- Discovery to pay the PGA Tour an average of $166.7m per year for its ex-US media rights
- PGA Tour international rights are currently worth about $100m per year
- The two will launch an OTT service in January 2019 but broadcasters could still buy rights
The PGA Tour this week future-proofed its international business, setting up a joint venture with Discovery for its media rights outside the US in a 12-year, $2bn (€1.72bn) deal.
The deal, from 2019 to 2030, will generate an average of $166.7m per year. This is a large increase on the combined value of the PGA Tour’s various international rights deals, which are understood to be worth about $100m per year.
Discovery’s annual fee will vary dramatically as and when territories are rolled into its deal: the venture will not immediately control rights in all markets as existing rights deals will be honoured. Discovery is expected to pay about $50m for rights in 2019.
The Discovery/PGA Tour venture will manage rights in all territories outside the US by 2024. Three of the Tour’s most valuable ex-US deals are in Japan, South Korea and the UK and Ireland. The venture will control rights in Japan from 2019, South Korea from 2020, and the UK and Ireland from 2022.
Under the deal, the venture will create a PGA Tour-branded OTT streaming service which will begin operation in January 2019. Neither the name nor the cost of the service has yet been decided. The product will be separate from Discovery’s OTT service Eurosport Player. The venture has the option to sell rights to broadcasters or digital players on a market-by-market basis.
The $2bn total is a pure rights fee and is a minimum guarantee. Should the venture generate additional revenue this will be shared between the two parties. Investment in production and infrastructure has not yet been decided. Discovery was prepared to pay such a large fee for the ex-US media rights due to the long-term nature of the agreement.
Discovery’s Alex Kaplan will become president and general manager of the joint venture – Kaplan was previously ‘executive vice-president, commercial for Eurosport Digital’, where he helped grow the Eurosport Player subscriber base to more than one million. The full management team of the venture is yet to be decided but will include the PGA Tour’s Thierry Pascal as senior vice-president and head of distribution.
One golf rights expert said: “It’s a 12-year agreement going well into the future so it’s difficult to judge. Sitting here right now it looks to be a great deal for the PGA Tour. They have under-written their international revenues for the long term. They have a very nice alternative with a new partner with their domestic negotiations coming up. From their point of view, it looks pretty good. From Discovery’s point of view, it’s tough to know. Five years from now everyone will have a better view.”
— Discovery Inc (@DiscoveryIncTV) June 5, 2018
How the partnership came about
At a press briefing on Monday, the venture was discussed in more detail by: Kaplan; JB Perrette, president and chief executive of Discovery Networks International; and Rick Anderson, executive vice-president, global media for the PGA Tour.
Anderson said the PGA Tour began evaluating its options 18 months ago and had two main things in mind. First, that it had created a “nine-figure business” effectively by “taking a US product built for the US market and exploiting it, not creating specific products for specific markets”.
Second, the importance of developing a global, direct-to-consumer business. “We started that in the US with PGA Tour Live,” he said. “We extended that in a lot of countries around the world. We really wanted to move to the next level.”
In autumn last year, Kaplan and Discovery chief executive David Zaslav approached the PGA Tour about the possibility of a partnership.
Anderson said the PGA Tour “would not naturally think to move into a partnership like this” but that when the Tour saw Discovery’s vast network (it has offices in 180 countries), its ability to customise content and its record of selling on Olympic Games rights across Europe, the Tour agreed to set up a joint venture. Anderson added that the partnership would take the Tour’s international business “beyond what we could ever do on our own”.
Perrette said: “There are a lot of people who believe they can do everything themselves. We think that’s a bold and foolhardy approach. It’s a rapidly-changing world. We think partnerships are key to succeeding.”
Although the Tour was not actively looking for such a partnership, it is understood to have turned down other companies with similar concepts. The promotional clout and digital expertise of Discovery were key reasons behind agreeing to the partnership.
TV Sports Markets understands PGA Tour Live, the Tour’s OTT subscription service, will continue to operate in the US but that its content will be rolled into the new venture everywhere else.
Exploiting the rights
The venture – which will comprise staff seconded from both Discovery and the PGA Tour – will decide on an exploitation strategy for each market. The options in each market will include: sublicensing all rights to a broadcaster or digital player; sublicensing some rights to a broadcaster or digital player while retaining some content for the OTT service; or retaining all rights for use on the OTT service.
Should all rights be retained for use on the OTT service, it is likely some content would be shown on Discovery’s Eurosport channels in that market to promote the service. If Discovery/Eurosport wishes to acquire rights in any market, it must bid like any other player.
The breadth of the partnership has drawn parallels to Discovery’s deal for Olympic Games rights in 50 European territories. It holds rights to the 2018, 2020, 2022 and 2024 Games in a €1.3bn deal with the International Olympic Committee (TV Sports Markets 19:13).
Discovery struck sublicensing deals with more than 40 free-to-air broadcasters ahead of the 2018 winter Games, while also carving out certain rights exclusively for its Eurosport channels and streaming the event on Eurosport Player (TV Sports Markets 22:2).
Perrette said: “We sublicensed the Olympics rights to lots of broadcasters who are our rivals. We are pragmatic.” He also pointed out that one key difference between the two agreements was that the Olympics deal was primarily planned to drive the Eurosport channel business, while the PGA Tour partnership is focused on OTT.
A change in strategy?
Discovery’s decision to invest in the PGA Tour’s rights looks like a move in a different direction for the media group, which currently has only one golf rights deal: it holds PGA Tour rights in Norway in a six-year deal, from 2016 to 2021, worth about $500,000 per year (TV Sports Markets 19:11).
