Roundtable: Sports & Entertainment 2013

01 October 2013 Who’s Who Legal Publication
Authors: Kevin R. Schulz

Who’s Who Legal

The International Who’s Who of Sports & Entertainment Lawyers has brought together five of the leading practitioners in the world to discuss key issues facing lawyers today.

Participants
Kevin Schulz, Foley & Lardner LLP, Milwaukee
Stephen Cottrell, Cottsport, Auckland
David Zeffman, Olswang, London
Martin Dahl Pedersen, Kromann Reumert, Copenhagen
Stefano Sbordoni, StudioSbordoni, Rome

Which sectors of your industry have been most active in recent times? Are there new trends and developments in your jurisdiction that have impacted on the nature and volume of work you have seen over the past year?

Stephen Cottrell: The sports sector has been very active in New Zealand and Australia over the last 12 months or so. A key development has been in relation to the way media is consumed in general, and sports rights in particular, as technology improves and the cost of production decreases.

The change is being driven by digital convergence – more content is being consumed across more platforms on more devices. This in turn is leading to increased options for rights holders as they have more assets and opportunities to commercialise.

While the traditional broadcasters are still heavily investing in premium sports, the increased options and new players in the market (eg, Coliseum Sports Media in New Zealand who outbid Sky for the English Premier League rights) has led to a more competitive marketplace.

Maximising these revenue opportunities and other commercial benefits will be a key driver for sport for the foreseeable future.

Other developments in the New Zealand and Australian market include the following:

  • Increasing quantity and quality of international events being hosted (for example, the World Masters Games, the FIFA U-20 World Cup, the ICC Cricket World Cup and the AFC Asian Cup) due in part to an increasing central and local government drive to attract quality sports events. At the same time, funding bodies are requiring increasing levels of accountability and transparency in return for their support.
  • Ongoing drive for improvement in the quality and professionalism of sports governance and commercial operations.
  • A key focus on integrity – the recent doping allegations in Australia have re-enforced the need for vigilance in keeping sports clean, not just from doping but also from the potential for match fixing and/or corruption.

David Zeffman: The three sectors which have probably been the most active for us are: (i) the independent TV production sector, where consolidation has led to several M&A transactions; (ii) media technology work with, for example, our work for the BBC on the reprocurement of its analogue and digital radio transmission services, and for BT on the technical arrangements required for the launch of BT Sport; and (iii) the continued growth of the online gambling sector stimulated by the opening up of new markets in Europe and the USA and developments in technology – particularly mobile gambling.

 
Martin Dahl Pedersen: I would mention two sectors as the most active ones in Denmark in recent times. Those are the sports sector and the events sector. The volume of work has especially increased in respect of matters related to football. This is the sport in Denmark with the most money involved and with most focus from the public.

However, the volume of work has also increased in respect of making deals connected with the hosting of major international events. There is an increasing tendency of hosting major international sports and entertainment events in Denmark. We have recently hosted events such as the World Championships in cycling, the European Championships in volleyball, and the first stages of Giro D’Italia. The events that have been hosted until now have been very successful. This of course gives the opportunity of hosting more events in the future. At the end of 2013 Denmark will host the European Championships in swimming and in 2014 the Eurovision Song Contest.

Kevin Schulz: One of the most active areas in the sports industry, in recent times, has involved teams’ and leagues’ media rights deals. In the last few years, the rights fees that television networks have been willing to pay sports properties for their media rights have increased tremendously, a trend that continues today. There are a few reasons why the networks have been willing to pay so much for these media rights. First, at a time when viewers are increasingly likely to record their favourite shows for later viewing or otherwise watch shows on demand at their convenience, live sports is considered one of the few remaining “DVR-proof” programmes that viewers still want to watch live. As a result, such sports programming becomes much more valuable to advertisers, whose commercials are less likely to be skipped over. Second, sports programming is popular among young male viewers, a key demographic for advertisers. Third, there has been increased competition in recent years for such sports media rights, which has also helped drive up the rights fees for the benefit of the sports properties. As additional sports channels emerge both nationally (eg, Fox Sports 1) and locally (ie, regional sports networks), they require content, particularly live content, to fill out their programming.

This increase in media rights fees has had a significant impact on both professional and collegiate sports. For professional sports, the increases in rights fees that individual teams have been able to realise for their local telecast rights, along with the increases in rights fees that the leagues of which they are members have been able to realise, have led to huge increases in the value of professional sports franchises in recent years (see, for example, the recent record-setting sale of the Los Angeles Dodgers for over $2 billion). Also, as the value of professional sports franchises continues to escalate, the M&A and acquisition financing areas have become more complicated, requiring sophisticated legal representation. For collegiate sports, the increase in rights fees has contributed to the numerous college athletic conference realignment moves that have taken place in the last couple of years, as schools try to align themselves with the most marketable and lucrative package of media rights.
Finally, the rapid pace of technological development, particularly in the area of video content and streaming, has created increasing legal tensions in the intellectual property area, both in terms of preventing piracy of original content and in licensing proprietary content.

