- SportBusiness Media takes a deep dive into the past, present and future of DAZN
- This second article covers DAZN’s rapid expansion across the globe in 2018 and 2019
- Big spending, particularly on boxing in the US, sent costs spiralling out of control
DAZN launched as a direct-to-consumer streaming service in August 2016 with relatively modest offerings in DACH and Japan. A glut of non-domestic European football and American sports content was designed to bring young men to the platform in droves, enticed by an affordable monthly cost of between €10 ($10.80) and €15 per month.
Soon enough, DAZN’s parent company, Perform Group, realised that the most successful element of the initial launches was a deal for Japan’s top-tier domestic football league, the J-League. The cost was steep – $200m (€185.22m) per year on average, over 10 years from 2017 to 2026 – but revenues from Japan were growing much faster than in other markets and, to this day, the J-League deal has made Japan DAZN’s most successful territory.
Revenues in DACH and Canada looked sluggish through 2017 as the concept of providing ‘interesting’ content for a low price wasn’t cutting through with DAZN’s target audience of young men. DAZN’s OTT revenues in 2017 were about £90m ($111.28m/€103.06m), while rights costs had spiralled into the hundreds of millions of dollars.
‘Interesting’ would not be good enough to excite potential investors – arguably the platform’s true target audience. DAZN would need content that made the platform an essential subscription, alongside the likes of Netflix or Spotify in an unbundled, direct-to-consumer world.
Revenues and userbase were everything for global content platforms in the 2010s. These were the key metrics among investors that, in 2017, were blessed with easy access to large credit facilities.
Significant losses were expected for ambitious young startups, and large, growing userbases could hide a multitude of sins. Snap Inc., parent company of Snapchat, launched a successful IPO in 2017 with year-end losses of almost $3.5bn. Profit and loss was inconsequential to Snap’s market value, which all depended on the potential of monetising the platform’s 190 million daily active users more effectively. This and this alone was enough to give the company a $24bn valuation when its shares hit the market in March 2017.
Aside from Perform’s lack of belief in the future growth of the betting sector, DAZN was launched as a means of transforming Perform from a company with 130m relatively passive users – across editorial portals such as goal.com – into a company with 130m active, transactional users.
“On goal.com there are 70m football fans every single month, and all we’re doing is serving advertising and sponsorship opportunities to them,” Denyer told SportBusiness Media in 2015, when DAZN’s initial launch was announced. “We’re not actually asking them to become a customer, we’re not registering them, we’re not actually selling anything directly to them. We’re just serving Puma adverts or Gatorade adverts or Samsung adverts to them; which is a great business, but we want to have a transactional element as well.”
In an environment where revenues and users were the key metrics to chase, growth became the watchword at DAZN. Over the next two years, the company would pursue it at almost any cost.
DAZN’s whirlwind expansion in 2018 and 2019 was unlike anything the sports industry had ever seen.
In 2018, DAZN began preparations to launch in the US, Brazil, Spanish-speaking South America, Southeast Asia, Italy and Spain. Almost all of the services were set to launch the following year in 2019, with the company spending much of 2018 filling its shopping cart with sports rights around the globe. DAZN would finish 2018 having committed to spend £4.36bn on sports rights alone, adding over £2bn to its total in a single calendar year.
Ultimately, only the company’s launches in Italy and Spain have survived in their original forms, while services in the US and Brazil were downsized significantly following the Covid-19 pandemic.
Elsewhere, planned launches in Southeast Asia and Spanish-speaking South America were dead on arrival after DAZN failed to secure enough subscription-driving content with which to launch.
In Southeast Asia, a deal for Uefa Champions League rights ended up as DAZN’s only successful purchase, with the rights eventually sublicensed to pay-television broadcaster beIN Sports. In Spanish-speaking South America, DAZN’s sublicensed its English Premier League rights to pay-television broadcaster ESPN in a content-sharing deal designed to bolster DAZN’s service in Brazil.
However, it was DAZN’s much-feted launch in the US – and its concurrent entry into the world of professional boxing – that best characterises this period of largesse.
Boxing experiment
DAZN hired former ESPN president John Skipper in May 2018 as the company’s best possible representative in the States. DAZN’s plan was to was to court major US sports leagues ahead of domestic media rights tenders in the 2020s, putting its name in the mix while growing its brand and userbase.
