A ‘Netflix for Sports’ Wagers on League Deals, Betting to Save Streaming Dreams
Early last year, it looked like DAZN might finally be turning a corner.
The streaming company—bankrolled by Ukraine-born billionaire mogul Len Blavatnik—had survived the shutdown of live sports during the pandemic, a near-death experience for a company with the ambition of becoming a global Netflix for sports. It beat out British broadcaster Sky for the rights to stream Serie A soccer matches, Italy’s top league, a deal the company hoped would help lift its subscriber numbers to 13 million by the end of 2021 from around 9 million at the start of the year. Blavatnik was even considering taking the company public through a merger with a special purpose acquisition company.
Since then, though, DAZN has hit a wall. Its subscriber numbers have stalled at around 11 million, said people familiar with the situation. It lost more than $1 billion last year on around $1.4 billion in revenue, and is on track to lose roughly another $900 million this year, those people said. Meanwhile, talks to go public have fizzled amid a collapse of the SPAC market. And a big chunk of the company’s management team has been pushed out.
THE TAKEAWAY
• DAZN lost more than $1 billion last year
• Service fell short of 13 million subscriber target for the end of 2021
• Tech investments have taken back seat to sports rights
These are uneasy times for a growing number of streaming services, notably Netflix, that are experiencing growth challenges. But services like DAZN face an additional obstacle since live sports have been slower to migrate to streaming than other forms of entertainment such as movies and television shows.
That’s in large part because rights to the best games and leagues have been tied up in expensive, multiyear deals with established broadcasters. And competition for those rights is intensifying as much bigger tech players like Amazon and Apple begin bidding more seriously for games.
In an interview with The Information, Kevin Mayer—the former Walt Disney Co. executive whom Blavatnik hired as nonexecutive chair of DAZN—said one of the main reasons DAZN didn’t grow as fast as it expected was because the company overestimated how quickly people in Europe would be willing to cut the cord to traditional television providers in favor of streaming services.
“It’s taken a bit longer than anticipated because of the natural inertia in any new market that requires some consumer habit changes,” Mayer said.
Still, Mayer argued that DAZN is on a better footing than it has been in the past now that it has sports rights in all the major markets in Europe. In December, it won Spain’s La Liga soccer rights in December for five years, adding to its Bundesliga and UEFA Champions League soccer offerings in Germany and Serie A rights in Italy. And under new management, the company has a clearer strategy, Mayer said, and is bolstering its business model by pursuing new sources of revenue besides subscriber fees.
For example, as part of a push into sports gambling, DAZN this month announced a joint venture, DAZN Bet, with London-based Pragmatic Group to enable subscribers to bet on games. Eventually, DAZN hopes 60% of its revenue will come from subscriptions, 20% from betting and 20% from advertising and commerce, Mayer said.
“Now we are setting about to monetize as fully as possible premium local sports rights,” he said.
While DAZN offers a version of its service for U.S. subscribers—with an emphasis on boxing—the company has focused more on snapping up sports rights outside the U.S. where Blavatnik and others believe there is less competition and more opportunity for growth. The value of U.S. sports rights airing this year is expected to hit almost $20 billion, compared to $13 billion for the top five European markets combined, including Germany, Italy, the U.K., France and Spain, according to London-based research firm Ampere Analysis.
One of the biggest tests yet for whether DAZN can make its business work will come when a new season for European soccer kicks off in the third quarter, which is likely to drive a wave of fans to sign up to the service. DAZN plans to launch its new betting offering by then, assuming it can get regulatory approvals in local markets.
But the better selection of sports on the service will come at a steeper price: In July, a new monthly fee of €29.99 ($31.57) will go into effect for existing DAZN subscribers in Germany—double the previous fee. It’s also planning a price hike for Italian subscribers, which it has not yet announced the details of, at the start of the Serie A season in August, the company said. Such price increases can be risky: Netflix’s subscriber growth stalled recently after it raised prices.
Blavatnik, for one, wants to see more progress from DAZN this year, said people familiar with the situation. He has grown frustrated by the company’s history of heavy losses, the people said. Blavatnik, who made a fortune by acquiring Warner Music Group and later taking it public, has pumped more than $5 billion into DAZN so far and has been pushing its executives for faster changes.
DAZN has sought to raise outside financing in the past, but its efforts stumbled because of the company’s heavy losses and the structure of Blavatnik’s controlling stake, which he previously held through preferred shares. That meant any conversion of those shares to common stock would dilute the holdings of new shareholders. Earlier this year—at Mayer’s urging—DAZN restructured its ownership by trading Blavatnik’s preferred shares for common stock and eliminating its debt, an attempt to make DAZN more attractive for outside investors, said people familiar with the situation. Now investors know Blavatnik’s stake before they buy in.
