The AAF and the importance of broadcast revenue

“For the first time in recent history you’re going to see a league that isn’t predicated on a huge media deal,” says the AAF’s Charlie Ebersol. What does that mean, exactly?

AAF CEO and Co-Founder Charlie Ebersol was recently interviewed by Geoff Calkins of Memphis’ The Commercial Appeal. The answers were among the more insightful given by a league whose officials have generally stuck to a well-crafted script. All underlines are mine:

Q: Memphis has a history of success with spring football leagues, but the leagues themselves don’t have a history of success. Why is this different?

A: A couple reasons. For the first time in recent history you’re going to see a league that isn’t predicated on a huge media deal. So in the past, you look at the history of the two attempts that really had a shot at working and they both got killed because their television partner a) had a short-term deal, whereas we have a long term deal, and b) were not built around fan interaction. What you’ll see is that we are putting the power in the fans’ hands. Had it been in the fans’ hands 17 or 18 years ago, in the previous iteration of the spring league, the league would still be around. They were averaging 20-25,0000 fans a game, which is an enormous number relative to what all other sports do.

When Ebersol says “the two attempts that really had a shot at working,” he’s referring to the United States Football League (USFL) of the mid-1980s and the XFL of 2001. He’s right that the USFL averaged 25,627 fans and the XFL 23,410, both of which outstrip today’s NBA (a league-record 17,978 in 2017-18), NHL (17,446), and Major League Soccer (22,113 in 2017).

Ebersol is also right that both leagues failed for television-related reasons. The USFL actually turned down a four-year, $175 million offer from ABC and ESPN that carried a stipulation that the league continue to play in the spring and summer. Instead, the USFL announced they would move to the fall season in 1986 in pursuit of an even larger deal that never came close to materializing. With no television revenue, the league folded after failing to win substantial damages in an antitrust suit against the NFL.

Meanwhile, the XFL was originally supposed to be at minimum a three-year project, but folded after one season after co-owner and lead broadcaster NBC decided it couldn’t withstand the public relations fallout of being associated with the endeavor.

So if television killed two leagues with strong attendance, how can Ebersol claim that his league’s future won’t hinge on a media deal? To Calkins’ credit, he pushes for an explanation:

Q: If the league is not predicated on a huge media deal — although you do have a deal with CBS — what will make or break the league over the long haul?

A: The “long haul” is the key part of that question because the other problem with these previous attempts is that they were funded for a year or a couple months and that ultimately was the problem. You have to be going into something like this with a five-to-seven year business plan and fund it accordingly. … Our investors, our venture-capital investors, our institutional investors, these are all people that really want to see reach as much as they want to see immediate returns. Because long-term business ventures are predicated on reaching as many people as possible. So you look at who our television partner is, it’s America’s most-watched network for the better part of two decades. And you look at what our digital-platform strategy is, it’s about giving fans what they’ve been asking for, for a long time. Things like integrated fantasy and a way to communicate with your friends while you’re playing so that it can be a more fun experience than the traditional sports broadcast has been.

The big difference between Ebersol’s effort and his predecessors is that the AAF will be able to diversify its broadcast revenue sources. Traditional television broadcasting will surely be part of the equation. After all, the AAF is already working with CBS Sports and CBS Sports Network. While we have yet to hear how much, if anything, CBS is paying for the privilege, that’s a relationship the AAF plans to nurture.

But in addition, the AAF hopes to establish a strong audience through its forthcoming AAF mobile application. Ebersol has stated that the games will be streamed for free in 2019 as the league seeks to establish “reach,” as he puts it. That, he hopes, will allow him to bypass the networks if necessary and sell his product directly to fans.

Ebersol’s answer, however, speaks not necessarily to the fundamentals of the business but instead to the runway he has thanks to his investors. It’s not that he doesn’t need to create serious income from broadcasting, it’s just that he has at least five years to do it. Once that expires, the AAF will be in exactly the same position as its predecessors: monetize through broadcasting or perish.

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