Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Television and sports have had a beautiful and lucrative marriage for decades. Now, when extreme stresses are pressuring the couple like never before, rich technology companies are coming to break up the fragile relationship.

TV companies around the world pay billions of dollars each year for the rights to televise popular sports. That money has been essential in the boom of many sports leagues. And the popularity of viewing sports on TV in turn made the television industry rich. Win-win. But we have reached peak anxiety about the symbiosis between TV and sports. 

Sports Symbiosis
U.S. television companies spend billions of dollars annually for the rights to air sporting events, which in turn are among the most popular TV programming
Source: MoffettNathanson

In the U.S., television ratings for the Olympics last summer were down significantly. ESPN went from the best business born in the television era to not a sure thing. TV viewership for professional football -- the American kind and that other kind -- hit a rough patch. Sports are still among the most popular programming on TV, but young people in particular are watching less television -- and sports is no longer the absolute exception to that trend.

You can play the movie all the way to the end. Fewer people tuning into TV means the television industry has less money to pay for sports rights, which in turn dials back the billions funneling to sports leagues, which in turn makes for less compelling games on TV. And so on. 

But let's hold off on the funeral for the sports industrial complex. Maybe not forever, but for a while. And here's why: Giant technology companies are stepping into the shoes of the TV companies as the golden goose for sports. 

Amazon.com Inc. just agreed to pay $50 million to show 10 National Football League games to members of Amazon's Prime shopping club. Amazon is taking over for Twitter Inc., which struck a similar arrangement last year with the pro football league. Those tech companies, plus Google, Facebook, Apple Inc. and many others have been willing to pay money for other sports they might stream online -- everything from U.S. basketball and baseball to lacrosse and professional cricket in India. 

Play Ball
Amazon will spend nearly $4 billion this year for web video programming. Another $50 million to stream football games doesn't make a dent.
Source: Wedbush Securities, Sept. 2016 estimate
Note: 2017 estimate is derived from Wedbush's forecast for Amazon's spending to increase by at least $500 million each year

All the tech companies have their own goals here. Amazon presumably wants to draw more people to its Prime web video service, which CEO Jeff Bezos has described as a lure to get people to start paying for the Prime shopping club and stick with it. (The video service is a free add-on for Prime members.) Twitter wants live sports to attract more users.  Alphabet Inc.'s Google and Facebook Inc. want TV-like programming to keep people using their websites longer and to siphon advertising money that traditionally has been spent on TV commercials.

Thus far, tech's foray into sports has been for relatively minor events like the World Surf League or for games here and there. And the dollars spent by the technology titans have been pretty dinky so far. Amazon's non-exclusive NFL deal for $50 million is a drop in the bucket compared with the roughly $7 billion paid each year by a handful of U.S. television companies -- Comcast Corp.'s NBC, Walt Disney's ESPN, CBS, Fox and AT&T's DirecTV -- for the privilege of televising a few months' worth of oversized men trying to squash one another.  

These tech-plus-sports contracts are baby steps. But you may have noticed those tech companies have a lot of money. A lot. Amazon generates $50 million in operating cash flow in about 27 hours. It's easy to imagine that the NFL and other big-ticket sports leagues are eager to keep their bank vaults stuffed by playing the tech giants against the TV executives. My Bloomberg News colleagues reported that the football league's strategy is to stretch out the drama until 2021, when the NFL's TV deals start to expire. Then Google -- market cap $580 billion -- can go head-to-head (or wallet-to-wallet) with CBS and its $31 billion market cap. 

Paying too much for televised sports is a national pastime in the TV industry -- and to be fair, the overpaying has been a pretty good strategy in TV. Now it's the technology giants' turn to pay too much for sports. And for leagues that oversee silly children's games played by adults, the tech money should keep the sports rally going. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. It should be said, Twitter's 2016 deal to stream NFL games didn't seem to draw many new people to Twitter. 

  2. Obligatory plug for the Cincinnati Bengals, my favorite collection of huge men trying to kill other huge men. 

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net