Fan Power: Unlocking Revenue Potential in Professional Sports

Unlocking Revenue Potential

Professional sports teams operate in a highly competitive and performance-demanding industry, where success is measured by both a team’s on-field performance and their off-field financial performance. In recent years, the sports world has increasingly focused on the influence of fan engagement on driving the economic success of sports teams. Highly engaged fans contribute to the exciting atmosphere during games and play a pivotal role in helping teams sustain and generate revenue through various streams. 

Analysis of Sports Fan Engagement and Economic Performance

Sports fan engagement
Money flow in professional sports

Professional sports teams rely on several revenue streams to support their businesses including media rights, ticket sales, and sponsorships, with the significance of each largely depending on the sport, team size, and market.

However, the recurring theme is that ticket sales and media rights take up the largest percentage of the revenue pie for the vast majority of leagues and sports teams. Since fans are the basis for generating revenue, it is not surprising that traditional forms of revenue generation such as ticket sales and media platforms allow for substantial financial returns, making them a primary focus for teams seeking to maximize their revenue potential.

The Relationship between Fan Engagement and Ticketing Revenue 

The relationship between fan engagement and ticketing revenue in sports is influenced by various factors, including price elasticity, ticket demand, and fan spending. In sports, price elasticity determines how sensitive fans are to price changes and how their behavior is affected by those changes. 

demand
Difference between elastic and inelastic demand.

When the demand is inelastic for tickets such as NBA courtside seats, consumers are less sensitive to changes in price. This means that for inelastic demand, total revenue increases when price is increased and vice versa. When the demand is elastic for tickets, such as nosebleed seats in a low stakes game, consumers are more sensitive to changes in price. 

Since the relationship between price elasticity of demand and total revenue is complex and very difficult to determine, the most reliable strategy for sports teams to increase their revenue is to increase fan engagement to reduce price sensitivity, thereby increasing the demand for their tickets, merchandise, or other sources of revenue.

According to the Deloitte, self-described fanatics spend six times more than self-described casual fans annually. Fans who exhibit a deep and passionate commitment to a team or sport are more willing to invest in tickets, merchandise, and other related expenditures. Deloitte also found that season ticket holders spend five times more annually compared to non-season ticket holders. Season ticket holders also demonstrate a higher level of commitment and loyalty to their favorite teams, leading to increased spending on tickets and other associated expenses throughout the season. Moreover, fanatics are about seven times more likely than casual fans to have a high engagement level. Highly engaged fans, even with similar income levels to casual fans, are more likely to spend more and have a greater impact on the revenue streams of sports organizations.

Fan Engagement in Action: WNBA “IsoFan” 

“IsoFan” is a unique challenge faced by the Women’s National Basketball Association (WNBA). “IsoFans” are fans who attend games alone and do not have anyone to share their fandom with. A study conducted during the 2019 season surveyed approximately 700 WNBA fans, revealing that up to 28% of respondents identified as IsoFans, meaning that they lacked connections to other fans of the league.

However, the study challenges the assumption that fandom is social and highlights the significance of creating positive experiences for IsoFans. The research suggests that normal fans are more likely to have a higher level of identification with their favorite team, making them more likely to become fanatics.

Currently, WNBA teams are looking to cater towards IsoFans to improve their engagement, elevate their fan experience, and reach the objective of increasing total revenue. Methods to accomplish this include identifying IsoFans at the time of ticket purchase or through fan surveys and creating targeted experiences for them. For example, virtual platforms such as social media spaces can be used to connect geographically dispersed IsoFans.

Value of Media Rights and Impact on Sports Teams

Media rights play a pivotal role in the economic performance of teams and represent a significant portion of their revenue. These rights include broadcasting, streaming, and distribution agreements, which allow teams to showcase their games and events to a wider audience. 

The value of media rights is typically impacted by the popularity and demand for the particular sport and league, as well as the size of the fan base. Additionally, the team success, level of talent, and likability of a sports team can also contribute to the value of media rights. To increase the value of their media rights, sports teams can employ various strategies, including increasing fan engagement by expanding global reach and therefore viewership. 

“Drive to Survive,” a popular Netflix series about Formula 1, has been influential in increasing fan engagement in the league across broadcasting platforms. For example, the debut week of Season 5 attracted nearly 570,000 viewers, a 40% jump from the Season 4 debut. When factoring in viewers catching up on past seasons, the total viewership exceeded 643,000 viewers. The series is credited with boosting live race viewership on ABC and ESPN, leading to increased sponsorship revenue. A poll conducted among U.S. Formula 1 fans revealed that 53% of respondents attributed their viewership of F1 races to the influence of “Drive to Survive”, which is an unbelievably high percentage.

