Economies of Scope in Entertainment, Media, and Sports

Photo Courtesy of the Associated Press

First, a quick economics lesson.  Economies of scope refers to when businesses implement a strategy of diversification of services, assets, or products offered through entry and growth into a new area or by mergers and acquisitions, either vertical or horizontal integration.  Vertical integration is where one business combines or reduces the processes and people to complete the production and/or sale of a service or product.  Horizontal integration is where one business purchases another business that competes in the same industry, which may lead to a monopoly and antitrust issues with the United States Justice Department.  Economies of scale refers to volume in terms of expanding operations and production of one existing service or product generally already under control of the business.   

In applying the economic principles discussed above to the entertainment, media, and sports industry today, there has been a combination of the industry talent and content production and distribution.  Meaning, a sports star today is just as likely to become a Hollywood Star in film, television, or news broadcasting as the athlete is to make into the hall of fame.  Also meaning that streaming and digitalization has allowed more people, ideas, services, and products to expand into new areas of content development and production. 

In sports, there are four areas where sports leagues and teams are capitalizing on additional revenue through economies of scope by international team and league development, esports, and sports gambling/betting typically though the vertical integration model.  In media and entertainment, however, economies of scope has been acquired through horizontal integration mergers, acquisitions, while new business entrants start streaming platforms to develop, license, and distribute content for consumption.  In breaking that down, look at each area individually. 

1. International Team and League Development

The list of owners in the five major professional American sports (MLB, MLS, NBA, NFL, and NHL) who also own international professional sports franchises is growing.  The list of teams who play games overseas is also growing.  While Major League Baseball has opened their seasons and played midseason games in Japan, Australia, Puerto Rico, and Mexico, with plans for London, the National Football League has played in London, Mexico, and had a previous flirtation with NFL Europe.  International play and growth is a priority of major professional sports leagues and teams in America, while the MLS is already a part of the international scene. 

2. Esports

A growing spectator and participant sport where many of the professional American sports franchises and leagues have created their own esports teams to grow revenue and tap into a new and growing audience and list of sponsors.  Esports venues will be the next wave of real estate development.   

3. Sports Betting/Gambling

Since the United States Supreme Court opened the door, professional sports franchises and leagues have jumped at the opportunity to include betting as a part of their sponsorship partners and offerings depending on the state where the franchise is located and whether the state has implemented a regulatory scheme.  Even where a regulatory scheme has not been passed through legislation and enforcement, teams have prepared for the opportunity. 

4. Mergers, Acquisitions, and Streaming of Content

With Apple, Amazon, and others entering the content space by expanding their offerings, while Disney/FOX and AT&T TimeWarner have merged or acquired much of a company’s assets, there is a golden age of content, but it does come at a cost in terms of choice.  Where the future is concerned, there is likely to be more cross-partnerships through licensing deals between entertainment and sports properties, e.g., live sports content on entertainment streaming platforms.  It is also likely that these streaming platforms will have gambling and betting opportunities for traditional and esports properties.       

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