Unofficial Partner Podcast
Unofficial Partner Podcast
UP451 Media Strategy Masterclass: The Art and Science of the Auction
Media rights auctions are the moment when the question of 'What’s sport worth?' is asked and answered; the point at which the talk becomes real; where fortunes are been spent, won and lost, psychology meets money. The auction gives us a glimpse of a different future, that may or may not be the direction of travel for everyone else in the marketplace.
What makes this imperfect process more intriguing is that the basic return on investment equation is shifting in real time. The players in the game are not just a handful of traditional sports media companies. They are also the new breed of entertainment streamers, online retailers, mobile phone manufacturers or private equity firms. How does their presence around the table shift the fundamental question - what is sport worth?
We’ve got three strategy experts from Altman Solon, a global consultancy specializing in Technology, Media and Telecom, to provide an inside look at the media auction process, exploring its flaws and opportunities.
Joining us today are:
David Dellea, Partner at the Zurich office and leader of Altman Solon’s Sports Practice. David previously headed PwC’s sports practice
Pascal Stefan, Principal at the Munich office, formerly Head of Strategy at DAZN.
Davide Tesoro Tess, Senior Advisor for Altman Solon based in Milan, and formerly Executive Vice President for Strategy at Sky Italia.
Altman Solon’s recently published the 2024 Sports Survey—a series of five in-depth publications exploring the state of the sports media business and revealing what consumers and industry executives envision for the future. The publication can be downloaded here
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Hello. Thanks for listening to Unofficial Partner, the sports business podcast. I'm Richard Gillis. You could argue that the history of the sports business is really the history of media rights auctions. Those moments when the question of what sport worth is asked and answered. It's the point at which the talk becomes real, where strategy shifts to execution fortunes have been spent and won and lost psychology meets money. Giving a glimpse of a different future that may or may not be the direction of travel for everyone else in the market place. What makes this imperfect process more intriguing? Is that the basic return on investment equation? Is shifting in real time. The players in the game today are not just a handful of traditional sports media companies. They're also a new breed of entertainment, streamers, online retailers, mobile phone manufacturers, or private equity firms. How does their presence around the table shift the fundamental question of what sport worth we've got three people with deep media strategy expertise. From Altman Solange, global telecom media and technology consultancy to take us inside the media auction process. and to ask What is strategy today in the sports marketplace?
Davide Tesoro Tess:It is always more comfortable for a CEO to find 10 million of cost cutting. Then to re engineer a whole value proposition to accommodate the fact you've lost a big sport that historically held,
Richard Gillis, Unofficial Partner :right?
Davide Tesoro Tess:so the gravity, while the theory and the science and the numbers pull values generally downwards, tends to assume that bidders are very rational and pull value down and keep profit. From the buyer's perspective, it's the other way around. The gravity is always, let's put 5 million more or 10 million more. I'd rather overspend by 5 than lose it for 5
So joining us today are David Delea partner is Yurik office. Leader of almond Solange sports practice. He was previously headed PWCs sports practice. Pascal Stefan principle at the Munich office, formerly head of strategy at disown and David de Tesoro. A sorrow tests senior advisor based in Milan and formerly executive vice president for strategy at sky Italia. Altman's. So lawns recently published 20, 24 sports surveys, a series of five in-depth publications, exploring the state of the sports media business. Is available to download. I'll put a link in the show notes to that for you.
Richard Gillis, Unofficial Partner :So I want to, first of all, welcome everyone. And I want to get your voices on tape so just give us a name and a what you do all day. And we'll start with David Day.
Davide Tesoro Tess:Yeah, so hi everyone. I am currently a senior advisor to Altman Solon and independently, uh, and I advise sort of media companies, investors around the tech and media space. And of course, in the case of sports uh, sporting institutions as well. Prior to that I was at Sky and spent a decade in the sort of strategy business development partnerships and distribution. Which has kind of led me into my portfolio career today. And at that time, I, in the case of sports, I would everything from sports rights strategy to bidding strategies and tactics in auction negotiations, all the way through acquiring the rights. And then post acquisition would be about monetization of SKY's Sports rights on third party platforms and aggregation of other third party sports rights on the sky platform. Right. So that's going all the way through this whole supply chain, the value chain, you're going from start to end there.
Richard Gillis, Unofficial Partner :Is that unusual
Davide Tesoro Tess:It's not unusual that in sort of the former pay TV space, uh, you'd typically have definitely at the skies, you'd have, People like me and colleagues of mine across the Sky Territories running through that or coordinating all of that. I'll just add being a decade from 2012 to 2022, uh, it also spans a very interesting time in the kind of sports media space. You know, when I joined, uh, Netflix had just crossed 25 million customers in the U. S. and 30 million globally and growth in streaming. Just offset declining DVD for those that don't know what that was. And of course, you know, the threats to satellite, which was, that was sky at the time was really about digital terrestrial and telcos, you know, fast forward 10 years, it's all about, it's all about streaming. And that, that's true for both the skies and the streamers of this world.
Richard Gillis, Unofficial Partner :So you weren't quite working in the blockbusters shop, but you're, you're nearly there you're, you're, you're towards the earlier days of Netflix.
Davide Tesoro Tess:No, completely. And arguably many people at the time thought that satellite pay TV would be in the same place as Blockbuster in terms of where the future held for them. And arguably it's done much better than that.
Richard Gillis, Unofficial Partner :Right. We're going to get into loads in that. That's a, there's a, there's a load in there. Pascal, same question to you really. Just give us a bit of what do you do all day?
Pascal Stefan:Hi everyone, I'm Pascal. I'm a principal for, for Altman Solon based out of Munich. I am a project leader for Altman Solon. So basically what I do Dave today is I help solving problems for clients. that are from the media or the sports industries. And they also help investors in trying to make better decisions in investing into those industries. So basically, the projects I do that can be from various characters, i. e. it can be from maximizing customer value to trying to come up with new, monetization strategies, looking into product development, looking into auction strategies. We might want to go into that later on as well.
Richard Gillis, Unofficial Partner :We will.
Pascal Stefan:Perfect. Looking into performance improvement, churn improvement new target operating models, due diligence, 100 day programs, that's all projects that I've done over the last 12 months, probably. And prior to that, I have been heading the strategy department for the zone, the zone across the German speaking countries. And I've done that during 2021 and 2022. So also very exciting times, although that was past the DVD times quite,
Richard Gillis, Unofficial Partner :Live in interesting times, someone clever once said, didn't they? So that's, uh, you know right. Thank you. So we've got Dazon and Sky already. We're, we're, we're going through some big names. David I come to you last because I know you best. And obviously we met. At we did a an event. He very kindly did a turn on stage for us at, uh, Amazon's headquarters in, there's another big name in London in, in the, uh, headquarters there. And that was with Stream AMG. And I think the link initially was Hugo Sharman, who was CEO of Stream AMG. And that was who we collaborated with on that, that event. I know you from PWC. That was you and now you're at Altman Solo. Just give us the same question really about what you do all
David Dellea, Altman Solon:Yeah, so my name is David indeed. So based out of Zurich, I'm a partner and I'm leading the sports practice for Old Man Solon. And as Davide was reflecting back on, on history, right? So I was thinking, when did I do my first project in sports? And I think this back to 2004. So I'm, I think some, some would argue probably a dinosaur. Anyway, so.
Richard Gillis, Unofficial Partner :We use the word veteran David, we don't use, we don't, you know, we don't use dinosaur.