The increase in U.S. fan growth since the debut of the Netflix series indicates a positive trend. Moreover, the addition of new races, such as the Miami and Las Vegas Grand Prix, further enhances the potential for growth in race viewership. Experts anticipate another ratings growth spurt of 15-20% because of the success of “Drive to Survive” and the subsequent increased presence of Formula 1 in the United States.

Success Stories in Maximizing Fan Engagement

1. Ajax Melted Trophy

Football team Ajax melted down their championship trophy into 42,000 stars and distributed a piece to each season ticket holder. Not only did this unique strategy capture fans’ attention, but it also earned prestigious recognition through winning the grand prix and sports category at The Drum Awards in 2021.  

Other teams can take inspiration from Ajax’s success and replicate their approach by offering customizable, unique, and sentimental items to their most loyal fans. This establishes a deep connection with the fans, recognizes and rewards their loyalty, and creates emotional ties with the team. Tactics like this make the price elasticity of demand more inelastic, meaning that an increase in price will lead to an increase in revenue. 

Lastly, participating in industry awards and recognition can bring visibility and prestige to fan engagement initiatives, as well as drive overall brand awareness among existing and new audiences. By submitting these initiatives for consideration, sports teams can gain positive publicity and enhance their reputation. 

2. The Fan Loyalty Rewards Program

One strategy that comes from outside of sports is the Fan Loyalty Rewards Program: a unique fan engagement strategy that aims to incentivize and reward fan’s loyalty with the end goal of generating a significant impact for sports teams. 

Much like customers of an airline or restaurant, fans can earn points for various activities such as attending games, purchasing merchandise, engaging with the team’s social media content, participating in fan contests, and referring new fans to join the program. These points could be redeemed for exclusive rewards, including VIP experiences, meet-and-greets with players, merchandise discounts, and priority access to tickets.

While loyalty reward programs are quite widespread, the unique concept of dynamic valuation of points in these programs has rarely been considered. For instance, teams can offer more points to drive fan behavior at unpopular game times, similar to how teams dynamically price their tickets. This can provide meaningful incentives for fans to attend and engage with the team during low-stakes games. 

The Fan Loyalty Rewards Program is supported by previous research that demonstrates the positive impact of loyalty programs on fan engagement and revenue generation. It leverages gamification to motivate fans to actively participate and earn points, resulting in heightened fan enthusiasm, word-of-mouth promotion, a sense of exclusivity that drives fan loyalty, and a more inelastic demand curve. Loyalty programs can also tap into the trend of personalized experiences and customized offers by tailoring awards to individual fans, enhancing their satisfaction and emotional connection with the team.

Future of Fan Engagement in Sports

The NHL has implemented an AI platform called Greenfly, which streamlines the process of sharing digital media content across various social media channels. This platform allows teams and players to quickly and easily access and distribute personalized content, such as photos and videos, to engage with fans on social media. With AI algorithms that automatically tag and categorize media assets, teams and players can quickly find and share relevant content, providing fans with more frequent and timely updates.

  1. By using AI-driven data analytics, the NHL can gain insights into fan preferences and behavior, allowing them to tailor content recommendations and engagement initiatives to individual fans’ interests. Fans are now more encouraged to create and share their own content, which can be curated and amplified by the league and teams through the Greenfly platform. The use of tools like AI to increase fan engagement will quickly become widespread, benefitting teams and leagues all around the world.

All the photos in the article are provided by the company(s) mentioned in the article and are used with permission. 

References

  1. Bain. “How Investment Is Changing Sports,” July 22, 2021. https://www.bain.com/insights/how-investment-is-changing-sports/.
  2. Deloitte United States. “A Game Plan for Enhancing Fan Engagement,” n.d. https://www2.deloitte.com/us/en/pages/consumer-business/articles/sports-loyalty-scoreboard.html.
  3. Sports Business Journal. “Solving the Mystery of the WNBA ‘IsoFan,’” July 27, 2023. https://www.sportsbusinessjournal.com/SB-Blogs/OpEds/2023/07/27-isard-katz-melton-agha.aspx.
  4. ———. “F1’s ‘Drive to Survive’ Effect: Inside the Show’s Ratings and Its Impact on Race Viewership.” The Athletic, September 5, 2023. https://theathletic.com/4402239/2023/04/13/f1-formula-one-drive-to-survive-ratings/.
  5. ———. “5 of the Best Sports Campaigns That Won in 2021, Including Ajax and AB InBev.” The Drum, December 27, 2021. https://www.thedrum.com/news/2021/12/27/5-the-best-sports-campaigns-won-2021-including-ajax-and-ab-inbev.
  6. ———. “The NHL Leads with AI to Power Digital Media Access.” Greenfly, November 17, 2023. https://www.greenfly.com/resources-category/customer-showcase/nhl-ai-power-digital-media-access/.

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