DAZN: Tidal Wave or A Bubble Waiting To Burst?

By Paul Magno on March 15, 2019
DAZN: Tidal Wave or A Bubble Waiting To Burst?
There certainly is reason to fear a collapse at some point in the not-too-distant future.

Applying the Netflix business model to an extremely mercurial, volatile business like boxing is a huge risk, even under the best of conditions…

Gennady Golovkin signing with DAZN is a good thing for fans, paving the way for a part three with Canelo Alvarez, a part two with Daniel Jacobs, and a contest with Demetrius Andrade (at the cost of losing out on a Jermall Charlo encounter). One could also argue that if Deontay Wilder were to accept the offer made to him by the streaming service, that would also be a good thing for fans as it would set up a huge heavyweight unification bout with Anthony Joshua (even though it would likely cost him a chance at a Tyson Fury rematch).

But could DAZN, after capturing such high-end, high-price talent, implode under the weight of its own ambition? That’s the question that needs to be asked as the company begins to work towards their goal of being the Netflix of sports. And then there’s the follow up of “what happens next” if they succeed in building an empire that crumbles into dust.

Adding up the numbers, there certainly is reason to fear a collapse at some point in the not-too-distant future. Just the Canelo Alvarez deal, signed last October and paying out $365 million over five years, alone, is worrisome from a financial perspective. With the Mexican star earning about $35 million per fight and a high-end opponent probably looking to get between $3-5 million to face him, we’re talking a minimum of $76 million dollars spent per year for Canelo. That translates to roughly 633,000 subscribers at DAZN’s 10 bucks-a-pop price for the full twelve months, just to cover two Canelo fights.

Then, factor in recent DAZN signee Gennady Golovkin, who inked a three-year, six-fight deal worth, depending on who you ask, anywhere between $60 million and $100 million.

Most recently, rumors are circulating that a three-fight, $100 million offer is on the table to bring WBC heavyweight champ Deontay Wilder to the DAZN team.

Doing some very simple, crude calculations, that would place their payroll—for just Alvarez, Golovkin, and Wilder—at $160 million per year for two fights apiece, not counting their opponents. That’s 1.333 million subscribers for a full twelve months to cover the A-side costs of six fights. And that doesn’t even take into account the B-side expenses for those bouts, plus a growing roster of fighters that includes Anthony Joshua (his take from US airings), Daniel Jacobs, Demetrius Andrade, Oleksandr Usyk, Dmitry Bivol, Jarrell Miller, Callum Smith, Josh Kelly, Daniel Roman, Maurice Hooker, and Tevin Farmer. There are also obligations to be met with Golden Boy Promotions (David Lemieux, Jaime Munguia, Ryan Garcia, etc), The World Boxing Super Series, Bellator MMA, and, as part of the Golovkin deal, GGG Promotions.

Mind you, this accounting disregards things like foreign rights money and sponsorships (which would add some money to the company coffer) and it only focuses on the US combat sports-based version of their service, but the money being spent on boxing—non-PPV, flat-subscription fee boxing—is huge.

And while one might be flattered by this kind of attention being shown to this increasingly marginalized sport of ours, the question of “how the hell can this succeed” has to be addressed.

In a sport that barely passes the 2 million viewer mark for high-end fights on free network TV, DAZN might need 2 million paying subscribers per month just to break even. Can the fan base be expected to grow to accommodate those needs if, once again, just like in the HBO/Showtime years, everything is behind a paywall (albeit a shorter, thinner paywall)?

The Netflix business model adopted by DAZN, which is a hit with investors and a hit with customers, has leaned heavily on debt spending, with as much as $12 billion in debt on their balance sheets as of last September and an $859 million negative cash flow in the last quarter of 2018. In other words, the Netflix business model hasn’t even really succeeded with Netflix yet, so applying it to an extremely mercurial, volatile business like boxing is a huge risk, even under the best of conditions. Will DAZN parent company Perform Group be as patient in burning through debt in pursuit of turning boxing content into a profit as Netflix is with their mainstream programming? One or two brutally disruptive knockout punches could turn half a billion dollars in assets into half a billion dollars in liability.

There’s also the jaded reality that boxing, because of its own awful business model over the last several decades, has bred a culture of Robin Hood-ism when it comes to illegal streaming. For every event there will be dozens if not hundreds of illegal streams that pop up with two or more seemingly rising for every one shut down. Even if the legal price tag is reasonable, the ill will remains there, the technology has been cultivated, and a subculture of “justified” robbery has been created. A streaming service like DAZN is playing right to those most likely to seek out pirated streams. Anyone with the marginal know-how to sign up and access the legal content has the know-how to find all of that content free.

So, even though the headlines are favorable for DAZN and consumer reaction has thus far been positive, there’s still the distinct vibe of a quickly-expanding bubble that may burst spectacularly at some point.

And if the bubble does burst, what then?

Another company willing to invest over a billion dollars into boxing is not likely to come around. HBO is out of the business. And, while Top Rank/ESPN and Premier Boxing Champions (Showtime/Fox) would surely take in some of the high-end DAZN talent, there would definitely be some restructuring of fighter salaries and/or a full scale return to the PPV business model that would further drain consumers and push the sport deeper into its niche category.

It’s not Chicken Little “sky is falling” stuff to speculate that a burst DAZN bubble may result in bad times for both boxers and consumers as the current sellers’ market for fighters would become a buyers’ market. Purses would be slashed, content would cost more for the consumer.

Even if DAZN succeeds completely and totally, though, fighters might be in for reduced wages and fans may be asked to pay significantly more than they are now—because, again, this whole business model of theirs seems doomed to failure.

The company’s recent decision to start running ads on their previously commercial-free service is a sign that, maybe, someone, somewhere at DAZN is worrying about bringing in some extra revenue to pull itself out of the deep red.

Unsubstantiated rumors about their displeasure with sluggish subscription numbers go hand in hand with their sudden push to toss more money into the furnace for fuel. But, even if the rumors are not at all accurate, DAZN executive chairman John Skipper telling media at the presser to announce the signing of Golovkin that he was a “three or four” on a scale of one to ten when it comes to his subscription goals, well, that’s not great, even when followed by a damage-controlling “[but] I’ll be at a ten.”

Also don’t rule out the necessity for DAZN to become what they aggressively campaign about not being—a company that passes the hat for the really big fights via pay-per-view. The money they’re obligated to dish out to their top stars may make it so that pay-per-view is the only way to turn a profit.

On the surface, ten bucks a month for all this stuff DAZN provides is awesome. Being able to see blockbuster Canelo Alvarez, Gennady Golovkin, Anthony Joshua, and maybe Deontay Wilder fights for no extra money is even more awesome. But beware of things that seem too good to be true.

Right now, like a politician looking to sway votes, a lot of money is being tossed around and a lot of promises are being made. But also like in politics, there may come a time when we realize that anticipating delivery on those promises was never a realistic expectation.

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  1. Lucas McCain 11:13am, 03/21/2019

    I see in today’s news DAZN is doubling its rates, with a discount if you pay for the whole year in advance.  Was this in the works all along, or a sudden “Oh,oh”?  As they say, a bargain at half the price.

  2. Old Yank 03:42pm, 03/15/2019

    Simple…if DAZN does not fix their technology flaws (that cause millions of screens to go blurry or slide into buffer land), they will be committing suicide by stupidity.

  3. Lucas McCain 09:09am, 03/15/2019

    Sounds like solid figuring that someone at DAZN should have or maybe already has done, but was overridden by a charismatic, narcissistic, self-anointed genius who believes in big risks for big returns.  I wonder if Deutsche Bank is lurking and laundering somewhere.

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