David Dellea, Altman Solon:a better way. to put it. Anyway, so I, I've worked on sports indeed since then. So quite, uh, you know, nearly, you know, 20 plus years, right? Of which actually 10 years at PWC, to your point, where I was leading their sports practice. And since 2022, joined Altman Solo. Now, what I do all day is basically We're really working, uh, across, across the board within the sports industry, mostly with rights owners, right? Media companies, but then also with investors, right? And indeed, to the point mentioned by, uh, Pascal and Davide before, with rights owners and media company, we're really trying to address some of the most critical issues. C level questions or board level questions that they're facing, right? So how should we position going forward? You know, what do we, what do we need to have to succeed, right? What are new revenue streams we need to explore? How to sell to whom? B2C, B2B. So these are some of the most important questions we're trying to answer. Then when we go to the other side, I would say of the finance equation, and we look at, uh, then investors there, we help them mostly uh, kind of. Take advantage of the disruption that is happening in the sports media value chain and try to pick right The winners I would say within the the sports media value chain to deploy capital, right? So
Richard Gillis, Unofficial Partner :So would you, would you describe Altman Solo, is that a sort of boutique specialist consultancy?
David Dellea, Altman Solon:think we go yes and no, right? Yes, because Altman Sonu does nothing but telco media and technology So we are, so when we talk about sports media tech, right? Which is really the hot topic of the day. We're exactly at the crossroad of this, right? Okay. Now, are we a boutique? Maybe we no longer qualify as a boutique because we have 650 professionals worldwide, right? Of which about, less than than half. Here in Europe, we spend region from Mexico to Australia. So we are quite an articulated, uh, practice when it comes to TMT, indeed, right? And again, sports, uh, of course very broad topic, but fits from our perspective into our media play, right?
Richard Gillis, Unofficial Partner :So I'm interested in a couple of questions just before we get into specifics about sport. I'm interested in strategy as an idea, as a thing, and Because a lot of people have strategy in their job title, but I suspect there is, there are levels of strategy. And I want to get into what it is. Actually, there's a psychology of when you get a consultant in, when the consultancy is employed and what the hopes are. And there's a question in here about what's the difference between good and bad strategy. Because I find sometimes I think talking about strategy is, is more interesting than the actual execution of it. But what is it How do you define it? And what is the outcome? What do you, what do clients get?
David Dellea, Altman Solon:Well, if I just throw the first stone, right, so strategy is very much about navigating, uh, ambiguities at the top level, right, is when organizations are really facing tough decisions that really go at the core of how they're playing in the market. Right. And that is very, very, uh, it's a very tricky situation to be in. Right. And what we bring is an outside in perspective on how to read the signs in the market effectively. Right. That means generating insights out of it, not just saying what is happening, but what does this mean for you? Right. And really kind of work across this, I would say, Trinity. of understanding exactly how you should play in the market. How should you be positioned, right? This is not, uh, it doesn't go at operations level. It's really, really from a broader positioning perspective. How are you adding value? How are you generating value in the market? That's number one. Number two is all about understanding what it takes for you to succeed in that position. which is basically what type of assets, capabilities, what do you need to be absolutely great at, right? To make a difference in the market. And last but not least, then third point, what type of product and services ultimately do you manifest if you want this positioning and this capability? So it sounds very conceptual. Okay. But, uh, I I've done. Strategy work over my career from the World Anti Doping Agency to leagues, clubs, across the board. Okay. And, uh, anchoring the discussion of the strategic level always works. And it's always very, very impactful because you go at the heart of how an organization is operating. Right.
Richard Gillis, Unofficial Partner :Davide, yes.
Davide Tesoro Tess:Yeah, just as you mentioned, sort of strategy and job titles. I've had that in my job title for a decade, and I'm now an advisor for Mansolo, and I was also a consultant and a strategy consultant prior to Sky. So I feel. Kind of very relevant to your, to your question. I would just add one thing, I think, to what David said, which I subscribe to, which is a strategy without execution is just a hallucination. So, so ultimately the strategy that works for a particular client or for a particular organization is a strategy that A delivers on its objectives, but B actually happens. And as, as advisors, it's always about striking the balance between being bold enough to make a difference. A strategy that just is continuity, uh, especially in the sports media space these days, just takes you straight to irrelevance. And at the same time, something that is too ambitious or too bold for that particular organization at that particular point in time is all will just be a hallucination, which will never happen. So it's really about striking the balance between those two and finding the right balance. And a lot of it, of course, is to do with the consultant and the consultant. Understanding the client and the issue well, and a lot of that, of course, will also be the client being ready to embrace change and drive change throughout its own organization. And that's kind of the secret sauce for success for a good strategic project these days.
Pascal Stefan:I do think strategy can mean different things at different times and in different situations. So to me, it can be as simple as coming up then, because Davide, you mentioned execution, which can, is very much linked to strategy in the first place, right? But it can be part of strategy can be as, as simple as finding a hack. that the client or the customer has never thought of just because he's so much into his own world, into his own bubble, thinking about how things have been done for the last 10 years, that sometimes just bringing in an outside in perspective helps you discovering a small little hack that you haven't thought about, just because there's someone looking at it with a very unbiased view. Strategy can also be about prioritization, right? So rather focusing on The top three things that you should be looking into with the capabilities, as David mentioned earlier, that you have, rather than trying to do 15 different things at a time and coming up with all these cool, fancy new things, really looking at what you're good at and then focus on stuff. That's also what, but usually where you, people can need guidance and
Richard Gillis, Unofficial Partner :That's a good point, Pascal, because actually quite often people say it's about what you say no to. And what are the limits of the organization? And I think there's a question I've got, which is about, we get a lot of people on here coming from rights holders. So, you know, it could be a football association, or it could be a football club. And one of the questions they've got is what are we now, fundamentally? And what do we want to be? How are we going to take what we see out there in the environment of media content? We are a content house. We're a media company now. We're an entertainment company now. So there's a sort of a redefinition or we're a sort of mini Amazon. There's a, we've got a fan base, which we can then, we're not utilizing or not monetizing as effectively as we could, not servicing them. So let's go. Spend money. And all of it is an opportunity cost question of where do we spend money? Where do we spend resources, our time thinking about, because that's where we're going. And quite often when I look at governing bodies, I see, well, actually there's quite a lot of mission creep here. I look at FIFA. I look at the FA because I'm in England and I'm wondering the FA's mantra is for all. And I wonder, and we've had Mark Bullingham on here as the chief executive and the question we had talked to him about was where the FA stops, because actually you can. Do everything. It's like, I know I've, we, we had Tracy Crouch, sports minister on who said there isn't a social problem that sport can't solve. Now, if you go in with that mentality, the role of a governing body or a sports rights holder, you see it with FIFA. It's becoming enormous. We're going to save the world through football. That feels like bad strategy. Does anything, Davide, what do you think?