A strong US presence was a key goal for DAZN, which wanted to present itself as a serious investment or purchase opportunity for Wall Street investors and US media giants. With rights to major US leagues unavailable for at least the first three years after its launch, DAZN needed something to whet consumer and investor appetites before making a play for NFL, MLB or NHL rights, and as time was of the essence, it decided that making a splash in professional boxing was the best available route to growing a US audience.
In May 2018, UK boxing promoter Eddie Hearn’s Matchroom Boxing announced that DAZN would provide it with a $1bn war chest to dominate the US boxing scene. In October that year, DAZN topped up its boxing content by promising Golden Boy Promotions $365m for 11 fights featuring Saul ‘Canelo’ Alvarez, by far the most popular and successful Hispanic boxer in the world. Shortly after, Alvarez’s primary rival Gennady Golovkin was signed for another nine-figure guarantee.
DAZN would offer its boxing content in the US using the same low-cost subscription model it has employed elsewhere, rather than the pay-per-view model that had been tried and tested by the likes of HBO and Showtime. The low-price, high-cost model alone was a recipe for significant early financial losses, but the company anticipated that such a great deal for the US consumer would send its userbase soaring into the tens of millions.
It had also anticipated that the signatures of Alvarez and Golovkin would all but secure a fight between the two, but the company had made a grave error. By guaranteeing large sums of money to boxing promotions and their star fighters without any stipulations around to the quality of their opponents, Alvarez and Golovkin refused to face one another, instead opting to earn their large, guaranteed purses by fighting lesser opponents.
Meanwhile, Hearn’s decision to go public with the size of Matchroom’s budget set off an arms race among boxing promotions and broadcasters, pushing organisations such as Premier Boxing Champions to spend more and defend their position in market. A boxing arms race – triggered by DAZN’s investment – prevented Matchroom from acquiring the necessary quantity and quality of fighters to populate a 12-month schedule and keep subscribers on year-round.
These mistakes – combined with massive startup costs across its new markets and continued losses in DACH and Japan – resulted in a £485m loss in 2018 for Perform Group. But once its spending commitments landed in 2019, losses were about to increase to a whole new level.
The spending comes home to roost
DAZN was Perform Group’s sole focus by the beginning of 2018, as the company discarded its original plan to operate DAZN alongside Perform’s other businesses. Global expansion was costly and DAZN needed cash to accelerate its plans given that other companies – such as rival OTT player Eleven Sports – were in the hunt to become the first truly global sports OTT platform.
In September 2018, Perform Group divided the company into two separate divisions: DAZN Group and Perform Content. Perform’s betting and data services would be siloed into Perform Content, ready for sale, while DAZN and Perform’s editorial businesses would remain within the company. Perform Content was eventually sold to Vista Equity Partners in 2019, injecting much-needed cash into the DAZN business as invoices for its 2018 purchases began to land on the mat.
DAZN’s OTT revenues more than doubled in 2019, rising to over $600m compared to about $285m in 2018. However, the costs incurred by 2018’s spending spree – and sluggish revenue and user growth, by comparison – saw DAZN post the first of three consecutive billion-dollar losses.
With services in the US, Brazil, Italy and Spain launching for the first time and its existing businesses in DACH and Japan still a significant way off from reaching maturity or profitability, DAZN Group lost a total of $1.36bn in 2019.
The company’s rapid expansion had failed the secure the kind of userbase required to make the company attractive to investors, who saw that profitability was a significant distance away given the huge gap between costs and revenues.
DAZN had hoped that 2020 would be a year where its businesses would begin to mature, with costs stabilising and revenue growing on the back of new deals for domestic football rights in Italy and the Uefa Champions League in Germany. These hopes were dashed by the Covid-19 pandemic, which killed any momentum the business may have had at the back end of the previous year.
While the pandemic severely destabilised the business, it also presented DAZN with a much-needed opportunity to take stock of the decisions it had made thus far. In addition, DAZN was taking its chance to renegotiate or terminate particularly burdensome deals, as DAZN’s new chief operating officer Ed McCarthy – a stalwart of the overarching Access Industries business – was sent in to regain control over the company’s costs.
The onset of the pandemic was the final nail in the coffin for DAZN’s dream of revolutionising the sports broadcasting industry, and the company would emerge from 2020 with a much more pragmatic approach.
This article is the second of three on the past, present and future of DAZN. The third article on DAZN’s present and future will be published on Friday, January 20. You can read yesterday’s article on DAZN’s formative years here.