But Perrette said: “I would not see this as a change in strategy. First, the focus is on direct-to-consumer. Second, we will sublicense where it makes sense. Third, if it makes sense to do something with Eurosport, then we will.”
Perrette stressed that the long-term nature of the partnership is one of the key reasons Discovery was keen to invest heavily. “When you think about the evolution of the world – things move fast. But it takes time to change habits and move consumer behaviour.”
He added that Discovery was keen on the property as it gives them a large chunk of the golfing calendar, and access to the top golfers in the world.
“We have a passionate focus around verticals,” he said. “We are big on sports like cycling and tennis. We are keen not just on viewers, but participants, where we think we can own that vertical. Not just in one market, but ideally in every market. This is a ground-breaking partnership on both sides, and it’s about recognising this changing media landscape. We want to take things more global.”
Kaplan said the deal is “unique and compelling” as it includes all PGA Tour media rights. “We will control the digital rights – live, non-live, near-live, archive – as well as everything on the linear side. That allows us to localise.”
Perrette said “the direct-to-consumer play is the top priority”. He added: “It won’t be a one-size-fits-all approach. You can’t make a one-size-fits-all. It has to be market by market. Our focus will be on direct-to-consumer with the potential to sublicense.”
The venture is considering the possibility of adding other golf content to the OTT service. Kaplan said: “The PGA Tour is a great place to start. We think it can stand on its own. But we will look at adding content on a case-by-case basis where it makes sense. We are trying to establish a golf product. We will absolutely talk to other golf properties out there.”
Although the service will be PGA Tour-branded, it is understood this could be temporarily dropped to promote a specific event should the venture acquire other golf rights.
The partnership will cover approximately 2,000 hours of content per year, including the six Tours operating under the PGA Tour umbrella and nearly 150 tournaments each year, as well as the Players Championship, FedExCup Playoffs and the Presidents Cup.
— PGA TOUR (@PGATOUR) June 4, 2018
Current international rights deals
The venture will be responsible for rights in several major golf markets from 2019, including Australia, Canada, Italy, Japan, the Netherlands, Portugal, Russia and Spain. It will assume rights in Poland and South Korea from 2020; Belgium, China, Germany and South Africa from 2021; Denmark, Finland, India, Norway, Sweden, the UK and Ireland from 2022; and France from 2024.
Kaplan said the PGA Tour’s international media-rights business had “grown 50 per cent in the last five years”. PGA Tour rights are attractive to pay-television broadcasters as they provide a large volume of well-produced content during the week. The Tour also appeals to a wealthy demographic.
The most lucrative current PGA Tour rights deal outside the US is with pay-television broadcaster Sky in the UK and Ireland. The seven-year deal, from 2015 to 2021, is worth slightly more than £20m (€22.9m/$29.3m) per year (TV Sports Markets 18:3).
Asked if Sky would get a chance to renew its rights from 2022 onward, Anderson said: “Sky has made a massive commitment to golf and the PGA Tour. We are not simply going to walk away from that. They have been hugely important, not just from the payment of rights fees, but the way they have branded their channel, what they do on-site every week. You don’t walk away from that lightly.”
Rights in Japan are held by public-service broadcaster NHK and Jupiter Golf Network in four-year deals, from 2015 to 2018, worth a combined total of more than $15m per year. There is strong interest in the performances of local star Hideki Matsuyama.
The Tour has a five-year deal in China for exclusive digital rights with streaming platform iQiyi, from 2016 to 2020, worth between $9m and $10m per year (TV Sports Markets 19:21). It has additional deals in the country with state broadcaster CCTV, the Golf Channel and Travel Channel.
Rights in the Nordics are held by pay-television broadcaster C More in a six-year deal, from 2016 to 2021, worth close to $6m per year (TV Sports Markets 19:6).
South Korean public-service broadcaster SBS holds PGA Tour rights in a seven-year deal, from 2013 to 2019, worth close to $5m per year.
Pay-television broadcaster Sky Deutschland holds rights in Germany, Austria and Switzerland in a three-year deal, from 2016 to 2018, worth about $3m per year (TV Sports Markets 20:3).
Pay-television broadcaster Sky New Zealand picked up PGA Tour rights from July 2016, taking over the previous contract with streaming service Coliseum, in a deal worth an average of about $1m per year until the end of 2019 (TV Sports Markets 20:11).
Indian pay-television broadcaster Neo Sports holds rights in the Indian subcontinent over six years, from 2016 to 2021, for about $800,000 per year (TV Sports Markets 20:6).
The joint venture excludes rights in the US. The Tour currently has three rights deals in its domestic market.
It has a 15-year deal with pay-television broadcaster Golf Channel, from 2007 to 2021, and two separate nine-year deals with the CBS and NBC networks, both from 2013 to 2021. The PGA Tour had the option to opt out of the deals with CBS and NBC by September 1 last year but chose to remain with the two broadcasters. The Golf Channel deal does not contain an opt-out clause.
These three agreements are thought to generate a combined total of slightly more than $500m per year via a combination of cash and inventory (TV Sports Markets 15:16). The broadcasters pay a rights fee, but they also guarantee inventory for the title sponsors of each event – the PGA Tour sells these rights to sponsors.
One golf expert said the partnership with Discovery would give the PGA Tour some leverage when it comes to negotiate domestic deals from 2022 onward, as there will be another player in the market.