Davide Tesoro Tess:So, so, so I would say it is true that sports is a very broad term that can, expand or be expanded to embrace many different things. I think the question there is really sort of, there's three aspects to it. One is what do you want it to be, whether you're FIFA Formula One? You know, what do you see yourself at? Do you see yourself as a profit maximizing entity? Do you see yourself as a force for good? Uh, you know, what's, what's your purpose? And ultimately strategy always starts from purpose. And, and different sports entities, you know, I'm mentioning, you know, FIFA or the FA or Formula One, as three entities that arguably see for themselves very different roles in society and, and for the sport. And they're all legitimate. As long as they're stated and then they're pursued and strategy wise are pursued relentlessly. Now, of course, there's a second aspect in terms of what some of these entities can't do. And that's all to do with the regulatory constraints and the recent rulings that will set some constraints. In what they do or in how they do it, and of course, they have to be mindful of that. I think importantly, it's really about what they shouldn't be doing as much as what they should be doing. B2C, for example, as one of the things that a lot of sports entities have arguably embraced or argued or pursued in some cases. Uh, in the last few years. And that, for example, has not generally, gone well. There's obviously there's exceptions to that, but you know, the big ambitions that some of these entities had has not translated. That's really because they were going into places and doing things that they didn't quite know what was, what it was about. What is this that we're trying to do? And what were the complexities involved in doing this? They just vastly underestimated the complexity. and arguably vastly overestimated the, the, the opportunity.
Richard Gillis, Unofficial Partner :if you bring that back to your world of sports media you then get to should we have our own channel? There's an OTT question there. It feels like that's a microcosm of the bigger question, I guess. David, what do you think?
David Dellea, Altman Solon:100%. I was reflecting back and, indeed, when you, when you think of a federation or a governing body, right? There is already a significant stretch within the core mission that such an organization is covering, right? They need to govern the sport, right? So there is a regulatory role. They need to develop the sports or invest or, you know, get more participants or looks more at the base of the pyramid. They need to organize events. That's the pinnacle, right? And they need to commercialize those, right? So now from a commercialization perspective, so within this context, if you really want to focus on on the core, right? I think the focus is traditionally always been on the product, right? The event per se, And the core impact on the product is to Govern it, I mean creating the rules of the game, and then of course to organize the event and make it extremely attractive to, fans, right? And then, typically, the commercialization, uh, at the wholesale, yes, done, but then at the retail sale, done elsewhere. Now, here we're going in retail. Right? We're going to your point about a channel, right? And again, to the point of Davide, the complexity have been, underestimated. saying we're becoming a media company has become a very, very simplistic buzzword that people don't really fully capture. Right? I think that specifically we need to remember that a lot of rights owners actually occupy. I would say a near monopolistic situation within a specific market.
Richard Gillis, Unofficial Partner :Hmm.
David Dellea, Altman Solon:To be able to operate as such, you need to have a level of social support that is, uh, is not the same as a normal private company would operate with, right? The level of engagement with stakeholders, you need to have to have that legitimacy to occupy that space is not the same. And that doesn't bode well with a level of agility. Right. That is often required into going not only be to going retail, right, and taking that level of decisions on a day to day basis, right? So that's where it's very difficult. And that's where, of course, and a lot of these entities then are deciding to carve out a lot of their commercial operations. into separate entity, separate governance, separate decision making. That's where then the whole PE discussion also comes along, right? So that's why, yes, one can have, so again, to go back to your original question, yes, one can have ambitions to be able to go more retail, right? And take, become more of a media company, but that also then commands different capabilities and assets, to my point at the very start, and different governance to be able to do that successfully.
Richard Gillis, Unofficial Partner :it. So when you're then saying about what we are, These things evolve and they don't evolve in a vacuum, but there is a fashion sometimes to strategies. And again, you hear, we are an entertainment company. We are we're, we're redefining ourselves and that bifurcation of the commercial and the governance. Question. I think he's really interesting because we're in the middle of that at the moment. We're seeing, that happening. That's the sort of strategy du jour. I'm wondering if I take you back, let's, let's talk about, let's go back a bit. I wonder what, we've got some big names on the podcast. You know, we've got the Skies and DaZones and, and we'll talk about Netflix in a minute. I wonder what strategy was, in terms of what the ambitions were when you were working at Sky Order Zone or and how those evolved, because I think it's sometimes interesting to see you get to, well, what were they trying to do in 2012? And. Did they get there? Does it matter if they got there or not? Is it just a question of you need some direction? Doesn't, you know, it's in the ballpark, but the accuracy of it we can overplay. It's not a, bet. It's more a sort of evolving subject. Pascal, I'm just wondering about what, when your period at DAZN is a really fascinating one. You say, you know, it was a very interesting time and effectively a startup. So I'm just wondering what, what strategy meant back then.
Pascal Stefan:Yeah, so I'm still in my thirties, so I'm not going to talk about 20, 2012. I'll leave, I'll leave that
Richard Gillis, Unofficial Partner :You're just, you're just showing off now.
Pascal Stefan:I like to be in this group because it makes me feel younger
Richard Gillis, Unofficial Partner :Yeah. Yeah. Yeah.
Pascal Stefan:Uh, no, but, but overall, I think what we, what we should not be forgetting is that while we talk a lot about entertainment and basically all the stories that also make a company such as Sky and the Zone attractive for the future in. in. its heart and in its core, it is still a content distribution platform. And I think that's also, uh, something that companies like, like these had to understand in the first place. So I think with OTT and everything coming up, well, frankly, at the very beginning of OTT, it hasn't been much different to what pay TV has been doing for the last 10, 15, 20, 30 years. I'm even inclined to say. OTT has learned from pay TV because if you try to do a lot of different things differently, but has learned, all right, if we need to monetize and make things profitable, there's a few things we can actually learn from the skies in the past, for example, if you look at the things that the OTT platforms have done. Recently, look at initiatives on account sharing, not a new concept, has been done in the pay to view world in the past because one household, one subscription, right? If you look at all the initiatives in advertising, if you look at localization efforts into pricing initiatives, there's a lot of, I think, things where And also the digital first companies have actually realized, oh wow, there is stuff that wasn't wrong in the past and will not be wrong for the next 20 years, probably because in itself there is still it's still a media company. However, I think we're still at the very beginning of OTT, right? So there is, really fantasies and things that, and it's in my view, it's still very much in its infancy. And there is a lot of stuff that you can do, but in 2025, we're not even there yet. So there's, there's a lot of, I think, innovation and bright future out there, but it's It's still very much in its infancy, and I think the, the typical mistakes you do in strategy, I'm not sure, like, Davide, if you agree, but I do think they, they haven't changed much in the last 15 or 20 years. Companies have been changing. overvaluing rights from time to time and it's going to happen again. They have things like these happen and things like these influence strategy and influence auction bidding and all kinds of stuff. So therefore, although the times are evolving so rapidly, it's, it's interesting to see how patterns actually repeat itself and how challenges are different, but then same, the same time.
Richard Gillis, Unofficial Partner :So we're not being rude, Davide, but you've seen more history than Pascal. That's, that's a nice way of putting it.
