Centralization Of Sports Rights Part 2: Opportunities, Risks, And Regulatory Hurdles

In part 1 of this article, which describes the procedure for a proposed bundling of sports rights, we provided an initial overview and clarified which sports rights can reasonably be considered for centralization. In the next step, a sports organization must also ask itself whether the centralization project will bring corresponding sporting, strategic, and economic added value. In addition, the applicable regulatory framework must be taken into account.

Why Centralizing Sports Rights Can Make Sense

In addition to establishing existing rights, a further starting point from a strategic perspective is to clarify whether centralization would actually bring economic added value to the sport in question. This is initially only a business analysis of the potential of such a centralization project at the meta-level. This often takes place even before a sports organization examines in detail which rights it actually wants to centralize, so that it can later calculate the probable economic scenarios and business cases. Such considerations at the meta-level are also crucial, however, in order to prepare the line of argumentation for the numerous stakeholders whose rights would be affected by such a centralization project and to create a basis of understanding as a starting point for numerous necessary contract negotiations with them. For example, the following points should be considered in such an analysis:

1. The Centralized Whole Is More Than the Sum of Its Parts

Centralization can lead to a significant improvement in customer friendliness, both from a B2B perspective towards rights holders (such as sponsors, advertisers, or broadcasters), and from a B2C perspective towards end customers (i.e., the viewers of a sporting event). For rights holders, this is mainly reflected in the fact that they ultimately only have one central point of contact and do not have to purchase scattered rights in different markets with different rights packages at different conditions (and so on).

As long as sports rights are scattered among various rights holders for marketing or other usage, there can be a considerable competitive disadvantage compared to sports or entertainment platforms that are uniformly organized. This, in turn, can lead to sales losses, as the rights holders are unwilling to take on the effort of negotiating with numerous/various rights holders in order to ultimately offer their own customers a uniform product that the rights holders can also use for effective branding and communication measures. Such dynamics with fragmented sports rights can harm all stakeholders and the sport in question as a whole, as they lose out on potential revenue. Conversely, centralization can lead to increased overall revenue precisely because of these effects. For example, it is no secret that exclusive sports content sometimes yields the best returns on advertising spend, as sporting events are one of the last entertainment formats that consumers still actually watch live.

In addition, the uniformity of the design and implementation of competitions, leagues, and other sporting events or marketing makes the sport more understandable for the audience: The presentation and quality of sporting events and their marketing is more consistent, and the sport can more easily build its own, easily understandable brand, tell stories of the athletes and other actors across platforms, create suspense across all sporting events within a sport, and thus attract more attention from the audience in competition with other entertainment offerings.

2. Those Who Organize the Sport Also Have More Flexibility and Potential in the Marketing

Normally, the higher-level sports organizations (such as international sports federations) have the authority and the possibility to structure their sport, for example, by changing competition rules to increase its appeal, setting the seasons, or defining the overall competition calendar. When sports rights are held by a central body that is also the regulator of its sport, the opportunity arises to structure the sport in such a way as to respond to the needs of the main funders (in particular the acquirers of media rights, sponsors, advertisers, and viewers) in a more targeted, effective, and flexible manner. When sports rights are scattered, the higher-level sports organization finds it hard to influence the structure of its sport effectively in a way that ultimately offers added value for all markets, as they may have entered into different commitments with their funders. A higher-level sports organization, on the other hand, can create more commercial marketing opportunities through targeted structuring and offer these according to the needs of the buyers, for example, by flexibly bundling and exploiting different competition formats or inpidual disciplines of a sport in the way that makes the most economic sense.

3. Centralization Can Lead to Uniform Use of Sports Rights

Centralization can standardize sports rights or structure them in such a way that sports rights can be uniformly distributed and used equally (or at least similarly) across the entire sport or league. This has the advantage that all stakeholders involved in the sports rights of a sport or sports league then have the same conditions. For example, holders of media rights regularly reserve certain rights for themselves when marketing and granting such rights to third parties, which the holder can then continue to use despite the marketing (so-called "reserved rights").

If a sports organization, despite granting media rights to a (host) broadcaster, reserves rights for itself or for its event organizers, sponsors, or athletes to use the produced signal (for example, near-live or for subsequent use), and the use is identical at all international venues, there is worldwide clarity about the use of such reserved rights. Therefore, if the reserved rights are uniformly designed worldwide, i.e., if stakeholders such as event organizers, sponsors, or athletes are granted reserved rights (which allows them to use images from the TV signal on their own platforms for a certain maximum duration after a certain embargo period), even though the sports organization has granted the media rights to a broadcaster for a territory, there are no questions or unnecessary complications regarding geo-blocking. If, on the other hand, inpidual stakeholders do not have such reserved rights in certain territories but do in others, this can result in insurmountable hurdles to the use of these reserved rights (for example, if certain social media platforms do not allow geo-blocking at all).

