This sports special episode of Business Breakdowns focuses on the NFL, Formula 1, and the PGA Tour. It highlights the revenue dominance of the NFL, while Formula 1 leads in global viewership. The episode also discusses the strategic evolution of Formula 1, targeting the US market, and the efforts to bring top golfers together in the PGA Tour. Additionally, the podcast introduces the Making Media show for those interested in a real-time breakdown of the media industry.
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Quick takeaways
Promoter fees are a significant revenue source for Formula One, with profitability determined by the event's monetization.
Broadcast revenues are the largest revenue stream for Formula One, including partnerships with broadcasters and embracing OTT streaming.
Sponsorship and advertising contribute about 15% of Formula One's revenue, with investments from brands to gain exposure to the sport's fan base.
The PGA Tour generates revenue through broadcasting tournaments and sponsorship deals, with challenges in adapting to player demands and the emergence of rival leagues.
Deep dives
Promoter fees and local partnerships drive revenue
Promoter fees make up a significant portion of Formula One's revenue, accounting for about a third of total revenue. Promoters, which can range from racetrack owners to local governments, pay Formula One a fee to host a race. This fee can vary depending on the race and the local market. The profitability of each race is determined by the promoter's ability to monetize the event. This includes ticket sales, VIP sections like the Paddock Club, and additional entertainment and parties surrounding the race.
Broadcast revenues from global TV deals
Broadcast revenues are the largest source of revenue for Formula One, representing over a third of total revenue. Formula One strikes multiple contracts with broadcasters around the world for the transmission rights of the races. These contracts are typically multi-year agreements, negotiated every few years. The distribution of broadcast rights can vary depending on the country and can include a mix of free-to-air and pay TV. Formula One has also embraced over-the-top (OTT) streaming services and offers its own OTT product called F1 TV Pro. The goal is to strike partnerships with broadcasters or provide standalone OTT options to monetize the growing demand for online streaming.
Sponsorship and advertising opportunities
Sponsorship and advertising contribute to about 15% of Formula One's revenue. This revenue stream involves partnerships with various brands that want to associate themselves with the global spectacle of Formula One. Sponsors and advertisers invest in Formula One to gain exposure to the sport's large and passionate fan base. The revenue from sponsorship and advertising comes from deals with companies like Anheuser-Busch, Bridgestone, Pepsi, Verizon, and more. Additionally, Formula One generates revenue from the Paddock Club, a VIP section at races, and by hosting other events associated with the sport.
Other revenue streams and potential for growth
Besides the three primary revenue streams, Formula One also generates revenue from other sources, such as Paddock Club sales and partnerships, Formula Two and Formula Three racing, transportation of team equipment, and joint ventures. While these additional revenue streams contribute around 15% of overall revenue, their profitability may vary. Formula One continuously explores opportunities for growth, including expanding the number of races per year, developing new tracks or partnerships, and embracing emerging markets. The potential for growth in sponsorship and advertising is seen as the highest among the revenue streams, offering opportunities to further monetize the brand's popularity.
The PGA Tour's Revenue Model
The PGA Tour generates revenue through broadcasting golf tournaments and obtaining sponsorship deals. Their total forecasted revenue for 2022 is $1.52 billion, with 85% coming from domestic and international media rights, and 15% from tournament-related revenue and corporate retail licensing. They pass a portion of revenue as a charity component and reserve funds. Approximately 55% of revenue, around $806 million, is allocated to players and prize money. The Tour also covers tournament-related expenses and employee-related expenses, using a portion of revenue for operating costs.
The Structure and Stakeholders of the PGA Tour
The PGA Tour is a trade association and operates as an exclusive membership organization of professional golfers. It has a commissioner, a board, and independent entities involved. Tournament-related expenses account for 75% of operating costs, while employee-related expenses make up the remaining portion. The PGA Tour has control over broadcasting rights and media partners, and it passes a portion of revenue to tournaments, charities, and media partners. Players, as independent contractors, rely on the Tour for competitive opportunities and prize money. The PGA Tour's structure and responsibilities are subject to legal debates regarding membership rights and restraint of trade.
The Emergence of Rival Golf Leagues
The Premier Golf League (PGL) and Super Golf League (SGL) have proposed alternative models to the PGA Tour. The PGL initially aimed to create a 20-event global league with large purses and a team format. It faced challenges due to the involvement of the Saudi State Investment Fund and the PGA Tour's resistance. The SGL emerged and adjusted its model, working with the Asian Tour and offering collection of events with high purses and a team aspect. The PGA Tour has denied player requests to participate in these events, leading to potential legal disputes regarding membership rights and monopoly power. Rival leagues challenge the PGA Tour's business model and may attract players with higher prize money and unique formats.
Challenges and Potential Impact
The PGA Tour faces challenges in adapting its business model to accommodate the demands of players and fans. While offering increased prize money and incentives, the Tour is limited by its long-standing format and contractual obligations. Other leagues may appeal to players, especially those seeking higher earnings and new experiences. The PGA Tour's influence and sponsorship may be affected if top players opt for rival leagues. The Tour's broadcast partners and sponsors also play a critical role in shaping the future landscape of professional golf. The emergence of rival leagues creates uncertainty and potential disruptions to the PGA Tour's dominance in the industry.
This is Dom Cooke and this week is a little different. It’s Super Bowl week and to get in the mood, we’re doing a sports special as we break down the business behind 3 iconic sports - The NFL, Formula 1, and the PGA Tour. Now, these are not new episodes. We have covered each of these sports over the past two years on Business Breakdowns. But for this episode, we have condensed those conversations into 100 minutes of action, focusing on the similarities and differences between these major leagues.
In terms of revenue, the NFL dwarfs the other two sports. But in terms of eyeballs, Formula 1 is the clear global leader. And from a strategic perspective, it’s fascinating to see the evolution since we aired these episodes. For example, you’ll hear Formula 1’s CEO talk about the US being a key growth market, and then you’ll notice that last week Red Bull unveiled their 2023 car in New York. This year’s calendar has 3 US races. Similarly, the upcoming weekend is the second in a series of PGA Tour events designed to bring more of the top golfers together on a regular basis. Neil explains why that was desperately needed in more detail towards the end of this episode.
Finally, before we jump into the action. I wanted to highlight our newest Colossus show, Making Media. If you enjoy Business Breakdowns, I think you’ll enjoy that show too. I think of it as a real-time Business Breakdown of our media business, Colossus, and the media industry writ large. Make sure to check it out if you like the sound of it. You’ll find a link in the show notes.
Now, without further ado - let’s get to the Business of Sport, starting with the NFL.
For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.
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