DAZN expects its revenue this year to be around $3 billion, according to the people, and has a goal of breaking even in 2023 and showing profits in 2024, according to one of the people.
Costly Distractions
DAZN’s success may depend partly on whether it can put one constant over its history—management drama—in the rearview mirror. Almost since it was founded in 2016, there has been turmoil in its executive ranks, which many current and former employees said was a costly distraction that held DAZN back.
‘It’s taken a bit longer than anticipated because of the natural inertia in any new market that requires some consumer habit changes.’
DAZN’s former executive chair, John Skipper, a longtime ESPN executive, and its CEO, Simon Denyer, clashed over strategy, including how much to spend for streaming rights to boxing matches in the U.S. and what sports rights packages the company should pay up for abroad. Denyer left DAZN last year, and Skipper is no longer its executive chair, though he remains on the board.
In January 2021, Blavatnik replaced Denyer with James Rushton, one of DAZN’s founders and a well-liked executive at the company, and then subsequently brought in Shay Segev, previously CEO of Entain, a sports betting company, as co-CEO. Around the same time, Blavatnik also tapped Mayer to become nonexecutive chair, a move many DAZN employees welcomed because of his involvement in launching Disney’s flagship streaming service, Disney+.
But some DAZN employees became concerned when David Zaslav, now CEO of Warner Bros. Discovery, announced in November that Mayer would be a consultant to the company that emerged from the combination of Discovery and Warner Media. Discovery owns European sports broadcaster Eurosport, a major competitor to DAZN. Mayer made it clear to Blavatnik that he would stay out of all sports-related conversations at Warner Bros. Discovery to avoid any conflicts, said a person familiar with the discussions. Mayer wears many other hats as well, including that of co-CEO of Candle Media, an entertainment company backed by private equity giant Blackstone.
This year, Blavatnik shook things up again, believing DAZN needed to do more to grow the service faster. In January, Blavatnik named Segev sole CEO of the company, relieving Rushton of co-CEO duties. Rushton will remain on the board and is expected to relocate to Australia, where he’ll continue to work part-time advising the company’s Japanese arm.
In the past several weeks, Segev has brought in an entirely new management team, including a new chief technology officer, regional heads and a new head of betting. Among the executives departing DAZN are Ben King, a former Apple executive who was chief subscription business officer at DAZN for over three years, and chief financial officer Stuart Epstein, who is leaving this summer.
While DAZN has focused on global markets because of cutthroat competition in the U.S., those markets are heating up too, especially as tech giants get in on the bidding for sports rights. For example, last summer, Amazon paid a reported €275 million a year for rights to France’s Ligue 1 soccer game.
In February, DAZN reportedly made an $800 million bid for BT Sport, a media arm of telecommunications company BT, which owns a number of pay TV channels in the U.K. Such a deal would have given DAZN rights to the much-coveted English Premier League and UEFA Champions League matches for the next few years in the U.K. Instead, BT Sport struck a partnership with Warner Bros. Discovery, which is still pending regulatory approval, according to a person familiar with the situation.
DAZN’s pockets simply aren’t as deep as those of its rivals. Amazon, which offers live sports as part of its broader Prime membership service, and traditional television distributors like Sky are able to better absorb the costs of sports rights because they view it as one small piece of bigger businesses, said Mike Darcey, a former Sky TV New Zealand executive who is chair of British Gymnastics, the governing body for the sport in the U.K.
“When Sky bids for rights, the amount of money they are willing to bid reflects not just the money they win back from streaming the sports rights to the viewers, but also [the way] they position those sports rights at the center of a broader bundle that includes other content and broadband,” Darcey said.
Still, DAZN has been willing to dig deep into its wallet in some cases. It paid a reported €2.5 billion ($2.6 billion) for the three-year deal for Serie A soccer matches, beating out Sky. But the costliness of those deals has had consequences for DAZN, forcing it to make compromises in other key areas.
For example, several people familiar with the matter said the company’s management hasn’t made enhancing its technology platform a priority because of the need to preserve cash for sports rights deals. For example, DAZN just recently began testing functions that allow users to watch games on a pay-per-view basis.
Its technology also doesn’t have the ability to allow betting from inside the app, despite the fact that executives have talked about getting into betting for years (DAZN Bet, a new offering, will work through a separate app). Other people familiar with the matter said the lack of focus on those tech enhancements was less about resources and more a result of the distractions caused by infighting between former managers.
DAZN will also have to start saving its euros for the next round of bidding for sports rights given that in Europe most major soccer rights are up every three years, said Tim Westcott, senior principal analyst at London-based media research firm Omdia.
“The cycle is punishing for broadcasters,” Westcott said.