Davide Tesoro Tess:No, I was going to say, I am a different demographic as a consumer and also a different demographic in terms of tenure in the industry. Uh, and also worked for arguably what was the What the zone at the time saw as the legacy business were people around, not necessarily speaking for the zone itself, but people in the industry were seeing the skies or the canal pluses of this world as the kind of the incumbents and the legacy businesses and the streamers like the zone as the challengers and opportunities. So, yes,
Pascal Stefan:you a lot of credit for the
Davide Tesoro Tess:take your point. And yes, I was. What Pascal was saying definitely resonates from my perspective as well. So on one side, go back to your question. I would argue in the territories where it operates, Sky kind of created the sports pay TV space. You know, starting from the Premier League back in the 90s in the UK, but similarly in the UK. In, in Italy and arguably in Germany, it saved the sport when local pay TVs collapsed and the Murdoch's came in. And, and initially, uh, it was really about offering to consumers and to fans something that was not available before and charging for it. And that was a very win win win situation where consumers got something they didn't have and that they valued and they were prepared to pay for. Rights holders got more money and more funding for their missions and institutional role. And of course, not in the early days, but over time, Sky created a profit pool out of that as well for its shareholders. So everybody was happy in that ecosystem. I think the next phase is when people realized that that was the case. Pretty much everybody, from rights holders to challengers, Uh, started to believe that sports was good business. Now, I'm talking about Europe here specifically. If you have listeners in the U. S., it would be a completely different story there, of course, in terms of history. Uh, but talk about Europe. So suddenly you have all these challenges, whether it was digital terrestrials in the noughties, or the streamers like The Zone in the 2010s. You know, the telcos obviously at some point in between as well. They kind of all came into there, and to Pascal's point, If Sky is paying a hundred euros or pounds for that particular right, you know, and it's making a profit, we can, we can bid 110 or 120. And, and we'll, we'll maybe we won't make a profit on that particular standalone part of the business, but we've got other businesses or other roles or other objectives that we can then monetize. And arguably that made sports rights really expensive. And I would argue there are very, very few sports rights. Uh, or, you know, big sports rights that are profitable for anybody in the industry in the last 10 or 15 years. And from a, from a SCI or an incumbent perspective, uh, it was really about retaining, back to the point of purpose, and, and, you know, SCI saw itself as the home of sports. Partly because that's what it was from its infancy, and it really tried to retain that role in the ecosystem and in terms of its proposition. But that didn't mean winning all the sports all the time, but it did mean, going back to your strategy question, you know, how do we deploy our resources?
Richard Gillis, Unofficial Partner :Yeah. Hmm.
Davide Tesoro Tess:What do we buy? What do we bid all the way up to maximum? What we bid slightly more opportunistically on and what we accept we may lose because we can't have everything and other people are out there that will take rights away from us or
Richard Gillis, Unofficial Partner :That's a, yeah, that's a fascinating question. So And I'm guessing this is me projecting onto your point there about how few genuinely profitable sports rights there are. I'm thinking Premier League in this country where I'm sitting here in the UK. Yeah. NFL in the States, IPL in India. There are that you're talking about that group of sports. I'm I always under, I, I always, there's a, there's a sort of question about below that level and can you build a platform around rugby cricket? Again, this is a very UK centric perspective, boxing, formula one. What's the strategy when you get to that point?
Davide Tesoro Tess:So at that point you mentioned something before, which I think is relevant to this part of the conversation, which is a very opaque space. Uh, it is, it is doable by, by, by no means, I mean, Pascal was referring to this before, by no means a science. But you can arguably value a particular big right, whether it's Premier League or NFL or Formula One in Europe with some degree of precision and say, you know, this particular sports right is worth 100 euros or pounds or dollars to me, or more or less. Now you'll get it wrong to Pascal's point earlier, but with a fair degree of approximation, you can kind of, when you go to the slightly below that, it's really, really hard. To put a value as, as a bidder. So as a Sky or as a media company, it's, it's, it becomes a lot harder. For two reasons. One is there's a smaller pool of fans and it's more difficult to understand who they are and what actually drives them. Nobody, very, very few people really subscribe to a service for one reason.
Richard Gillis, Unofficial Partner :Hmm.
Davide Tesoro Tess:Very, very few people just subscribe just for the football or just for the rugby or just for the shows or just for the movies. Uh, so, so it's really hard to put a value on that and that's kind of the, on the media side, if you're a sports entity in cricket or in golf or in boxing, it is really hard to want to discern how much of the value that media companies provide you in terms of license fees, how much of that is a function of how you are intrinsically worth and how much of that is how well, how good they are at monetizing your sport or your events.
Richard Gillis, Unofficial Partner :Hmm.
Davide Tesoro Tess:they're not very talked about because nobody likes to talk about the failures and that's works both in the media side on the sports side. But, you know, there's been a lot of sports that have peaked at some point with a lot of interest. And then just completely disappeared from radio screens.
Richard Gillis, Unofficial Partner :Yeah.
Davide Tesoro Tess:typically peaked when a big media company picked up the right and promoted those events to its customers. That often led the right holder or the organizer to think its sport was really popular, intrinsically.
Richard Gillis, Unofficial Partner :Yes.
Davide Tesoro Tess:then moving across and saying, ah, now I'm really big. I want my rights to grow up. And if that didn't happen enough, it would go on its own. And more often than not, just disappearing.
David Dellea, Altman Solon:Hmm.
Richard Gillis, Unofficial Partner :Yeah. Yeah.
David Dellea, Altman Solon:And, uh, Richard, I was so as, as David was, was mentioning, so I think, I think it's important, I think your series on the bundle, right? I think it's, it's, spot on because that is really the term that has defined the sports industry's commercial model, right? Literally for decades, that is the way we, we went about business and that is being questioned now, right? So that's why now suddenly one, when we talk about value of, right, so the eternal question, what is the intrinsic value as if there was an objective value. No. Is it right? So something is going to be worth something completely different depending on the player because it's all about increment because you work within a bundle strategy, right? Everything is what is the addition? What does this right allow me to achieve that I am not already achieving with? the rest of the portfolio that I may have, right? And what comes first and next is extremely important from this perspective, right? So thinking about direct refinancing value is an interesting way, right? And of course, uh, and if you look at the, at the last, uh, last 10 years a lot of the direct refinancing, that means if you take the standalone run, you were just to ask for money for that, right? You're most likely underneath. right? The value that is being paid for the rights. And that is actually a fundamental question. As we move away from these massive bundles by telco, by pay providers, et cetera, right? We move into more transactional environment.
Richard Gillis, Unofficial Partner :Hmm.
David Dellea, Altman Solon:The question is that we have this kind of rights fee that is actually flattening and coming to the director of finance. That's a lot of the, I would say, pains that we're suffering from, uh, lately, right? Which is impacting, of course, the value of rights. And that's why I like your series on the bundle because it's really addressing it by name.
Richard Gillis, Unofficial Partner :Well, one of the questions I think of the last 10 years say is, the sort of OTT question there's a couple of things. One, lots of sports are finding out they didn't have as many fans as they thought they did. Because when push comes to shove, it turns out I'm not a rugby fan. I'm not a cricket fan. I'm not a golf fan. I love, I'd really like some of those sports, but I'm not going to pay a subscription for that. So what am I? There's that question. The other question, which the excitement around someone like Amazon has been from the sports industry is. Look, they found another excuse to make sport work, to pay the rights fee. We've all seen the numbers about prime subscriptions and sports relationship to it. And the more they get prime, the more money they make. Suddenly people were saying, actually, no, that's cracked open the question. So Davide's question there about, you know, what is the, what's the return for? And it goes back to Pascal saying, actually, it's still with, you know, essentially an IP licensing industry and people are looking at how you make money and what the return is on that. And the arbitrage in the industry is actually finding a return that you're happy with. Which you don't share, presumably the reason the information is opaque, Davide, is that people don't want to share on the, on the buy side, how they're measuring sport.
