Front Office, Disrupted

It’s the billion-dollar question on the mind of every sports executive right now: How do you separate yourself in a world where fans have almost unlimited access to sports and entertainment? With so many options to choose from, it’s getting ever harder for teams to captivate the masses. We speak to Angela Ruggiero, the CEO and cofounder of Sports Innovation Lab, to learn who is cracking the code.

Transcript

Paul Michelman: When it was first announced, it sounded like a headline straight out of The Onion. It was January of 2015, and the Atlanta Hawks, thanks to a sponsorship from the dating app Tinder, were promoting “Swipe Right Night,” where Hawks fans would have the opportunity to watch a basketball game and attempt to look for love in one fell swipe. Responses were certainly varied. Some observers saw the promotion as a creative way to spice up a bland game against the Grizzlies, while others lamented that it was yet another sign of the fall of Western civilization. But good or bad, reactions meant publicity, and publicity meant ticket sales — something the Hawks had struggled with for years, despite having a team with a long streak of making the playoffs.

Ben Shields: Swipe Right Night was part of a major branding overhaul for the Hawks, which also included reintroducing an old-school team logo to drive merchandise sales and putting a greater emphasis on social media content and interactions with fans. What do you get when you cross a logo that kind of looks like Pac-Man, a Twitter account that isn’t afraid to make fun of other NBA franchises, and a marketing department ready to commit to even the most outlandish ideas? You get a blueprint for how a middling sports organization can shake up how business is traditionally done and have fun doing it. Oh, and that Swipe Right Night that was so easy to make fun of? Last year, the Hawks paid for the wedding of a couple who met during that fateful evening at State Farm Arena. Now that’s what we call fan engagement. I’m Ben Shields.

Paul Michelman: I’m Paul Michelman, and this is Counterpoints, the sports analytics podcast from MIT Sloan Management Review.

In this week’s episode, we’re leaving the field and headed to the front office to take a look at how the sports industry is being disrupted — even as we speak.

Ben Shields: It’s the billion-dollar question on the mind of sports executives everywhere. How do you distinguish yourself in a world where fans have almost unlimited access to entertainment? With so many options to choose from, it’s getting increasingly harder for teams, leagues, and even individual athletes to captivate and keep the interests of fans.

Paul Michelman: Success in the modern sports industry appears to require mastery in four critical domains: media engagement, merchandising, sponsorship, and the game day experience. But the path to achieving that mastery remains mysterious to most executives. The good news: Data and analytics are now beginning to shine a light on this topic, showing just how the business of sports is being disrupted and who was doing the disrupting. Ben spoke to Angela Ruggiero, the CEO and cofounder of Sports Innovation Lab, to learn more.

Ben Shields: It is a pleasure to welcome onto Counterpoints, Angela Ruggiero, the CEO and cofounder of Sports Innovation Lab and also a four-time Olympian in ice hockey. Angela — pleasure to have you on the show.

Angela Ruggiero: Thank you for having me.

Ben Shields: Well, I’m excited to have you on because I would like to dig into this overall macro question about disruption in sports and how the sports business, specifically, will be disrupted. You’ve been thinking a lot about this question as a cofounder and CEO of Sports Innovation Lab, haven’t you?

Angela Ruggiero: Yeah. It’s what gets us up in the morning. You know, I was a four-time Olympian, as you mentioned, so I benefited from the ecosystem of sports and loved, obviously, being an athlete. But then I went back and studied disruption, lived in the sports business world, and recognized that for the first time, technology was really the driving force of change in sports — and that the whole ecosystem really needed to wake up and embrace technology, move into technology from an engagement standpoint. So really, tech is disrupting fandom, as we say, and fans look very different today than they used to. And a big piece of what we do at the Sports Innovation Lab is think about how to engage that next generation of fans.

Ben Shields: So that’s what’s really interesting about your work. You’re clearly sitting at the intersection of sports and technology, and much of your research is on fan behavior. And so I’m curious: Based on some of the work that you’ve been doing, what changes in fan behavior tell us most about where the industry is headed going forward?

