each board will continue to sell rights for its home territory and avail of those profits entirely as is already the case. But each board will place the rights to telecast its home series in overseas markets in a common pool into which other boards will also put those rights". (ICC News - espncricinfo.com) The pool of rights will be sold together in 'bundles' and profits from the worldwide distribution will be distributed between the contributing boards in certain percentages.

To pool or not to pool - legal issues in pooling rights

Pooling rights is common among our sports associations. Pooling broadcast rights and selling as a bundle to broadcasters increases the rights holders' bargaining power, often fetching a higher price overall. Super Rugby and the Rugby Championship's broadcast rights are both pooled under SANZAR with revenues then apportioned between the relevant national bodies. Between Super Rugby, All Blacks tests and the Mitre 10 Cup, NZ Rugby reportedly receives about $70 million per season in broadcast revenues. Benefits of pooling and sharing revenues include maintaining a competitive balance among clubs and the sharing of costs associated with negotiating broadcast deals with various broadcasters.

However pooling rights in the broadcast market does raise antitrust and competition issues. In the United States, the Sports Broadcasting Act 1961 (SBA) was passed in response to a court decision ruling that the NFL's pooled broadcast rights negotiations violated US antitrust laws. The SBA permits certain collective broadcasting agreements among major professional sports leagues in the US. In New Zealand "there are no statutory provisions permitting professional leagues or federations to sell television rights to games of their respective member teams as a pooled package without violating its competition laws". (International Sports Law and Business, Aaron Wise and Bruce Meyer) To date, however, there has been no challenge to the practice of pooling sports broadcast rights in NZ courts.

Anti-siphoning regulations

While anti-siphoning regulations do not currently exist in New Zealand, the recent Rio Olympics has re-ignited the political conversation, with NZ First campaigning for laws similar to Australia and United Kingdom to be introduced here.

The Australian Broadcasting Services Act 1992 essentially provides a right of first refusal to free-to-air broadcasters for certain significant sporting events' broadcast rights. Events listed in Australia include the Olympics, Australian Open and State of Origin.

In the UK, the Broadcasting Act 1996 grants the Secretary of State for Culture, Media and Sport the power to draw up a list of sporting events of national interest. The listed events are grouped into two categories of importance. "For Group A events, full live coverage must be offered to the free-to-air channels that are received by at least 95% of the UK population". Group A covers the FA Cup Final, Wimbledon, Rugby World Cup and the Olympic Games. "Group B events may have live coverage on subscription television provided that secondary coverage is offered to free-to-air broadcasters". Group B includes Six Nations rugby, the Ryder Cup, and cricket test matches played in England. (House of Commons, Briefing Paper Number 802, 8 April 2016)

Some argue that introducing anti-siphoning legislation in New Zealand would in fact have a negative effect on our sports. Kirsty Way, spokesperson for Sky NZ refers to the benefits of the current market, saying "many sports in this country rely on broadcast fees to sustain their organisations from the grassroots level through to high performance". There are competing public interests at play here, and if legislation is passed it will have a direct and significant impact on how our sports can sell broadcast rights and maximise revenue in the future. Multi-year broadcast licence agreements should already be including language that effectively covers off this possibility.

Black-out rules

Black-out rules are not used by New Zealand sporting bodies, however could potentially be considered in the future to encourage attendance at matches. Black-outs have been successful at increasing audience attendance at games for the Premier League in UK and Major League Baseball in the US.

New technologies, new opportunities and new threats

Recent innovation in media and technology has presented sports rights holders with both a massive challenge as well as great opportunities. A key concern for the sports broadcast market today is illegal streaming by unauthorised websites diluting the exclusivity of rights being paid for by broadcasters; how best to combat this issue is not yet clear. However, "Professional sports leagues should be able to capitalise on this new online market by controlling and receiving the benefits associated with broadcasting their games online". (Stephanie Horner, Marquette Sports Law Review)

Sports need to be pro-active both on the offensive, developing strong digital and interactive media offerings for fans, and on the defensive, monitoring, identifying and dealing with illegal streams being made available.

The sports broadcast rights market is ever-evolving and complex. There is a diverse range of interests influencing the market, and new legislation or further developments in technology could significant change the way the market performs. Stakeholders need to ensure that rights representation and licence agreements are comprehensive and clear while also being able to anticipate change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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