Business model

Fox’s USFL 2.0 bets on consumer demand for football and its business model –

The USFL returns this weekend after a 37-year hiatus. Well, sort of. A new version of the league (think: same IP, different ownership) debuts tomorrow night. The inaugural game (New Jersey Generals vs. Birmingham Stallions) will air on both Fox and NBC. Patrick Crakes (Principal, Crakes Media Consulting) expects the game, the first sporting event to be simulcast on competing broadcast networks since Super Bowl I, to attract at least 2 million viewers. The story showed that fans will show up in week 1, and streaming on “two prime-time broadcast networks, with one streamer, has a lot of reach.”

But sustaining fan interest over the course of a season and running the business side of the business has proven difficult for fledgling football leagues. The AAF and both versions of the XFL lost tens of millions of dollars and were shut down after just one season. While the USFL thinks it has the right formula this time around, many remain skeptical that this league will fare better.

JWS review: The latest iteration of the USFL is largely a Fox production (there are other investors and NBC is a media partner). The company’s investment thesis on spring football rests on two things. “One is consumer appetite for the product, the other is [a differentiated] business model,” said Mike Mulvihill (Head of Strategy and Analytics, Fox Sports).

The appetite argument is strong. Mulvihill points out that the XFL 2020 was doing well before the COVID-19 outbreak brought play to a halt. Games were “on average about 2 million broadcast viewers.” While that number doesn’t match NFL or college football broadcasts, “in the first half, there’s a lot of [sports] Properties [doing] very well on less than 2 million viewers,” he said, predicting that the USFL would “more than hold its own against [properties] like the NHL, MLS and Formula 1 which have long been part of the calendar at this time of year.

Brian Woods, former CEO of the Spring League (TSL), is the president of the USFL. TSL may not be a household name, but the development player showcase ran for four years (closing in 21), longer than any other 21st century spring football league.

The Spring League stuck around because it was disciplined in cutting spending. Games were held in a central location, players paid for the opportunity to participate in the showcase, and because they were classified as “campers” and not employees, insurance requirements were minimal. Although TSL was never a big company, Woods said, it was able to stay afloat.

The USFL will attempt to replicate the cost constraints developed by TSL. The league will play all of its regular season 22 games in one city (Birmingham, Alabama), limiting stadium expenses, player housing and travel costs. The league will also be able to improve the production value of games. Fox will have as many cameras (57), wireless microphones and drones in Protective Stadium as in NFL playoff games.

The USFL is also largely run by Fox employees, “eliminating much of the overhead associated with having to hire executives, sometimes at quite high pay levels,” Mulvihill noted.

But replicating TSL’s relative success won’t be easy, even for a league with some name recognition (and perhaps decades-old fan affinity). Traditional professional football leagues are an expensive business. Player salaries (think an active roster of 38 players, a seven-man training squad), insurance costs (partly because few insurers are willing to underwrite professional football), and Consumer marketing (something TSL hasn’t incurred as a B2B service) adds up fast.

The traditional professional soccer league model gives the USFL the ability to generate significantly more revenue than TSL has collected. Ticket sales, licensing, and sponsorships can all become viable revenue streams if the league builds a fan base. But it takes time – and deep-pocketed investors willing to cover the losses – for new sports properties to build up an audience. Fox has reportedly committed to investing $150 million in league operations over a three-year period.

Fox acknowledges that the league will lose money in the short term. The USFL will likely need a broadcast partner to pay significantly more for its media rights (Fox and NBC pay rights fees) and develop another means of monetization, before it can make a profit. But Mulvihill explained that as long as the league can demonstrate stronger viewership than other spring sports properties, it can become a significant player in the media rights market and a viable long-term business. “That’s where the comparison to other sports properties at this time of year is really important,” he said. “The NHL just came out and got a huge raise. We believe MLS and Formula 1 are set to do the same. Due to the entry of streaming players, the market is intensifying in such a way that we believe we have an opportunity to build this league and benefit from this rising tide of sports rights.

The league has a built-in marketing advantage that should allow it to outperform competing sports properties. “We have a huge number of games on the live streaming networks,” Mulvihill said. “Two-thirds of [our] the games will end up on Fox or NBC. Other than the NFL, there is no other league that has [that much] of its content on major free live networks. In a world where content discovery has become problematic, having games on widely distributed networks makes it easier for fans to find them.

When asked why the network has made such a big investment in spring football, in terms of linear windows, NBC Sports executive Jon Miller said the expectation is that “the USFL will be a very compelling brand of football” and that from a programming perspective the games fit “extremely well” into the programming windows available in Q2 ’22.

Playing all of its inaugural season’s games in one city has its advantages, but the centralized location could make it difficult for the league to develop passionate local fanbases in its eight “home” markets, which is why the ‘USFL plans to move. to a more traditional home and away in 2023.

Competition is also coming. The USFL will have this spring all to themselves, but the XFL plans to join the mix next year. It’s hard to imagine there’s room for two spring football leagues. Commercially, the jury is out on whether there’s room for just one. The risk is that the two leagues operate independently, cannibalize each other and neither succeeds.

Having a one-year lead should give the USFL a head start in fan retention. But Mulvihill says the biggest advantage the USFL will have over the competing spring league is its relationships with Fox and NBC. “It’s going to be tough for another spring league to find windows on networks as widely distributed as NBC and Fox. There are only a limited number of networks and windows to browse. The XFL has yet to announce a broadcast deal.