Donovan McNabb and the State of Football
The world’s most valuable company is one step closer to becoming a significant player in the sports streaming space.
Apple will reportedly pay Major League Soccer a minimum of $2.5 billion over the next 10 years to broadcast all of its games.
Let’s compare that number to other recently negotiated deals for international soccer:
- English Premier League: $1.64 billion per season, 2022-2025
- Bundesliga: $1.15 billion per season, 2021-2025
- La Liga: $1.04 billion per season, 2022-2027
- Serie A: $970 million per season, 2021-2024
- Ligue 1: $610 million per season, 2021-2024
- MLS: $250 million per season, 2023-2032
While the deal is a seminal one for MLS, it has a long way to go to reach its European counterparts. But compared to the league’s previous deal, the magnitude of the new agreement is felt.
Under the existing domestic media rights deal, MLS receives approximately $65 million on an annual basis from ESPN, Fox and Univision for its television rights. The U.S. Soccer Federation also receives $25 million from the networks as part of the deal — all in all valuing the deal at $90 million annually.
The Deal Is Good, But Is It Great?
Compared to the existing deal, $250 million a year is a major shift, and that’s not even including special stipulations. If the number of subscribers to the MLS streaming service reaches a (yet to be specified) number, Apple will begin sharing subscription revenue with the league.
But the deal is smaller than originally anticipated by none other than MLS commissioner Don Garber.
In late 2021, it was rumored that a new rights deal could reach $300 million. Instead, MLS was only able to garner $250 million deal with a non-traditional partner. Even more importantly, in the new deal with Apple, MLS will be giving up the ability to generate revenues from local TV deals.
According to HuddleUp, fans can assume that each of the existing 28 MLS teams receives an average of $3 million annually for local rights, yielding total yearly revenues of $84 million. The forgone revenues from local media rights are non-trivial and should be accounted for when considering the true value of the new deal.
Then there’s the sneaky fact that in the new deal, MLS will reportedly be responsible for bearing all production costs associated with matches. According to The Athletic, that figure could reach up to $62 million per season and would include:
- Upfront capital costs to build a production arm
- Building or updating broadcast facilities
- Developing a plan for non-gameday programming
- Shoring up agreements with linear programming networks like ESPN and Univision
So, $250 million is a nice headline number, but it doesn’t reflect the true cost of the deal.
More importantly, the deal limits MLS from doing what it likely needs to do most — grow.
With the games being sequestered on Apple TV+, total reach is diminished, and the league needs to reach as many eyeballs as possible.
MLS Believes In Streaming
The big question is why MLS decided to go with a streaming service versus a traditional media company. The answer might be that a traditional media company wasn’t in the cards.
According to the Forbes report, media consultants believe that MLS’s inability to land a linear deal larger than $250 million forced its hand to a paywalled streaming platform, Apple TV+, which represents a minuscule percentage of the available viewing audience.
That’s not how MLS sees it.
The league believes a streaming-only model will bring over more young and digitally savvy fans. MLS doesn’t appear to be alone in that thinking. Bundesliga, La Liga, Serie A, and UEFA Champions League all broadcast on subscription streaming services in the U.S.
In an interview with Sportico, D.C. United CEO and co-owner David Levien stated that the Apple deal would help with team valuations: “When I’m raising capital, I’m selling the vision and the path, this Apple deal enhances that and even turbo-boosts it in many ways. I’m not sure going back to a traditional linear carrier is as exciting for investors.”
Apple Might As Well Buy ESPN
So, what does this investment in MLS “mean” to Apple.
I’ll put it this way: The $250 million cost of MLS rights is the equivalent of 0.13% of Apple’s iPhone sales in 2021 — approximately 11.5 hours of iPhone sales.
Just like the MLB streaming rights it acquired in March of 2022, the amount is de minimis to Apple.
In my opinion, the MLS streaming deal is really a test for Apple as it works on an incentive-aligned revenue share model for a sports streaming service. In the end, it likely has its eyes on a bigger prize.
Enter Disney and ESPN. Disney recently lost the rights to stream the Indian Premier League to Viacom18 — a huge setback in its efforts to continue growing its international Hotstar platform and streaming products overall. Disney stands to lose 20 million subscribers.
The loss to Disney is substantial, and if sports are going to continue to be a meaningful asset in their portfolio, they will need to continue to push on the ESPN and ESPN+ front. If, however, there is a change in strategy, and Disney looks to potentially sell off its ESPN asset – a potential but unlikely scenario – Apple could be a suitor.
In terms of valuation, the last two observable data points for ESPN have been $50 billion in 2014 and $28 billion in 2018. Let’s assume the $50 billion high end of the range: In 2021, Apple held $62 billion in cash and equivalents on its balance sheet with a $2.19 trillion market capitalization which it could use in a mixed stock and cash purchase.
Apple’s current financial position makes an ESPN acquisition plausible, but it would take a whole lot more than a big check to separate The Mouse and the Worldwide Leader in Sports.