Davide Tesoro Tess:Of course. I think we're touching a crucial point which, which I'd like to sort of Stay on for a second, which is stepping back a second from the skies and the zones or the streamers and the satellites, but thinking about what, you know, purpose and strategy to your earlier question, ultimately, what I think every sports organization wants to do is twofold. One is to promote its sport, make it more popular, more enjoyable for fans. And of course, on the other side, they want to monetize it as effectively as they can. I don't know, whether it's for profit maximization or for reinvesting in their institutions and in their sports and their grassroots. I mean, that probably works for the vast majority of sports organizations. Now, for a second, the ecosystem and the value chain, just thinking about events on one side and fans on the other side, which is, you know, to Pascal's earlier point, is the thing that never changes. It's always some event being played somewhere and some fan watching it. Live or on television. Everything else is, is noise in terms of the mechanics and the industry and ecosystem. And in that context, bundling is really important. And I do stress that. It's important for one main reason. One is the main reason is If you have, in a very simple way, if you have a basic package, you know, the old satellite pay TV, uh, packaging, which I think is still arguably unsurpassed in terms of monetization and promotion, you've got like, say, 20 pounds or 20 euros for a basic pack and another 20 pounds or 20 euros for a sports pack in its simplest form. What that means is if you're a hardcore sports fan, that all, all is interested in is sports, your price point is effectively 40 pounds or 40 euros, and you will feel the old narrative of, but I'm paying all this content I never watch. That's okay, but you are prepared to pay 40 pounds or 40 euros to watch your favorite sports. However, if you've joined that pay TV service for a different reason, which it wasn't sports. And you're already paying that 20 pounds basic pack for you. The sports back only costs 20 pounds or 20 euros more. So suddenly you've actually segmented fans, hardcore fans, see a price point of 40 pounds or 40 euros, less hardcore fans, but who have a willingness and ability to pay, see a sports price point of only only 20.
Richard Gillis, Unofficial Partner :Yeah,
Davide Tesoro Tess:Now by doing that, you're, you're attracting both the hardcore fans and the less hardcore fans. Yeah. All of them in the same place. And you can cross promote. That allows you to monetize your fan base more effectively by segmenting them and it, and that's the benefit of course, of, of the media company that has more money to spend. And arguably with good auction strategies, it will give most of that money back to rights holders. It also gives an opportunity to cross promote sports. So whether, you know, to your earlier point, Richard I'm not that much of a rugby fan or not that much of a golf fan, but if you're on Sky Sports or on The Zone and for a different reason, and there is some golf on or some cricket on, you will happily see it and it will be valuable to you and to the end.
Richard Gillis, Unofficial Partner :yeah, yeah.
Davide Tesoro Tess:is really, really important at that. And what you see when you unbundle. And that's true for non sports as well as sports. That very quickly falls, falls apart. one place where you have unbundled is Italian football. Serie A has been historically on all available on arguably on two platforms, you know, Sky and Mediaset back in the days. It reached on a typical weekend, 6 million viewers and that's a combination of the bundling on the sky side, but also a competing non exclu, equal proposition on digital terrestrial, cheaper, arguably less quality, but catering to different segments. So 6 million people every weekend watching football. These days, it's all on DAZN, and it struggles to achieve 2 million.
Richard Gillis, Unofficial Partner :But they're watching it on TikTok or YouTube or that, that, you know, that casual viewership has migrated to the, to the platforms and they're not, it's monetizing that is the is the challenge.
Davide Tesoro Tess:I would argue it's a bit of both. There's different consumption patterns and different fans and different products that you need. I would also argue it's effectively priced at 40 pounds or 40 euros, which is what the DAZN price is. To watch all of it, you've actually lost the casual, less hardcore fans, who just find it too expensive for them watch.
Richard Gillis, Unofficial Partner :Let's take this bit of the conversation, push it into a specific question about The auction process and auction dynamics, which I think I'm, I'm fascinated by because I think it contains all of these strands of the conversation, the psychology and the, and the sort of history of the sports industry in many ways is a sort of history of auction dynamics and deals and people, you know, they bought that for that and whatever. Have we learned anything? Well, just take me through. What is the difference between a good and a bad? Well, what just, what are the dynamics at play during an auction? Cause you know, again, we talk, we go to, and this is a Premier League or they're very clever at creating a marketplace for themselves. The auction process was always, they are brilliant at that. Scudamore was a master at bringing people in at the right time. And there is a soft skills question. Psychology, empathy, customer relationships, blah, blah, blah. But then there's also the hard economics of it. So let's just unpick who wants to just come in on that? let's just take that as an idea.
Pascal Stefan:I'll start and then, and then I leave some room for you guys. I think the interest, like what gets me most excited about auctions, I agree with your view, and it's one of the most fascinating things out there in the industry. I think one of the most exciting things is It's never a perfect environment. You never just have, you know, a world where you have a bidder. That's the, the, the amount that the bidder can pay just by monetizing it through, uh, let's say, uh, their TV subscriptions or whatever it might be. It, it, it never is such a perfect environment. You always have, you always have unforeseeable events. You always, Davide mentioned it earlier, have this, all right, this is the value we have, but then we have. Let's call it subsidies. So we have cross financing opportunity. And, and I think this is where, because we were looking at history as well, where, because while I said some things never change, I think this is where there has been change because maybe back in the days it was more about, let's say monetization strategies have been very similar because media companies have been different in the details, but overall how they monetize content was probably more similar to the, let's call it entertainment industry that's, that's out there today. So I think the, the, And this is what, what sports league has always, have always profited from and are profiting from today. And I think that this is the biggest and most exciting challenge then for, for the time ahead is how do you create an auction where you tailor the needs to players that are very, very different, right? So an Amazon buys rights differently and is interested in different things than a zone or a sky, for example, how do you tailor those packages and those rights? while still making it competitive, right? Because you don't want to create the Amazon package that works perfectly for Amazon. So they pay the perfect price for them because they know this is all just for them and no one else would be able to pay that price. And I think this is the most exciting part for the future ahead. While there's always going to be these unforeseeable things, like I remember an auction where there was paid a ridiculous premium just because of investor and shareholder conversations that had nothing to do with the rights itself, which Then again, you never know from the outside in and the other party might've never known. So there was always this level of invisible things around an
Richard Gillis, Unofficial Partner :one of the great war stories is ISL and a TP tennis. I always think that's a really fascinating one. And you know, there were the bidding process that effectively. Took the company down because they thought someone was bidding against them. And IMG had stopped halfway through, you know, whoever you talk to, who was around at that time, and there must, you know, that's one that I always land on is why I'm always skeptical about the value of tennis, actually. I always think tennis is like a siren. People are people who every generation overpays for tennis is one of my, uh, one of my, uh, points, but. Let's just build on this then. So you both, David and Davide, what's your response to this question about the auction and the, the imperfectness of it?