Angela Ruggiero: Fans are just consumers, right? So we all operate very differently today than we did 10 years ago. I order my groceries online now. I never go to a pharmacy. I save time left and right. A lot of younger people don’t even own cars because they would rather use Uber or Lyft. So technology has ushered in this enormous change in terms of how we just engage with the world. And sports is no different. I think for so long, the sports industry has lived in a bubble. We haven’t had a lot of pressures — [it’s] almost like a monopoly in the way that we’ve operated. We’ve been shielded from typical disruptive forces because: Hey, if you like the Red Sox, you’re going to always go to a Red Sox game, as they say. If you’re a diehard, and you’ve got those tickets, then you’re going to pass those tickets down from generation to generation. You didn’t have to compete with Netflix and Fortnite, and the way that consumers now want personalized attention — you had great content, which was sport. So the research that we’ve been doing is really saying: Well, consumers are changing, therefore fans are changing. And with that, you have to service fans in a very different way than just relying on sports in and of itself. And believe me, as a former athlete, I wish I could say my hockey playing was, you know, what will drive people to the rink. But in reality, they want an amazing experience. They want great food and beverage options. You know, they want a personalized experience that they get in other forms of entertainment, other areas of their life. And so sports is, I think, just waking up now, realizing that they’ve actually got to take it up a level to service the demand of this consumer.

Ben Shields: So is there a piece of data that you think should concern all sports executives today?

Angela Ruggiero: So there was a point in time, I believe it was 2015, when Bob Iger who at the time was chairman of Disney and ESPN, showed that the subscriber base to ESPN was actually, for the first time, in a decline. So that to me said: OK, if for the first time in decades, ESPN — you know, that is the place you go to consume sports — their subscriber base was dipping in this linear way, because subscribers are actually now maybe tuning into more digital resources or social resources to get their sports consumption. I think that was a really telling point in the industry, where the behavior of the fan was shifting. And even though linear is the dominant way that we watch sports on TV today [and] it still will be for very long time, what it’s demonstrating is the broader consumer behavior, which is cord-cutting — I like to consume my media and entertainment on my phone and not necessarily on a big screen TV. So that to me was really a shift in the sports industry, hopefully saying we’ve got to wake up and potentially look at these disruptive forces that are cheaper and more accessible to get our content out there. And that’s one reason esports, which we point to a lot, has been very successful as a sport. What they’re doing looks very different than what traditional sports is doing in terms of getting their content out there and getting more people engaged with that sport.

Ben Shields: And just to pick up on that. So in terms of what esports are doing differently — is that because of the distribution mechanism being different? So for instance, the success of
Twitch? What are the reasons why esports, from your standpoint, are breaking through in the market?

Angela Ruggiero: Well, we’re a market research company, so we use data and analytics to really point to market signals. One of our practice areas at Sports Innovation Lab is around what we call immersive media. What is the media engagement model that really the whole industry should be looking at? And we define that in three ways: Is it social? Is it accessible? And is it interactive? Traditional broadcast coverage of sports is very one-way, you can’t engage with others, you’re not interacting with the content. It doesn’t do any of those three things. But it gives you a really nice picture. Esports, on the other hand, is — you know, you think about Twitch as a platform — your buddies can get on at the same time. It’s super social, it’s accessible because it’s free or a freemium version, at least, and it’s interactive. You can actually engage in the content, talk to the athletes, talk to each other. It’s a digital first sport. Esports has that huge advantage — they started in this digital way. And so traditional sports — they’re shifting their business model away from, maybe we’re not saying goodbye to broadcast, but we really have to figure out what are our options. What are our immersive media options? And that could be AR, VR — that could be just a whole different way that we take that same piece of content and deliver it to many different distribution models. These younger, more discerning consumers that want that interactive piece — we can’t just keep pushing linear to them. Just like any consumer, they’re going to demand more. And… I think that social interactive and accessible piece is what esports is doing really well.

Ben Shields: So that’s a really interesting dynamic because we’re talking about the incumbent media companies who are seeing some of their subscribers decrease versus the disruptor companies like a Twitch, for instance, that are presenting sports, or in this case esports, in a different way. I’m curious: From your perspective, how are you counseling your clients that are incumbents on how they should better embrace data and analytics to stave off these disruptive forces?

Angela Ruggiero: I think at the very highest level it is just understanding what disruption is. A piece of tech isn’t disruptive unless it’s really taking away, you know, slowly eating share through that more accessible option that fans … your younger consumer, in particular, are going to move towards. So I think at a high level we’re just trying… You know, we launched our fluid fan report, A New Age of Sports, a few months ago, and it’s gotten a lot of traction in the industry because it’s simply stating that traditional sports needs to change, needs to evolve, and needs to embrace these different opportunities to engage that next-generation fan. And so the data really would suggest the move away from linear or season ticket holder decline. There are data points that suggest both watching at home and in the venue. We’re seeing a big shift to this more nimble fan. We need to change our business models. We need to think about not completely ditching what we’re doing today, but really understanding these disruptive technologies that will ultimately drive revenue in the long run. And it’s really that tension but opportunity to say we need to invest in the technologies today that will drive the most revenue in the future.

