Member Mailing: Is Apple A Better Partner for Major League Soccer (MLS) Than Legacy Media?

Apple struck an interesting deal with Major League Soccer (MLS), purchasing exclusivity to all global media rights but permitting MLS to negotiate co-broadcasts with major networks for select matches. 

I think it is worth looking at the deal a little closer after what I wrote in The Tiger Woods Comeback Story vs. Streaming Bundles: “Disney and other legacy media sports rights holders need the home screens of Connected TVs to offer instant, one-click tune-in to sports events from more expensive rights deals like the NFL, La Liga matches or the NHL.

This deal could give MLS fans instant, one-click tune-in to matches on any and all Apple devices, but primarily on Apple TV devices (and for any Apple device owner who has the Apple TV app on their Home Screen and actually uses it). As an app, it will have distribution on other platforms but will not offer the same “instant, one-click tune-in” experience as linear TV's Electronic Programming Guide (EPG).

The deal seems like an optimal deal for sports media streaming consumers, a fantastic payday for MLS (5x its previous annual deal), a global distribution opportunity and a new milestone for Apple’s streaming ambitions.

But, the optics betray some important realities, and those are worth fleshing out more.

An overview of the deal

[NOTE: Rick Ellis of All Your Screens has a good, helpful breakdown of the deal terms]

The MLS sold all of its global media rights exclusively to Apple for a minimum fee guarantee of $250MM. But, it retains the broadcast rights to select matches and the MLS still is negotiating those with linear TV networks, including ESPN and Fox. Those games would not be exclusive to the broadcasters and will simulcast on the MLS-Apple, too. 

The MLS-Apple app will distribute all MLS matches, the new Leagues Cup between teams from MLS and Mexico’s Liga MX, and a still-undefined number of games from MLS’s reserve and youth leagues. A small selection of matches will be available to TV+ subscribers and an additional set of matches will also be available to everyone for free through the Apple TV app.

The annual $250 million payment to MLS could be higher, depending on how many people subscribe to the MLS service. 

Five challenges for the partnership

The deal is unprecedented in sports streaming deals because it is entirely digital. Every other recent sports streaming deal has included both broadcast and streaming, but more broadcast than streaming. It is also not entirely clear how this deal will work in practice.

1. “Partnership”

The first challenge is the concept of “partnership” being pushed by Apple and the MLS:

“What's different here is traditionally media companies pay rights fees, and you sell ads,” said MLS Commissioner Don Garber. “This is a partnership. And that partnership's core is a subscription business that we're going to build together, and we're going to get a guarantee against the revenues that will be achieved on the subscription business. Then, we go over those guarantees, we'll have the opportunity to make more money, which is really unique in sports media.”

The nominal upsides to this deal structure are obvious: $250MM is 2.8x the $90MM it gets from Fox, ESPN and Univision for U.S. distribution, alone (though that deal included U.S. soccer broadcast rights, which are now sold to the market separately). It is notably different from Apple’s seven-year, $85MM per year deal with MLB for a weekly "Friday Night Baseball" doubleheader on Apple TV+.

The split of that $85MM is reported to be a $55M rights fee per year and $30M of “advertising”, and also have the rights to telecast in eight countries overseas via Apple TV+. We have less insight into how the $250MM reflects the split of advertising and rights fees in this partnership.

2. Ad Sales

We have the least insight into how Apple is selling and delivering ads. They are serving ads during their Friday night MLB broadcasts, including their own, but we have very little on:

1. Who is selling those ads (Apple or MLB?), 

2. How much of the $30MM is Apple selling ads versus simply paying for ad inventory, 

3. How those ads are being delivered, and

4. How those ads are being tracked (including how an impression is defined).

The quote above seems to imply that both sides will be selling ads together (and in turn, that has implications not only for the Apple TV+ streaming but also the upcoming bidding on the NFL’s Sunday Ticket broadcast currently on DirecTV).  

That said, Apple is unusually well-positioned to solve for something that I thought was a weakness in last year's Premier League bids from ESPN and NBCU: the best digital and streaming businesses serve user intent from the consumer side ("consumer intent") in all shapes and sizes, and facilitate "advertiser intent" to reach those consumers in all shapes and sizes through targeting. Unlike legacy media businesses, Apple is positioned to serve both consumer intent and advertiser intent across connected TV and streaming platforms.

3. A bearish bet on the RSN model

The MLS has to forgo local rights. That means it cannot sell local games to a Regional Sports Network (RSN) for a licensing fee and share of ad sales. That may be in its interest in the long run given cord-cutting trends and Sinclair’s emerging questionable bet in streaming (Boston Red Sox owner The Fenway Group’s NESN just launched its own streaming service). Mike Ozanian of Forbes estimates the 28 MLS teams average $3MM per team in local rights deals, that is $84MM per year accounted for in the $250MM per year.

Perhaps most importantly, Sinclair is flying blind in terms of who its customers are and will be for DTC; and, even if it has some understanding of those customers it inherited via Fox RSNs, it is building up from ground zero to win them over. By contrast, Apple has these audiences aggregated worldwide: the challenge will be whether there is demand for the MLS within its Existing user base at scale (Apple revealed in January nearly 2B active devices, globally).

I also wrote in RSNs & Disaggregation: “The one thing RSNs do unusually well is to sell higher CPM, targeted local ad inventory. That is less of a focus for algorithmically targeted OTT advertising solutions.”