Davide Tesoro Tess:So look, I think there's various levels of imperfectness. First level of imperfectness is, You get into an auction where somebody holds those rights and hopefully for the seller, somebody wants to take over or win some more. And at that point, that's the kind of the easiest part because the people that hold the rights have a view on how much money they're making out of those rights. Are we loss making? Are we profitable? And to what extent? And that kind of sets a number on some spreadsheet. Somewhere. And of course, the challengers or the other bids will also form a view of, of that. Now while there is some uncertainty there, you know, the cross financing ideas and how much that is worth and all that stuff that Pasco mentioned before, you kind of land in a reasonably conf confident kind of ballpark. You know, that's kind of the number or, or, or that is the, the size, you know, or the magnitude. And from then on, it really gets messy and it gets messy from a seller perspective, it's how do I create competition? Now, people think, oh, an auction, all these guys bidding for these rights. That is very, very rarely, if any, any time the case, there's typically, there's like two guys. know, when there's three, it's really strange,
Richard Gillis, Unofficial Partner :Party time,
Davide Tesoro Tess:Right. So how do you create competition between two people who have a huge incentive kind of not, not to be overly aggressive with each other on every single pack or on every single event? How do you create competition between them? And that's when the most successful right holders have been very good at, you know, Scott, you mentioned Scott about before but you know, I would argue even, uh, like Syria in the last cycle. In a very, very complicated downstream market, uh, did a really good job at, uh, being almost flat. You know, you compare that, you know, and Bundesliga, you know, also very complicated process in that case, also very good at that. So you shouldn't necessarily judge sellers from how much they increase. It may be how well they manage a very tough downstream market. So that's one area of opaqueness and complexity. The other one, of course, is that when you get to decisions around four pack A. Are we going to bid 50 million or 80 million or a hundred million? Now the numbers and the analysis and the research and all the models and the cross financing opportunities and all that science says that pack is worth a hundred million to you. So the CFO will say, we'll obviously need to bid less because otherwise, you know, if we're bidding a hundred, we're getting, we're paying away all our profit pool. What's the point? Now the CEO will typically, so the CMO or CCO, the Commercial Revenue guy will say, Oh, I'd rather, but if, if the risk is of losing, I'd rather spend 105 or 110.'cause there's all these other unmeasurable or unquantifiable or unquantified opportunities out there that we would lose if we lose this. But we should be willing to go a bit more. And the CEO will typically sympathize more with the revenue guy be because if you overpay, it is always more comfortable for a CEO to find 10 million of cost cutting. Then to re engineer a whole value proposition to accommodate the fact you've lost a big sport that historically held,
Richard Gillis, Unofficial Partner :right?
Davide Tesoro Tess:and that's kind of, so the gravity, while the theory and the science and the numbers pull values generally downwards, you know, as a seller market, it's a tough market, only two buyers, there's a science behind it. So all that kind of tends to assume that bidders are very rational and pull value down and create and keep profit. From the buyer's perspective, it's the other way around. The gravity is always, let's put 5 million more or 10 million more. I'd rather overspend by 5 than lose it for 5.
Pascal Stefan:also because there's always an emotional component to it. I think, I think the same level of emotion that sports triggers and fans, you cannot completely exclude from the boardroom. Let's be honest about it.
David Dellea, Altman Solon:and then you have those rights owners, right, that have only one bidder, right? So then that begs then the question, if you're willing to intervene in the conversation, is, is the auction the answers next cycle or the cycle thereafter, right? So in the context of consolidation, of changing dynamics, of bundling, no longer being, you know. Uh, what it used to be, right? So how are we going to operate right here? I think the jury is out right in terms of how really the market will will evolve, say, 10 years from now, right? So if consolidation is really the way forward, right? Then one begs begs the question. How is that consolation come about? Will it be a consolidation that will work more from a kind of I would call it democratizing access, so to speak, right? So Is exclusivity the tenet forever, period, right? Or are we going, are we acknowledging size of piracy being one? I think you talked about it recently. If size of piracy is what, 40 percent or nearly 50 percent of opportunity cost? Opportunity cost, not real, you know? So, are we tapping enough into the demand curve with the model we have today? Alright, or should we move away from that? There is a growing, I would say, demand for clarity. on what is the true opportunity cost of the model it is right now, right? Okay? Or are we moving to a consolidation scenario where there's going to be only one player bidding for your rights at the end, which is actually that you go back to square one. So that's why we're really at an interesting point in time, right, where really the model is going, you know, is being changed from the inside out.
Richard Gillis, Unofficial Partner :There's just a, just a quite slight bit on that. There, there feels again, talk about an interesting moment in time. Yeah. Netflix isn't a sports broadcaster. This is a point that Murray Barnett made on the bundle just we published this week, which is sort of resonated with me is that we, you know, when you get to the psychology and the ego of the buyer, the corporate ego of the buyer and Davide's question there about rather overpay by five than lose the rights. And, you know, the pain of trying to reorganize my business around that. Amount of money, that marginal loss Netflix versus something like a Fox Sport. Fox Sport or a sky are sports broadcasters to their bootstraps. That's what they are. That's their raisin detra. That's, that's why they exist. Netflix isn't, and I'm wondering how that plays.'cause they, that. We know they'll overpay slightly on here because they don't want to do it. Netflix can just say, right there, we're putting this up against Squid Games and Red One or whatever the, you know, the latest film is. So it's just a money transactional question from their point of view. Sport probably, you know, works. It talks about the ad tier. It talks about, you know, beyond subscriptions and all of the, the. The clever strategy stuff, but fundamentally when you come down to it, when it's, they're not a sports broadcaster. And I wonder whether that matters and how that plays in that sort of intangible element of a auction dynamic.
Davide Tesoro Tess:I guess, so maybe I'll start with that. I guess it does, and it goes back, my answer will go back to that inflection point we just referred to. And the inflection point, one of the ways there's an inflection point one is about product. What, what is the event? You know, how does it look like, you know, Netflix, you football, on, on, on any, on on Netflix being a big show as well as a, a sports event. And going back to tiktoks and short form and different ways of wanting of producing that. But it's also about up until a few years. If you as a right holder sold your rights to the highest bidder, that generally coincided with the media company that was best positioned and most able and incentivized to promote your sport. So you actually got more money and more promotion and more marketing all by the guy that happened to win your right. Now, with the fragmentation and disruption in the media space, that, that is not true anymore. And, and, and riceholder are beginning to realize that. The guy that offers you more money may also be the guy that is not as good as the previous guy or the other guy at promoting your sport. So you suddenly find your bank account is a little bit better off than it used to be or what, or that it otherwise would have been. But you're suddenly fading into irrelevance in a worst case, or becoming less relevant or less popular at the very least.
Richard Gillis, Unofficial Partner :You've opened Solos, I was looking through your research piece that you've just put out and I will distribute that in the, uh, in the show notes and newsletter. There's a, there's a A stat there, 65 percent of sports executives are concerned that live sport is losing relevance, which completely supports what you're, what you're saying
Davide Tesoro Tess:And it's a combination of those two things, right? It's what is the product? And I think we've just something we mentioned at the beginning, or we didn't mention beginning when you talk about. Uh, what's the strategy for, for rights holders is sometimes they forget what their original mission was, which is what is the best product? What is the best event? You know, what are the rules of the game? What is the format that works best? And that is probably something that some rights holders have a little bit left in the background and as they fantasized into Let's go downstream. Let's become a media company. Let's become an entertainment business. That's one bit The other bit of course goes back to what we were just saying and suddenly as a, as a, as a rights holder, you need to think about what what is the broadcasting or distribution strategy that maximizes the combination of. Revenue and promotion and visibility. And it's a very hard question. It's a very hard question. Especially for somebody that has, is used to rights values, always going up and promotion, always following as a result, suddenly you need to think about those different questions. And you know, I'll just throw a spanner in, in all this
Richard Gillis, Unofficial Partner :yeah, yeah, please. I love
Davide Tesoro Tess:one of the players that over time has always been fantasized about stepping into sports and never really materialized, at least in Europe is, is Google. Or Facebook, you know, in, in the auctions back in the 2012s and 2014s and 2018s, you'd always have this kind of, will Google or Facebook bid? And sometimes they did get small stuff, but by and large, they avoided that. Arguably, I think Google, by avoiding all of that, I think YouTube now is a very interesting place where you, where you get very broad distribution at, at, at zero marginal cost. if your point about Netflix where you're competing with Squid Game on YouTube, you're competing with everything else in the world. So that's not necessarily the answer, but it's an, it's an option that is often overlooked.
