Sports Tech and the New Playbook for Pro Sports
Power to the players and power to the narrative
|Oct 12, 2020||12|
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Sports tech and the New Playbook for Pro Sports
Why this topic?
Media is changing, so pro sports must also change.
TV deals have long been the lifeblood of pro sports revenue, but with the rise of cord cutting, those in the business of sports must find new ways to capture value. Everything we know to be true about sports today—which games are popular, which games are profitable—won’t necessarily be true in the new paradigm. Personally, I approach this topic as a longtime female athlete trying to understand why some leagues fail and others succeed…and how this might change in the future.
In this 4CJ, I break down the current sports business model, explain why it’s losing traction, hypothesize the new model, and close with 4 companies building that future. I argue that stories (not athletic prowess) are the backbone of sports, and whichever players/teams/leagues can build those best in the new paradigm will win.
Sports Business Models: the Status Quo
Here is a map of the current business model:
In conventional pro sports, players organize into teams, and teams organize into leagues. Teams and leagues work together to foot the bill on three main expenses and produce three core products. You might say: what a lovely, diversified, balanced map, but not all revenue streams are created equal. The most important square—and the current keystone of pro sports—is cable television.
I'm going to use the NFL as a case study because of the Green Bay Packers status as a community-owned nonprofit. Their finances are public. Here's what we know:
National revenues are essential; most (NFL) teams are locally unprofitable. In 2018, for example, the Packers earned just $192 million in local revenue (ticket sales and sponsorships) compared to ~$255 million in national revenue from the league. This broke even against a whopping $420 million on expenses, which are 50% player salaries and 50% admin costs. (source)
National revenue is mainly TV revenue. Of the $8.1 billion dollars in national revenue, 74% comes from tv deals. The NFL gets $3 billion/year from major networks, plus $1.9 billion from ESPN for the fancy games and $1 billion from NFL Network and Direct TV. (source)
TV revenues are the reason that the glitz and glam of the NFL/NBA/MLB can look the way it does. They transform pro sports from a world of slim-to-none operating margins to a universe where Aaron Rogers signs a $130 million contract.
What’s particularly interesting, and what will change the most going forward, is that big-media-driven sports favor the incumbents because media behaves like a flywheel. A little hype yields a little media, which yields more hype, and more media. For the main professional sports in the US (ex., NFL, NBA, MLB), this process has inched along since the 1930s. The leagues grew up as TV grew up.
Meanwhile, building a new league is a currently a chicken-or-the-egg problem. You can’t build hype without media, but you can’t get media without hype. Much has been said about how women’s sports have been gatekept from ESPN et als, but the same is basically true for any sport outside the top 3. They don’t have the hype to compete, and they’re locked out of the means to produce it.
Why is the status quo deteriorating?
While some leagues are more diversified than the NFL, the major predicament faced by traditional sports leagues is the same: big media pays for big sports because of big advertising. Big advertising in 2020 has more places to put it's money than ever before, and American consumers are increasingly spending their entertainment time with streaming services. That’s reason #1.
Reason #2 is that media, like many other industries, is undergoing an unbundling: “the decline of the firm as a principle agent of change” as Nadia Eghbal puts it. In other words, more power to the players, who can now produce independent revenue streams via social media and live streaming services like Twitch. Players also have a stronger role in hype creation for teams and leagues than ever before.
Sports Business Models: the Future
The future of sports will follow the future of sports media. Here's the thing: the main role of sports media is to provide narrative.
The entertainment we get from watching a game doesn’t come primarily from the speed of a slapshot or the power of a pitcher: it comes from the stories we know about teams, athletes, and cities. Probably 5% of us understand anything about gymnastics, but we all hold our breath every time we see Kerri Strug’s final vault. We were all rooting for Ovie in 2018 and the city of Boston in 2013. Nike, with a million tear-jerking sports commercials, seems to understand this as much as anyone: sports need media coverage because sports need stories.
Thus, as the cable-tv-dominated status quo crumbles, pro sports will develop a new playbook, centered around better telling player stories. Players will also have more opportunity to tell and sell these stories themselves, direct-to-consumer:
As media disintermediates, players will form their own brands (ex., TB12) and produce their own content through social media and services like Twitch. This relationship could end up being symbiotic—player brands build league hype—or competitive. Meanwhile, media is already trying a million new ways to package and present live team sports (ex., Buzzr, Second Spectrum), and teams will try to enhance the in-person experience as much as possible to drive up local revenues (ex., innovations like Mixhalo). Lastly, new tech will drive down event production costs and lower barriers to entry (ex., Pixellot) for new leagues.
4 Cool Jobs
Second Spectrum is bringing advanced computer vision to sports watching and analysis.
"We have taught a machine to see with the eyes of a coach" says CEO Rajiv Maheswaran. It's easy enough to train a computer to tell the difference between an apple and an orange (ex., sort by color); the Second Spectrum team is trying to use spatiotemporal pattern recognition to articulate the ingredients of sports moves and identify them in real time. Their technology works like this: it turns athletes playing a game into tiny moving dots. It starts to recognize (a) their core interactions, like passes and shots, (b) their basic strategic moves, like the pick and roll, and (c) their advanced techniques, like a high post-up. It can then assign probabilities to shots, rebounds, passes, and techniques based on historical data. This info fuels decision making (which players to sign, which moves to coach) and adds a layer of data and excitement to the fan experience.
Second Spectrum is hiring software, machine learning, network, and intern engineers.
There is some crisis occuring in the world about whether young people like to watch sports, and Overtime CEO Dan Porter saw this as an opportunity. He set out to find out what young people actually care about and realized they were "connected to these young kids who might be professionals in 12 to 24 months." Soon-to-be superstart athletes that they followed on Insta and such—take Bronny James, for example, who has 5 million followers and is 16 years old. Overtime built the network to pubilcize this first generation of digitally-native athletes. They have a presence on every major media channel and give young viewers a chance to find, root for, and follow talented young athletes. This goes with the future-of-sports theme in which talent, given the opportunity to market and brand themselves, take power back from sports management and sports leagues.
Overtime is hiring for a ton of roles in sales, design, engineering, ops, and more.
Pixellot is reducing barriers to entry for sports video.
Ticket sales and broadcast TV are the the two main revenue sources for most pros sports leagues, and these verticals both require huge upfront investments in a venue and in event production teams. Pixellot is making broadcast-quality sports video at about 10% of the cost of the equipment and labor for a traditional film team. Their system pairs AI with a proprietary multilens camera and automates the production process. Their basic product opens the door to live, on-demand top-tier video for youth, high-school, college, and low budget pro leagues, which can be a game changer for the fan experience. Their premium offering pairs with in-person editors and is used by FC Barcelona, among other teams. Their product also integrates with a video analytics solution for coaches.
Pixellot is hiring across the world in engineering, finance, support, and ops.
The Pivot is an endorsement conduit for women's athletes.
Top draft picks in pro leagues and Olympic stars often sign lucrative endorsement deals with companies like Nike, Speedo, Adidas, etc. Those are out of reach for most top-tier female athletes, who might be talented and relatively well known but still lack the presence and hype of, say, Zion Williamson. So while women's sports have often had a few thousand turns less than the men's game on the hype>media flywheel, The Pivot has a theory about how they can catch up. They pair companies looking for meaningful endorsements/partnerships with female athletes looking for additional revenue streams. This is a mutually beneficial accord in which the company recieves legitimacy from an authentic source and the player gets, potentially, hype and exposure. I see this as a catch-up flywheel that helps female athletes build followings.
The Pivot is not currently hiring, but they are looking for companies and athletes to join their community.
Until next time,