- SportBusiness Media takes a deep dive into the past, present and future of DAZN
- This third and final article covers 2020 to 2022, and DAZN’s path forward from 2023
- Losses exceeded $4bn from 2019-21, but the gap between costs and revenues is closing
At the turn of 2023, DAZN is a very different project to the one that burst onto the scene in 2016. After two years of expansion and spending in 2018 and 2019 failed to bear fruit on the balance sheet, the global pandemic’s onset in 2020 forced the company to pause and assess its direction of travel.
DAZN’s plan – to amass significant early losses in a bid to scale globally, rapidly expand its userbase and become sports broadcasting’s first unicorn – was no longer viable in a rapidly changing investor environment.
The halcyon days of mega IPOs launched on the back of growing revenues and userbases were all but over. Direct paths to profitability quickly became the name of the game in the 2020s as the Covid-19 pandemic dried up the wells of investor cash that had flowed in the previous decade.
Since its creation, DAZN had always been conscious of forging a path into the good graces of investors, but by 2021 the company had realised that its zeal around the bright future of sports streaming was not going to be enough.
Despite the losses that were grandfathered in by spending decisions in previous years, the company hoped a significant, public about-face towards a more pragmatic position would inspire confidence in the business, as it attempted to correct the mistakes of the past and forge ahead with concepts that made DAZN an interesting proposition in the first place.
2020 was the first year in which DAZN slowed its global rollout, and the company was increasingly turning to tried-and-tested ways of earning revenue – namely linear distribution in its core markets of Germany, Italy and Spain.
The company’s stalwart executives – Simon Denyer, John Gleasure, James Rushton – were being edged toward the sidelines in favour of trusted executives from other areas of the Access Industries business. Ed McCarthy’s entry as chief operating officer was perhaps the most significant C-suite hire, becoming the first senior DAZN executive whose job was focused on consolidation and contraction, rather than expansion.
A path to IPO
However, significant changes to DAZN’s business model were necessary in order to prove the company could one day be profitable – or, at the very least, a company that could be profitable as part of a wider tech, telecoms or media business. Having emerged from the initial shockwave of the pandemic bruised but not battered, DAZN began a process that it hoped would lead to a successful Q2 2022 IPO.
On McCarthy’s watch, DAZN’s ambitious boxing projects were downscaled, remodelled and refocused throughout 2020 and 2021. The company’s experiment with ex-ESPN president John Skipper was cut short in March 2021 as its US service abandoned ambitions of securing a significant package of NFL, MLB or NHL rights. DAZN would base its offering around Saul ‘Canelo’ Alvarez fights – the service’s only major subscription-driving property in the US – on much more favourable, flexible terms than the $365m, 11-fight guarantee.
Alvarez’s split from Golden Boy Promotions had dissolved DAZN’s long-term deal with the fighter, and the opportunity was taken to fold Alvarez events under DAZN’s Matchroom USA joint venture on an ad-hoc basis, getting committed spend off DAZN’s books. DAZN used the leverage of its heavy investments in the Matchroom USA venture to sway the promotion into a global media rights deal in 2021. It rolled exclusive rights in the promotion’s home territory of the UK, where DAZN was targeting a full-scale entry.
In Germany and Italy, DAZN made strong moves to acquire key domestic rights to local football leagues, committing to spend €300m per season on a package of Bundesliga rights in Germany and about 60 per cent of an €840m-per-season rights fee – alongside Telecom Italia – to acquire rights to every Serie A match in Italy. While the increased spends in both markets would initially move DAZN further away from profitability in those markets, growing its subscriber base in key markets was still the at the core of its plans to woo investors.
DAZN’s existing carriage agreements in Germany (Deutsche Telekom, Sky), Italy (Telecom Italia) and Spain (Telefónica) had widened DAZN’s reach significantly via more traditional platforms, but the company’s primary goal throughout 2021 was to make a significant splash in the UK, where millions of subscribers would be up for grabs.
Instead of launching cold – as it had done at considerable expense in all previous markets – DAZN attempted to enter the UK via an acquisition of pay-television broadcaster BT Sport and its five million paying subscribers. After a year of negotiations throughout 2021, DAZN agreed to pay £600m for BT Sport for the privilege of its subscriber base and portfolio of rights, which included a package of English Premier League matches and exclusive rights to the Uefa Champions League.
In preparation for the the Q2 2022 IPO, DAZN’s majority shareholder Access Industries converted billions in outstanding loans into equity via a $4.3bn recapitalisation, wiping DAZN Group’s debts and providing any potential buyer with an asset rather than a liability. But last-minute hitches over conditions, clauses and the nature of DAZN and BT’s future relationship stalled the BT Sport deal at the final hurdle, allowing media group Warner Bros. Discovery to enter the fray and secure a joint-venture deal for BT Sport with an option to buy.
The loss of the BT Sport deal, confirmed in January 2022, was a bitter blow for the company. In addition to the publication of DAZN’s financial results for 2020 – another $1.3bn loss – the one-two punch forced the company to abandon its IPO plans in 2022 and figure out another way to expand its global subscriber numbers while keeping its balance sheet light.
Eleven buy, price rises
DAZN’s plan to expand revenues and subscriber numbers via acquisition continued throughout 2022, though these acquisition attempts were carefully targeted in order to avoid significant cash outlays that would burden either its parent company or a future investor.