Richard Gillis, Unofficial Partner :I think some of the most interesting recent sort of news stories of the last. Few months have been, uh, Netflix buying women's world cup from FIFA, which talks to this question about how much intangible is in there from FIFA's perspective, how that play. I bet that was a really fascinating auction dynamic in terms of given the history from the previous round where FIFA and Infantino famously said, well, you know, went to the wire and said, you're not bidding high enough to his, to the TV industry and. Then they bought it at a lower price point than, than FIFA valued it. So the value put on it by the rights holder and women's football, I think is fascinating because of the intangible element of it and the difficulty of. Pricing and the lack of history to the opaque data question. The other one is the um, DAZN buying Foxtel. So you've got your two old bosses, you know, in, on this podcast, Murdoch selling Foxtel in Australia just would have been unthinkable. But now I'm wondering if your stat from the survey saying 65 percent of people in sport, that's two thirds of people in sport, are worried about relevance of their product. I'm like, you know, you don't lose money or whatever, you don't bet against Murdoch's instincts around, you know, value. I wonder if that's telling us something.
Davide Tesoro Tess:So maybe I'll start, but I'm sure Pascal will want to jump in at some point. I remember I crafted and negotiated the first time ever that DAZN broadcast a linear channel as in not streaming. And this was a DAZN satellite channel. On Sky in Italy in 2019. And I remember it was very painful on the DAZN side at the time, because they found it from, from my perspective, what I, what I heard from them is they found it very, very hard to accept that they were not a pure streaming company. When they saw them, one of the mantras that I kept being told is. We can't do this because we are not Eurosport. I mean, Eurosport as the, as the example of a broadcast sports channel, like we're not that, you know, we're something different. Now there were obviously, there are a number of good reasons in terms of availability of broadband capabilities of fiber rollouts and distribution whereby that would be a good idea for them as well as fans, as well as Sky, which is why we did it. Now, arguably from that point, it was so painful for them at the time to accept running a broadcast channel to buying Foxtel, I think speaks to Pascal's earlier point, which is everything seems to change, but ultimately nothing really changes. Because ultimately, if you want to monetize your sport, you've got to deliver it. on the device and on the technology where most fans will be willing to watch it and pay for it. And if that happens to be digital terrestrial or satellite or streaming, Then it is the rational thing to do for a media company to do that. And it may go against your beliefs or your preferences. Uh, but ultimately that's, that's what it is. But Pascal, I'm sure we'll have.
Richard Gillis, Unofficial Partner :It's fascinating that sort of, the zone self image, again, it gets cut off. It gets to that question. And I remember that people were there was a story about the employees of Porsche rebelling when they bought out a SUV saying that we are a two seater sports car company. We're not,
Davide Tesoro Tess:When we started streaming at Sky, it was back in the Sky Go days, obviously. And then, well, and then it became now and so on. There were a lot of people for a long time. Denigrating streaming saying, Oh, but that's bad. You know, we don't get the same quality as you get on satellite and it will never be as good. And they argued all sorts of good reasons why streaming would never be a big thing, such as satellite, right? And people are just resistant to changing their core beliefs, whatever those may be. And that applies, you know, like I said, to rights holders as well as media companies.
Richard Gillis, Unofficial Partner :Pascal.
Pascal Stefan:I wonder if it's the same and how hard it must have been for Sky when Sky initially launched an OTT proposition because same thing, right? There were probably a couple of voices saying, well, we need to do this. It might cannibalize our business, but. We do believe in five 15 years, uh, no one really knows this may be more important than our core business. And sometimes you have to take these bets that may cannibalize your own business, but for the better on the five, 10, 15, 20 year projectory. And I think I can only speak to, to Davide's, like, I do remember how tough it was to put linear, channels on a streaming platform. You cannot imagine the level of frustration that went into this from time to time. Uh, so yeah, I can only, can only confirm this. I think the key about all of this is it's not enough to just say, all right, I do a bit of trend research and look into innovation, but it's like, if you are at the core of this business, your role as a, no matter if you're a streamer, if you're a broadcaster, is then also to shape these trends. Like Richard, you talked about women's sports before, right? It's it's easy to just watch and say, ah, I might want to look into it again in five years time when there's more people watching it. Or you can take the role of, yes, I do believe in it. And yes, I want to take and play an active role in shaping that to become just as important as men's sports and actually be at the forefront of it. And I think women's sports is a good example for that. I think. Other bets that I still, still had in, in, in my time at the zone. And I'm keen to, to see the future is fast, for example. So I think we, we did launch the first really big sports life fast channel for, for the zone back in the days. Did we know that it's going to be the next big thing in 10 years, a hundred, over a hundred percent certainty? No, we didn't. But is, isn't it part of, you What do you need to do as a, as a media company as well to kind of shape this again and then reiterate and try over if it doesn't work? I do believe yes. And just as OTT and building an OTT proposition for Sky might have been crazy 10 years ago. Maybe fast sounded a bit crazy for some today and maybe in 10 years, everybody will think differently. Exciting future
Davide Tesoro Tess:just comment on that on the crazy bits. Sorry, Richard, because I think one of the reasons why Sky not only survived but thrived at this time of change is that we never felt at Sky that it was crazy to do it. It would have been crazy not to do streaming. So the question wasn't really about should we do streaming? The question is how do we do streaming in a way that we ride that wave without jeopardizing or killing our existing business? And how do we balance those two? And I think to be fair, full credit there to Jeremy Darroch, who was chief executive of Sky, you know, throughout this time. And he was, he was, he was, you know, one of the things that he did is he really found a way to balance those things. And so how do we do this? How do we launch something like this? And this was true for streaming. By the way, it's true for about distribution on third parties. You know, putting Sky Sports on BT was a momentous decision.
Pascal Stefan:or putting the zone on Sky.
Davide Tesoro Tess:Well, I guess the BT example is even more relevant because of the broadband intersect, which obviously wasn't truly disowned. But of course, you know, how do we do that? It's not a matter of, of course we have to do that. It's crazy not to. But the problem is, or the issue is how do we do it in a way that we get started on that. And then we're able to course correct and that to me is going back to the strategy is is without execution is a hallucination. Strategy is about doing it. But that's the easy part of the strategy. The difficult part is how do we do it in a way that makes sure that we are successful at doing it?
Richard Gillis, Unofficial Partner :Okay. I'm just going to, I'm loving this conversation. So I'm, I'm, I want it to continue, but I just, we have got day jobs, so we need to go back. Well, you do anyway, this is my day job. There's a, I've got the other group we haven't really talked about and I just want to bring into the conversation is private equity. And I think there's a question which talks it rounds us up almost it summarizes a lot of the strands that we've we've talked about in terms of and we've had that case study of in Syria are of the. You know, the bidding, the auction where you had private equity coming at the rights, and I guess there's a question about what difference that makes, how that, you know, what the, what they are trying to achieve, how they look at sport, what they, how they value sport. Because my assumption is that it's a much colder, more rational. There's not much emotion in private. I, you know, I haven't met many private equity people, but they're not emotional people, let's put it that way. They're not, you know, there's not a lot of intangible they're looking for. Discuss. So. And then there's also a bit of the question, which is consolidation on the supply side in the broadcast marketplace and how private equity is looking at that, because they love a, you know, there's demand spread, there's inefficiency in terms of product and, and, and buying and selling, but there's a play over the next 10 years where you then say, right, okay, now we're going to just, you know, Bring everything in how you're gonna have one or a few sort of back offices, but actually that is going to serve as the marketplace. Just who's going to tell you that just talk. Let's talk about private equity.