That local ad inventory is served against both live sports and “filler content”, basically programming throughout the day both intended to serve die-hard fans and also make up for any “make-goods” for ad impressions around live sporting events.

That model is lost in this Apple-MLS deal, and it is not clear how Apple imagines it will attract the die-hard fans in-between live games (and it not clear whether Apple will need to solve for make-goods). 

4. “Aggregate Audience”

I previously wrote about NBA owner Mark Cuban’s concept of "aggregate audience" in sports streaming, where the basic premises of an aggregate audience are:

1. Multiple, simultaneous streams of the same game are now feasible; 

2. Audiences across multiple, simultaneous streams, are scalable individually and in aggregate; and,

3. Each simultaneous stream has a viable business model.

Notably, this MLS deal generally rejects this premise, leaving only a handful of exceptions in simulcast broadcast deals.  Cuban’s concept was structured to account for the needs of sports bettors. On its face, this deal seems to care little for those.

It is also worth highlighting this quote from Apple’s senior vice president of Services Eddy Cue in the press release:

“For the first time in the history of sports, fans will be able to access everything from a major professional sports league in one place,” said Eddy Cue, Apple’s senior vice president of Services. “It’s a dream come true for MLS fans, soccer fans, and anyone who loves sports. No fragmentation, no frustration — just the flexibility to sign up for one convenient service that gives you everything MLS, anywhere and anytime you want to watch. We can’t wait to make it easy for even more people to fall in love with MLS and root for their favorite club.”

Apple’s objective is not “aggregate audience” but rather to leverage sports content aggregation as a subscriber conversion tool.

5. Smart TVs & Sports

I wrote in The Tiger Woods Comeback Story vs. Streaming Bundles:

Smart TVs control the last mile to the consumer, and they can extract rent for better distribution. But there is a lot of friction that still exists between the streaming consumer and the streaming sports broadcast that even the Disney bundle UX fails to solve within Hulu.

Less friction will create more value for streamers - more consumers and happier advertisers - but more friction can be more expensive to streamers with billions of dollars to recoup each year from rights deals. The obvious solution for less friction starts with making deals with Connected TV manufacturers to make sports events one click away for users.

So the logic of Apple’s deal with the MLS is that it effectively puts the MLS one click away for all Apple TV device owners worldwide.

A key challenge with that strategy in the U.S. is Apple TV devices have low penetration (13.1% according to eMarketer, but 5% of premium video streaming minutes according to video quality provider Conviva). Also, Apple TV+ has a 5.6% market share globally, and a 5% market share in the U.S., according to JustWatch.

They also face Roku, Amazon and Comcast’s Xfinity platform as established competitors at a greater scale in the U.S.:

• Roku has 63.1MM active accounts, with the majority in the U.S. Assuming around 90% are in the U.S. and Canada (56.8MM), and 90% of that subset of users are in the U.S. that totals just over 50MM active Roku accounts in the U.S.  

• Assuming Amazon Fire TVs have 85% of the reach of Roku in the U.S., there are ~42.5MM active Amazon Fire TV accounts in the U.S. 

• Comcast has 32MM residential customer relationships (excluding 2.5MM business services customers), and another 6MM customer relationships via its Xfinity software with Cox. Charter has 30MM residential customer relationships (excluding 2.2MM business services customers), totalling 68MM residential customer relationships. 

But, again, Apple will be delivering the MLS globally to 2B devices in the best possible, least frictionless interface for sports streaming. It also distributes its Apple TV app across other platforms like Samsung and Roku, so its install base is larger than 2B (NOTE: Apple has yet to reveal total TV+ subscribers).

Effectively, the next 10 years of MLS consumption are relying heavily on one of the least used connected TV devices, but some of the most used smartphone and tablet devices. So it would seem Apple believes the future of sports streaming is effectively a services business across its devices and third-party devices. 

How costly is $250MM?

If there is such a thing as a niche nationally broadcast sports league in the U.S., the MLS is it: as The Wall Street Journal pointed out, the MLS “lags behind larger leagues in traditional TV ratings. December’s MLS Cup final between the Portland Timbers and New York City FC drew 1.1 million viewers on ABC.” Last year’s Thanksgiving Day playoff game between the Timbers and Colorado Rapids attracted an average of 1.8 million viewers on Fox platforms. 

MLS had been seeking a deal for $300MM a year and against this objective set by Commissioner Garber: “All of your data deals, all of your sports betting deals, everything that has a touch point with a consumer is all now in a package that we’re able to engage with traditional media companies that are transforming themselves digitally, to new media companies.”

It ended up with less than what it sought, but still a multiple over its previous deal. The question is whether Apple is a better partner for the MLS than a traditional media company transforming itself digitally into a new media company.

I think the short answer is “yes” because of the immediate scale of international distribution the MLS now has. But there are still downside risks: by betting almost 100% on Apple, the MLS loses the ability to hyper-serve local fans the way RSNs do. Also, if Mark Cuban’s analysis is right, they may have done so at the expense of additional broadcast feeds for other use cases like RSNs for passionate local fans, and alternate feeds targeting sports betting.

There are real trade-offs for the MLS, and it looks like the MLS is willing to swallow a discount of $50MM per year to find out whether they matter. But more importantly, Apple seems willing to invest $2.5B over the next decade (0.68% of its 2021 total net sales of $365.82B) to find out whether it may have solved sports streaming in the 21st century.