The acquisition of Eleven Sports in a cash-free deal was a prime example of DAZN’s path forward. Eleven took a five-per-cent share in DAZN via a mix of ordinary shares and growth preferred shares, receiving only a €30m credit facility in the way of liquid cash. Eleven’s established presence as a pay-television broadcaster and streamer across Belgium and Portugal were highly appealing to DAZN, while Eleven’s annual revenues of about €214m in 2021 looked strong against losses of about €9m – a comparative drop in the ocean compared to DAZN’s.
It also attempted to make another run on a UK launch, attempting to buy UK pay-television broadcaster Premier Sports at first for a cash sum, before later attempting to renegotiate and secure a share-based deal akin to its deal with Eleven. Premier rejected DAZN’s share-based offer and sold to media group Viaplay for £30m.
Alongside keeping expansion costs limited, DAZN’s new chief executive, Shay Segev, was keen to dramatically grow the company’s revenues in key markets. Segev joined DAZN in 2021 initially as co-CEO alongside company veteran James Rushton before taking full control in January 2022, and plans for significant price rises across DAZN’s key markets of DACH, Italy, Spain and Japan were put in place for the back end of the year.
Segev’s entry to DAZN as an outsider has seen the company move away from its low-cost model and pivot toward becoming a mature, pay-television broadcaster. The company’s original dream of offering premium live sport for €9.99 each month had dramatically limited its ability to scale revenues quickly, and Segev’s first major actions as chief executive were to begin charging customers at premium rates.
DAZN has now raised prices on three separate occasions in Italy since June 2021, going from €9.99 each month to as much as €54.99 each month for new subscribers wanting to subscribe on a monthly rolling contract.
At the beginning of 2022, DAZN doubled its prices in Germany and raised subscription costs by 56 per cent in Japan. Prices went up in Spain earlier this year, with the most expensive monthly subscription – which includes DAZN’s recent acquisition of domestic rights to LaLiga – costing €29.99 per month.
“DAZN is a premium product for people who like sport,” Segev told SportBusiness earlier this month. “The big thing is further penetration as a subscription service and increasing average revenue per user. You will have seen our price increases in Italy where it costs €55 per month for an account that accommodates two streams, and €45 per month on a season-long contract. We are very comfortable this by itself will close the gap during 2023, and we will do the same in Spain now and in Germany to close this gap between our costs and revenues.”
This gap between costs and revenues remained at an astronomical level in 2021, during which DAZN posted another operating loss of $1.36bn. However, sources indicate that DAZN’s price rises throughout 2022 had a strong impact on revenues in Q4, in which DAZN’s losses were significantly lower. It is understood that if DAZN’s Q4 2022 were extrapolated over an entire financial year, the company would have reduced its losses to between $300m and $400m.
DAZN 4.0?
Much of Segev’s plans for DAZN in 2023 are directly linked to these price rises bringing in much greater revenues without causing significant churn. The biggest test for DAZN’s new-look price structure will be in the summer, when football fans across its core European markets will churn off the service and must decide whether to renew their subscriptions at much higher prices.
Sources say that the costs of Serie A and LaLiga rights will produce another significant loss for DAZN in 2022, but Segev is clear with his belief that DAZN’s traditional pay-television model will begin to mature in 2023.
“We are now trading in a manner that, by the end of 2023, we will become profitable,” Segev said. “I want to clarify so that you are fully understanding: I’m not saying that 2023 will be a profitable year. I am saying that the run rate by the end of 2023 will enable us to make 2024 a profitable year.”
Segev continued: “We are in a phase where I cannot say we are mature, we are far from being mature. We can see well the areas we need to invest more in and other areas where we can start cutting costs. We can continue doing this in 2023, as we began that process last year.”
Should Segev and his executive team succeed in their mission to make DAZN sustainable in 2023, the company is likely to go straight back to investors with a much more solid base and a balance sheet it can be proud of. Though DAZN’s operating losses have amounted to just over $4bn across 2019, 2020 and 2021, and will likely increase in 2022, a successful IPO or an equity deal with a private investor would make the company’s years of losses somewhat worthwhile, at the very least.
“I arrived after billions had already been invested in DAZN, there is already an established infrastructure that will allow the business to go to its next phase, and I’m the person they brought in to take it to that next phase. This money has gone toward a good purpose, to build the platform we currently have.”
This version of DAZN – the mature, premium pay-television broadcaster with a global, digital future – could yet yield a return for Access Industries and Len Blavatnik, who has plunged billions of his own money into making DAZN a success. Whether DAZN’s eventual valuation can make Blavatnik’s money back remains to be seen, as does investors’ appetite to put money into a pay-television sports broadcaster that can only grow so much in its current form.
Segev’s current vision for DAZN 4.0 is focused on better exploiting DAZN’s global platform – a service that runs outside of the company’s core markets – with planned integrations of betting, editorial and video clips. The global platform is set to be a key part of DAZN’s pitch to investors whenever that time comes.
“We’ve started as a streaming service, and it’s a great anchor to start from. But the ultimate goal is to be a platform where you can engage with everything you want around sports,” says DAZN’s chief financial officer Darren Waterman. “All of the profit that goes around that business will be aggregated into one place. We can do that in all of our existing markets, and we can do that as we expand geographically. So the business isn’t really finished until we’ve done that.”
Though the combination of sports rights, betting services and editorial via a single platform is not a new idea, it certainly worked for a profitable company called Perform Group in 2014. With any luck, it might just work for the DAZN Group of 2024.