David Dellea, Altman Solon:Maybe just, just to start off and then, uh, we can do the run. So from my perspective, the, obviously the common thread when and how a private equity really can, can be impactful is if there is, I'm thinking about sports, really a transformation case, right? So what is, what is the value generation? What is the value creation pathway? Within an organization to, uh, that a private that you can unlock. So it's something that is there and a private equity by deploying capital and expertise and networking effect can really materialize, right? And that's, uh, and that's where so that's where the struggle is, right? So and, and I think Seria and probably Davide can talk more to it actually was, was symptomatic of that. So to what extent is there agreement on or on a transformation case that everyone wants to subscribe and want to materialize through a private equity kind of, uh, deployment? That's, that's the crux of the matter. And that's where a lot of the limitations are, right? But mostly if you think about, uh, about in this case, a professional league, right? Uh, that has a number of clubs that have a symmetric inch, well, have all the same agenda. but are often caught into a tremendous, I would say, game theory, I would say, uh, dilemma, right? In trying to move forward. So to what extent can you really mobilize a transformation case with the, within that kind of level of governance? That's, that's the big question. That's why many private equity then are not looking, many still have a fundamental belief in the case of IP. Right. So look, sports is an amazing asset class. There is resilient IP, near monopolistic situation from an IP perspective, but also from a regulatory perspective. So what is the downside, right? This is, there's a lot of transformation still happening. Great case. Multiples in the US are three times more as high as, uh, as they are in Europe. Great case, right? Then on the other side, you have all the private equities that say, Look, I'm not looking at IP at all. I want to look at a market that I can understand where there are normal dynamics, where the value creation case is going to be an entrepreneurial one, just like other companies can provide. That is a, that is a bit of the challenge, and many deals indeed don't go through as we've seen in the past, just because that transformation case is really not there, or not supported effectively by all of the stakeholders, right? David, you have a view on this?
Davide Tesoro Tess:Yeah. So, so, so a couple of points there. One is, I think two, two of the reasons that I'm hearing private or private equity has very publicly stated that they're attracted to sports is what you mentioned before is, is monopolistic or quasi monopolistic And to paraphrase something from our B2C businesses, customers never churn. You don't change your football club. You don't change your favorite sport, right? So I'm the only owner of the AP and my customers will never go away. Combined with what is perceived to be Not as, not, not as professional management from a commercial perspective because of the sports heritage and all of that people in sports are seen to be less sophisticated commercially than private equity or other industries, and therefore they see this big opportunity. You know, great AP customers never churn, introduce level of professionalism and create massive upside. That's kind of mostly the thesis that I, that I've heard. Now what's the problem with, and obviously it hasn't worked quite what worked out that way in many cases. In some cases it has, notably, formula One with CC is kind of the example that is kept doing the rounds for the past decade about why it's a good idea. Now, that happened to be an example where arguably, you know, there was no management, it was Bernie. There was a monopoly. Uh, on effective on the sport that Bernie had, by the way, very aptly over decades built by acquiring the various assets and building this web of relationships. However, it did have one peculiarity, which is very difficult to replicate in other sports, which is it was a closed leak. It was a closed leak. You can't join Formula One. And arguably they've since even improved on that from a financial perspective with budget caps. It resembles a lot. The NBA's or the NFL's in terms of the financial structure of the sport as a whole. Now, the problem is that is not replicated and it's very hard to replicate as the super league in Europe on football has taught us because of the social aspect. You know, customers never churn because you stay loyal to what the sport has been and will continue to be. And so suddenly you're in a place where if you look at the flow of funds in almost every other sport, It's really, really hard to find where the profit can lie. I did this thing, you know, at Sky back in the days. Sky in Italy in 2014 15 wasn't making any money on football. Now that was part of the function of the regulatory environment and a bunch of other things. But I did do a, I just spent almost a year studying at the flow of funds, you know, all the money that went into Italian football. On one side, and now where did it end up and broadcasters, both broadcasters at the time, Sky and Mediset were losing money in sports. to the tune of hundreds of millions. The Syriac clubs on aggregate were losing money to the tune of hundreds of millions. The only people that were making any money were players, or staff generally, you know, trainers, managers and players, vast majority, and intermediaries. Agencies or, you know, players, agents, or, or, or intermediaries. And that was a function of the, the business system of the entire sport was effectively designed that that would always be, it didn't matter how much money I plowed into the sport. It would always leak to these guys. And that is what a lot of private equity have not fully understood is the sport is designed to get the money all or most of the money at some other place. It doesn't matter how much you invest, how much money you make. It's very hard to retain into that. That's definition for clubs. For leagues, which has been a, you know, the league obviously have taken some private equity money, uh, Liga has taken money, Serie A tried to your point, Richard, and ended up not, not doing it. It's a different question. The question for leagues is. To get equity in and give away, say, 20 percent of my equity, I need to believe that with private equity involvement, my run rate will be at least 20 percent higher. Otherwise, I'm getting one off cash today in return for a long term dream that goes to somebody else, which can't be a good thing for the sport. And frankly, it's very hard to see, given what we said about the media rights. values and trends and the media industry and all of that. It's really hard to see a sport where just introducing some professional management and financial incentive to a management team will drive 20 percent increase in value,
Richard Gillis, Unofficial Partner :Yeah. Yeah. Sorry, Pascal. Yeah.
Pascal Stefan:However, I want to take also the position of Leaks, at least to a certain degree, because I think that having skin in the game is an incentive that can unlock potential that is really, that can be go beyond the 20%. And I do, I do agree with Davide. It is challenging to achieve. However, from personal experience, I I can only say doubling the price for as a extreme example. There's only, you only come up with that if someone from the outside looks at this and says, Guys, we need to do this and this is, we're going to survive and it's going to work because everyone within the business will say, you are crazy.
David Dellea, Altman Solon:That's it.
Pascal Stefan:so therefore I think there is potential out there and you can argue whether, Private equity should be the one or a consulting firm or whomever. But I do believe that there is a level of outside in that, that can unlock potential that even leaks would have, would have not believed to be there.
Davide Tesoro Tess:agree with
Richard Gillis, Unofficial Partner :It's interesting. I think we'll draw a veil there because I I keep coming back to, I wonder whether or not, I mean, to use the old cliche that, that sport can remain irrational longer than you can stay solvent is a, there's a, there's a sort of question there in terms of it's, is it just a mad business? And we're probably talking here about European football because that's takes a lot of the, the emphasis away, but you see it in rugby. I, I completely agree with Davide, your, your analysis of, of Formula One. I keep coming back to it's, it's a misleading indicator. It's not a proof of concept and it's, there is so many different things about it. So quite often with great investments, there is some magic in it that makes it. Sufficiently different than the rest of the marketplace. And I think that it's fascinating because I find that, you know, the, the, we get back to right, to the beginning in terms of what is strategy, what, and private equity are supposed to be the Kings of strategy. They're the smartest guys in the room. They're the ones that are, you know, coming in and transform, as you say, looking for transformation and yet. Here we are and we're looking around for success stories, but listen, I, we're, as I say, we could go on, we'll get, we'll get you back on because there's, there's so much to talk about. Loved how much detail we got into there. And, uh, in the meantime, so David, David and Pascal, thank you so much for your time. I'm going to drive people to the report, which is very good. I see a lot of reports in my game. It's a good one. So I'm going to, uh, flag that and, uh, push that around the place. But in the meantime, thanks to each of you.
David Dellea, Altman Solon:Thank you very much.
Pascal Stefan:Thank
Davide Tesoro Tess:you. Richard.