Tennis is a good sport to enter as the company can leverage the apparel and equipment that it already sells to an affluent audience.
These deals can help Amazon build up its streaming infrastructure and branding if it plans to chase larger sports events in the future.
Amazon recently bought the rights to show the US Open and the ATP Tour in the UK & Ireland over the next few years.
Roger Federer practices ahead of the 2017 US Open | Shinya Suzuki
Amazon (NASDAQ:AMZN) has primarily confined itself to the shadows when it comes to sports broadcasting rights. It is often ‘rumored to be interested’ in this, or a ‘potential bidder’ for that, without placing a firm offer on the table. Until recently that is.
Jeff Bezos’ retail behemoth has dabbled in the past with NFL streaming rights but it has now stepped on to the field, or rather court, with transformative deals to broadcast men’s tennis.
Last week, the United States Tennis Association announced that the exclusive UK & Ireland telecast rights for the US Open would go to Amazon Prime. The contract, worth $40 million according to the Guardian, will include the 2018 tournament and run for five years.
But that’s not all.
In late 2017, Amazon were also awarded the rights to show ATP tournaments, the main professional tour for men’s tennis, in the UK & Ireland from 2019 to 2023. That $65 million deal lets Amazon broadcast all nine Masters 1000 events, 12 ATP 500 and 250 tournaments, and a competition for the rising stars on the tour, the Next Gen ATP Finals.
A particularly shiny jewel for the Seattle firm could be the exclusive rights it has acquired for the prestigious year-end showcase, the ATP Finals.
The ATP Finals pits the top eight singles players and doubles teams against each other in round robin and knockout formats. Roger Federer is the record six-time champion while Grigor Dimitrov lifted the trophy in 2017.
While the US Open and ATP Finals will be exclusive to Amazon, the rest of the tournaments will also be streamed on the ATP’s subscription service Tennis TV. Interestingly, Amazon has also made Tennis TV available to Prime members in the United States.
These deals have really taken AMZN from a seat in the stands right onto the baseline.
From 2019 in the UK & Ireland, AMZN will broadcast one of the four grand slams, a prestigious year-end championships and the finest tournaments on the ATP Tour including Indian Wells, Miami, Monte-Carlo and Rome.
That’s a lot of tennis and credibility among sports fans for a more than fair price.
Amazon’s Net Gain
Amazon has secured the best of men’s tennis, bar the Australian Open, Roland Garros and Wimbledon, for a reputed $105 million. That’s extremely reasonable compared to the outlay required for Premier League or NFL games.
In the UK and Ireland market, Sky Sports and BT recently agreed to spend £4.5 billion ($6.3 billion) between them for the rights to show Premier League matches over the next three years.
As you probably know, broadcast rights for US sports are also a bit pricey. In January, Fox signed up to a deal worth $660 million per season to show Thursday Night Football. The combined cost to broadcasters of all NFL packages through 2022 is in the region of $40 billion.
While Amazon may have long-term designs on the greatest spectacles in sport, the tennis packages that they have acquired are substantial and won’t trouble a company with operating cash flow of $18 billion in 2017.
The deals also give Amazon Prime the opportunity to build up a sports streaming infrastructure in terms of personnel, technology and branding. This is all sound planning if the company plans to eventually pursue larger fish like the Premier League, NFL or NBA.
The UK & Ireland is a good market to start with as it shares a language with the United States and has a smaller footprint than the EU, US or Asia.
Amazon can easily reuse commentary and presenting teams for the UK & Ireland in US and Canadian markets down the road. The relatively smaller scale of the UK and Ireland also help to keep costs down.
I think there’s more to it than the bargain price though. I believe that Amazon chose tennis because it allows them to add more customers to Prime and leverage some of the products they already sell to consumers.
New For You: Roger Federer’s Racquet
The US tennis market is worth about $5.6 billion according to the Tennis Industry Association.
18 million Americans served a ball in 2016 and these players have attributes that marketers and retailers love. 48% of them have a college degree or better and 54% have incomes greater than $75,000 according to the TIA. Some of that disposable income has probably been spent on tennis apparel over the years.
In general, it’s difficult to estimate the scale of the tennis apparel market as the main brands do not separate their earnings into particular sports. However, Technavio suggests that the US market for tennis apparel could exceed $328 million by 2020.
The tennis clothing industry is dominated by Nike and Adidas, while Under Armour, Uniqlo, Fila, Aasics and others also supply gear to elite players. Popular racquet manufacturers include Wilson, Babolat, Head and Yonex.
In February, world no.1 Simona Halep signed a sponsorship agreement with Nike for a reported $2 million per year | Keith Allison
For example, if we combine the current top 10 ranked men and women we find that:
Nine of the 20 players wear Nike clothing including world no.1s Rafael Nadal and Simona Halep
Nine of the 20 use Wilson racquets including Halep and Roger Federer
Five of the 20 wear Adidas clothing including Australian Open champion Caroline Wozniacki
And five of the 20 use Babolat racquets including Nadal, Wozniacki and Wimbledon champion Garbiñe Muguruza
Signature player gear, worn by the likes of Federer, Nadal and Serena Williams, tend to be high quality with a price to match. A lot of the clothing costs $70 or more and this has to be attractive to Amazon over the long haul.
In the near future on Amazon Prime, I can envision watching a player warm up for a match at an event while simultaneously, on part of the screen, an ad with a price reduction on the outfit in shot appears.
Of course, it need not be what the player is wearing. What about the racquet, balls, autobiographies, biographies, posters and much more? There’s also the opportunity to market indirect products.
“Want to see every shot? This 65 inch 4K TV is half price for Prime members until the end of the tournament!”. Similar deals could be offered for home cinema systems, tablets, laptops and phones.
This could naturally be aligned with the usual email notifications, push updates and login screen tailored to the consumer’s interests/purchases. Maybe Amazon will ask you to choose your favorite player so they can tell you when they’re playing, and select the appropriate products to display while you watch.
If something like this strategy played out, and worked for Amazon, one can imagine the company taking a serious look at streaming golf. The sports are quite similar. They both command an affluent audience composed of recreational players who love fancy clothes, shoes and equipment.
Conclusion
After warming up for a number of years, AMZN has finally jumped right into the action. These deals give Amazon the rights to a globally popular sport with recognizable stars for a nice price. It’s also a sport followed by an affluent audience who can afford to buy costly rackets and sneakers. Naturally all, some or none of the upselling opportunities I’ve laid out may happen on Amazon Prime. But it will be interesting to follow its development nonetheless. Will tennis fans take to this new broadcaster or grumble about yet another subscription to be paid?
If one day you find yourself tuning into the Superbowl, World Series or NBA Finals on Amazon Prime, it may well be because they aced this experiment.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.