Stefano Sbordoni: In the gaming industry the impact of performing video lottery terminals has been relevant, notwithstanding the arguable ruling that forces operators to stress the machines without sufficient earnings. This creates a media campaign of negative opinion that will lead to restrictions imposed by the very same authorities that originally caused the problem. The expansion of online gaming is a mere consequence of the expansion of web usage; even here, the alarm created by the media is excessive and can cause the effect of directing gamblers toward illegal and careless operators. As concerns betting, the effects of recent national and international scandals on match-fixing have had more impact on operators than on clients. The national regulator, ADM, has launched a tender for the opening of 2,000 new betting shops, with the intent of combating non-licensed operators. The crisis is not helping, and even this sector, which until recently performed well, is suffering. But the blame has to be put mostly on the mismatched conduct of the relevant institutions.

We have heard reports of increasing pressure on fees and of clients growing the size of their in-house legal teams. Is this the case in your experience and what effect is it having on the legal market?

Stephen Cottrell: The bigger sports in New Zealand and Australia have in-house legal teams while the smaller sports rely on strategic use of external advisers.

While minimising costs is a focus for all sports, our experience is that, irrespective of their size, sporting bodies will look to trusted external advisers to help them make and implement key decisions.

We are used as an external “in-house” counsel by some sporting clients and we assist other clients in key strategic matters; for example, media rights negotiations and agreements, disciplinary issues and commercial disputes.

If anything, having in-house personnel has lead to an increase in work as in-house lawyers better understand the need for, and benefits of, specialist external advice and assistance.

David Zeffman: This is something we have experienced in some of our sectors and puts an increased emphasis on the need to differentiate by, for example, demonstrating market insight, adding value and focusing on client service.

Martin Dahl Pedersen: There is, for sure, more client focus on fees. This has been the case, however, for quite some years now. It is important to understand that it is not only a question of the size of the fees but whether you add the necessary value to the client. In respect of in-house legal teams the tendencies vary. Some in-house legal teams increased their size some years ago, but some have now even scaled down. In order to stay on top as an external lawyer you need to demonstrate the necessary traditional legal skills but also up-to-date deep insight into the sports and entertainment industries.

Kevin Schulz: We have always been focused on efficiency, but that focus has become more acute in recent years as there has been increasing pressure on outside legal fees across not only the sports industry but all industries, particularly during these tough economic times. Our Sports Industry Team is well positioned to meet these challenges, though. With a diverse group of attorneys across many practice areas with a lot of experience in the sports industry, our team is able to efficiently handle complex sports matters, oftentimes for significantly less than our competitors. Our broad geographic reach, including with offices in 14 cities that have major professional sports teams and/or league headquarters, also enables efficiencies in terms of client interface and prompt and economic delivery of services.

The increasing pressure on outside legal fees has also led to an increase in alternative fee arrangements with our clients. Thankfully, this was a trend Foley identified early and, rather than running from it, we embraced it. As a result, the firm has been very effective at working with our clients to tailor alternative fee arrangements to meet their specific needs.

Stefano Sbordoni: It is true. The increase in in-house legal teams, however, causes another problem: the need for employees to show performance, that goes often to the detriment of consolidated external legal advisors, and more often without a tangible benefit for the client. The pressure on fees is part of the problem, and only structured professionals can bear it without too much damage. Thankfully, experience and know-how in this sector are hardly replaceable.

Have there been any changes to the type of firms you are seeing in your jurisdiction and their market share in recent years? What is the balance like between boutiques and full-service international firms?

Stephen Cottrell: Our experience is that there is both the demand and the need for boutique firms and advisers, as well as full-service law firms. They have long coexisted and will continue to do so going forward.

While full-service law firms have the advantage of offering a broad range of legal services, many sporting bodies recognise the benefit of engaging expert providers from boutique firms in specialised practice areas.

In addition, we find that many clients will choose an individual lawyer with whom they have developed a close working relationship, rather than a firm.

A boutique firm with defined areas of specialty and a personalised, flexible approach can therefore be an attractive option for even the biggest of sports.

David Zeffman: I don’t think there has been a particular change to the balance between boutiques and full-service international firms but one new trend has been the entrance of the “lawyers on demand” locum-type services.

Martin Dahl Pedersen: There seems to be a trend towards either being a large, full-service law firm or a small niche boutique focusing within a specific area of law. We have seen a lot of medium-sized firms consolidating and merging in order to get more volume.

Kevin Schulz: While almost every professional sports team has an outside law firm in its city that does the routine legal work, increasingly those firms are pairing with the major international law firms that routinely handle the M&A, financing, and other more complicated legal work.