4. Centralization Can Expand Commercialization Opportunities and Utilisation for the Sport

Finally, it should be pointed out that there is a growing trend towards more and more sports building central digital platforms that provide fans worldwide with bundled and personalized additional information on sporting events via various applications and that offer sports organizations new valuable opportunities to use and analyze all kinds of performance data (for the purpose of improving their own performance or for scouting). This applies to areas such as marketing/fan engagement, as viewer statistics, ticketing, etc., as well as the area of sports performance, where such platforms can provide helpful data to elite sports. However, such centralized digital platforms across an entire sport, league or competition series are only possible if the necessary sports rights are held centrally. In addition, such digital platforms regularly also enable the creation of an (intelligent) archive, which allows for the subsequent licensing of sports rights; for example, for advertisers (e.g., Raiffeisen wants action images of Marco Odermatt's jump at the Hundschopf section of the Lauberhorn downhill ski race for a TV spot) or for the implementation of film projects and documentaries such as the Netflix series "Drive to Survive" about Formula 1.

Especially if a sports organization wants to retain control over the data derived from a TV signal (e.g., statistics, sports analyses) or use this TV signal for sporting or other purposes (e.g., in connection with applications), such an undertaking would probably only be feasible across different sports or leagues through centralization. In addition, a sports organization must ensure here that it reserves these usage options when contractually granting media rights to broadcasters or other exploiters (e.g., by means of carve-out).

What are the Risks and Dangers of a Centralization Project?

Contrary to the points listed above, which can speak in favor of centralization, a sports organization must always ask itself what risks are associated with such centralization. In addition to legal risks, it is also necessary to assess how much effort will be involved, whether the current rights holders are likely to be convinced of such a project, and from which quarters opposition could arise, which could ultimately make the attempt to implement centralization impossible or only possible with unreasonable and disproportionate effort.

In any case, the effort involved in such a project should not be underestimated. In particular, at the beginning, a wide variety of stakeholders, some of whom themselves hold relevant rights (such as the subordinate sports organizations and their bodies, event organizers, broadcasters, sponsors, or agencies in various countries), must be convinced, whereby each of these stakeholders must somehow be better off as a result of the subsequent contract negotiations to bring about such centralization based on their interests compared to the status quo (otherwise such a project can quickly lose interest for them). It is important for a sports organization wishing to centralize rights to determine which rights-holding stakeholders in the ecosystem of a sport or league are particularly crucial. If these rights are secured or these key players are at least behind such a project, further negotiations will also be easier.

The Special Position of Sports Organizations: Regulatory Restrictions

When assessing whether centralization of sports rights makes sense, regulatory requirements must be taken into account in addition to the above considerations.

The main focus here is on antitrust considerations, because higher-level sports organizations with centralized sports rights quickly become the sole provider of these rights in their sport on the market. The antitrust provisions apply to all economic competition and sport is not excluded from their scope. For example, international sports federations are also considered undertakings within the meaning of antitrust law. In addition, international sports federations often fall under the competition law of the EU or other regions of the world, as they engage in cross-border marketing, among other things.

A wide variety of antitrust-relevant issues can arise: The exploitation of media and sponsorship rights, for example, almost invariably involves exclusivity agreements (with regard to territories and media) (whereby such exclusivity agreements are not per se unlawful, but the validity of such agreements must be clarified on a case-by-case basis). It must also be borne in mind that centralized marketing can standardize prices (whereas they varied between subordinate sports organizations when the market was fragmented) and that the centralization of rights in a single higher-level sports organization can constitute a dominant position relevant under antitrust law. At the same time, European practice and case law have established that due to the special characteristics of sport, certain restrictions on competition are permissible provided that they are essential for achieving legitimate sporting objectives.

In any case, it is advisable to carry out a corresponding antitrust assessment at the beginning of a centralization project and to document it. This is crucial insofar as not only the sports organizations and persons involved can be sanctioned, but also the contracts concluded within the framework of centralization can be rendered wholly or partially void if their content is contrary to antitrust law. Further regulatory requirements should also be taken into account within the framework of such an assessment, especially since media law restrictions in particular can be relevant to a centralization project, and restrictions under personality rights and those prescribed by higher-level sports regulations must also be observed.

In one of our next articles, we will discuss how to further advance the process of a centralization project and what concrete steps a sports organization involved in such a project should consider and implement.