Common Issues with Revenue Generated from Broadcasting Right
February 12, 2025
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The economics of sports leagues is quite complicated. This is because of various factors. However, two of the most important factors are:
It is for this reason that it is important for the management of the sports league to be aware of the fact that all revenues are not the same. There are some types of revenues that are more beneficial to the economic activity of the entire league. In this article, we will try to understand the different characteristics of the different types of revenue generated.
There are certain types of revenues such as ticket sales and merchandise which are variable in nature. The revenue derived from these sources is highly uncertain. On the other hand, there are other sources such as revenue from the sale of broadcast rights.
Generally, sports leagues enter into long-term contracts with broadcast partners. Hence, the cash flows from the sales of these rights are quite predictable and allow the league to plan its expenses in a better manner.
Revenues generated from the sale of digital rights or sponsorships can be scaled up easily if the league becomes more popular. This can be done by allowing broadcast in newer markets or by adding new types of sponsors to the list. However, when it comes to ticket sales and merchandising, there is a supply constraint. Hence, even if the price is increased substantially, there is a limit to which the supply can be scaled up.
Broadcast rights are a good example of such revenues. In the case of broadcast rights, the sports league does not need to conduct any event management activities. The entire activity is managed by the media company and the league is able to generate revenues passively.
However, when it comes to the sale of tickets, the management of the league needs to be actively involved in managing the sale of these tickets. Sometimes, the task of selling tickets and managing the event is outsourced to a third party. However, the responsibility still lies with the league.
For instance, the sponsorship revenue which a firm is able to generate depends upon the number of eyeballs that will watch the event. This in turn depends upon how the matches will be telecasted i.e., upon the media partner of the event.
Hence, good media partners also increased the probability of being able to negotiate better with sponsors. On the other hand, some types of revenue end up cannibalizing other sources of revenue. For example, broadcast rights exert downward pressure on ticket sales in the ticket prices.
For instance, it is possible for the franchisor to draw up contracts that lead to higher collection of revenue at the central level at the expense of loss of revenue at the local level. The opposite of this is also a possibility wherein local teams gain at the expense of the league or at the expense of each other. In all cases, it is important to ensure that the system is created in such a way that the overall revenue is maximized.
The fact of the matter is that revenue generation from sports leagues can be a very complex activity. Several points need to be taken into account before deciding on the exact revenue mix of the sports league.
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