As a result, when we are working on the acquisition or sale of a professional sports team, a sports media rights deal, a sports facility financing/development project, or any of the other various sports matters on which we work, we generally see other large, full-service international law firms. In fact, there are a relatively small number of players in this space that we frequently cross paths with on these matters.

Stefano Sbordoni: Over here big firms are suffering fixed costs and pressure on fees more than boutiques, which can be flexible. But boutiques without a specialisation or a consolidated/acknowledged competence do risk disappearing all of a sudden. So the trend is towards boutiques, but at lower fees. With the end (we all hope) of the crisis in the near future, the big firms will regain their position.

Are there any particular changes you are expecting to see in the sports and/or entertainment industry and legal market in the near future? What type of legal work do you think will be most busy?

Stephen Cottrell: Aside from the area of media rights, we are seeing more opportunities to act for Australian-based clients in New Zealand as they look to grow and expand their operation into this market.

As more and more sports move into the professional era, we are also seeing a greater focus on improving their governance structures, operating procedures and supporting documentation; for example, on and off-field disciplinary rules and commercial agreements.

A new draft of the WADA Code coming into force in 2015, together with ongoing potential for match fixing and/or corruption, will also keep specialised providers in these areas busy going forward.

David Zeffman: Convergence – both at a technological level and also between companies which were once distinct media and tech/telecoms businesses – continues to remain a driver, with the latest example being BT’s acquisition of the English Premier League and other sports rights in order to enhance its television offering and to protect and grow its broadband business. Data is also increasingly important to media and technology businesses, with convergence allowing companies to collect increasingly rich data about customers’ preferences and behaviours. We anticipate activity both in terms of commercial work and also data protection advisory work, as companies work out how to exploit the data they are collecting in order to extract value and enhance customer offerings.

Martin Dahl Pedersen: Convergence in the media sector will still be of major importance for the lawyers working within the field of media and entertainment. In general I also think that the tendency of protecting your rights by going to court will continue to increase. The last couple of years have seen more and more litigation and I think this will continue in the near future. The level of protection of personal data is a hot topic and will remain so in coming years. The same goes for match fixing. Regulators in Denmark are currently working on the introduction of rules on a list of sports events of major importance for society. Such events needs to be broadcast on free public television, once the exclusive broadcasting rights to the events have been acquired by a commercial television station. When introduced, such rules may certainly create a lot of legal challenges to deal with.

Kevin Schulz: For the foreseeable future, I expect to see the trend for increased rights fees for sports media rights deals to continue, which will also lead to greater M&A activity for professional sports franchises, as the value of those franchises continues to rise. One potential change in law in the US that is worth watching is the proposed requirement for pay-TV providers to offer so-called “à la carte” programming, a change that has been sought most recently by US senator John McCain. Under à la carte programming, viewers would be able to pick and choose which channels they want to subscribe to, rather than the current pay-TV model where viewers are required to subscribe to large bundles of channels, even if the bundles include channels they do not want. The theory behind à la carte programming is that viewers’ subscription fees would go down if they do not have to pay for channels they do not want. However, most in the media industry, including programmers and distributors, oppose à la carte programming and argue that viewers’ subscription fees will actually increase. Opponents of à la carte programming assert that channels would need to dramatically increase their subscription fees across a smaller number of subscribers to meet their operating costs, which would lead to higher overall subscription fees for viewers. Opponents also argue that viewers will be left with fewer programming choices, as smaller, less popular channels that are able to survive under the current pay-TV model when bundled with other, more popular channels, will simply not be able to survive under an à la carte programming model that requires their costs to be spread over only a small number of viewers. Because of the strong opposition in the media industry to à la carte programming, I do not expect to see that change in the pay-TV model anytime soon, if at all. However, if the proponents of à la carte programming succeed in changing the law, then that would turn the pay-TV model in the US on its head, which would dramatically affect both existing and future sports media rights deals.

In addition to the continuing importance of traditional pay-TV, the arc of technology and fans demanding any game, anywhere, anytime on any device will continue to drive legal challenges and issues as leagues and clubs deal with making their content available to the broadest range of fans across the broadest spectrum.

Stefano Sbordoni: Sport and entertainment will be more and more structured, needing a better support from legal and advisory firms. The technical aspects will be stressed, thus requiring (again) specialised assistance. We expect to see all of this, notwithstanding the insufficient degree of competence of decision-makers in the public institutions (such as parliament, government and the relevant authorities) that are still led by political interests. There is a lack of capacity of reading the future that impedes the issuing of key provision that could accompany the success of sport, entertainment and gaming industries. The legal work we expect is a consequence of the above.

Copyright 2013, American Health Lawyers Association, Washington, DC. Reprint permission granted.

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