Ben Shields: Yeah, and that makes sense. And we’ve spent some good time talking about how the media industry is going to need to rethink how to better serve fans. I want to get into some of the other pillars or revenue streams that you talk about in this report that are important to sports organizations. And let’s dig into the stadium, for instance. The stadium experience, as you note, is now competing more so than ever before with the media and on-the-go fan experience. So how should sports organizations be rethinking their approach to getting fans to actually come to the stadium in the future?

Angela Ruggiero: Yeah, I mean I love sitting on my comfy couch, paying next to nothing for a broadcast or a digital stream, having my food and beverage of choice with all my friends in the room. That’s actually really hard to compete with. You’re not paying a high ticket price — you’re not hassling through traffic. So there’s all these barriers to getting people to the venue. But one thing sports will always have from the gladiator times is that it brings people together. It actually creates a really amazing experience. Whether you know the rules of the game or not, you like being around other people and celebrating and cheering, and that’s something that sports and music and entertainment does, right? So it will never lose that appeal. It’s just can we break down those barriers to getting people to the venue. And when they’re there, can we make sure they have a really fluid, personalized experience. And that’s what I think a lot of the stadium operators today, the teams, the leagues are trying to figure out, which is: We’re going to continue to drive revenue through tickets. We want to get people to the stadium, but we have to make sure [you’re] getting to the venue safely, securely, [with] more technology, maybe, to ease your way there. Once you’re in the venue, can we create a more personalized experience?

Most venues don’t know who’s in their venue. It blows my mind. If Angela Ruggiero walked in the venue, you don’t know what kind of beer I like, who’s my favorite player, how I got there, who’s with me? I mean all these things that you think about Amazon or some of these technology companies — they know you intimately, and they’re actually able to deliver a much better service as a result. And so sports, I think, in a way — I would be more willing — I trust those sports brands more than I might a Facebook or a Google in some regards. If I know I’m going to get a personalized jersey, and you’re going to know that IPA is my favorite beer, and that you’re going to be able to streamline and keep me secure and safe — just like I do at the airport, without all the hassle of pulling out my wallet and my tickets and my identity — you know who I am with my thumbprint, and I know exactly which bathroom has the shortest line. I mean I’m just throwing hypotheticals of what some of these companies are working on. Just make it easy for me to be there. Make it personalized. And make it memorable at the end of the day, so that I want to come back in the future, and I’m willing to fight [for] the time and the effort and the money that is required versus sitting on my couch and having that different kind of experience at home.

Ben Shields: Yeah. I think that’s one thing that the sports industry is increasingly learning from tech companies. Tech companies, in terms of the user experience, have been obsessed with reducing friction and pain points, and I think we’re going to continue to see that in the sports industry. You touch on — in your report and [in] your latest research also — innovations in merchandising and sponsorship. I’m curious if you could take both of those revenue streams and talk to us about how sports organizations should be rethinking their approach to each.

Angela Ruggiero: Yeah. Before we move on, I think your point is spot on. Data to me will be more valuable than anything in the future of sports. Understanding that consumer, understanding that fan upselling, all the ways that these big data companies operate. Facebook doesn’t make their money on what you think they make their money on. But you’ve got this captive audience, I think, in sports that’s willing to share information which could be more valuable in the future. You’re a technology platform now if you’re a sports team or entity. I think that’s the mindset shift that has to occur versus: Oh, you’re a fan that’s going to buy a ticket, and I don’t know who you are. There’s a fundamental shift happening. And so as that relates to sponsorship in particular: Big brands pay big, big money to put their logo and associate with these teams in these leagues, these sports organizations. But they don’t always know if they’re getting the right return on investment. They don’t actually know if their message is resonating and connecting. And there’s an enormous amount of technology now helping those brands understand their reach, just like any social media platform would do, or understand their impact. It isn’t just about slapping a logo on a wall. It’s about actually engaging those fans and trying to figure out ways to measure the impact their brands have with those partnerships, those sponsorships. So we call that next-gen sponsorship. Through that whole life cycle of a sponsor and a brand engaging with the team, how do they better understand their impacts?

There’s a ton of new categories opening up. More opportunity. You think about cloud or e-commerce. These were not categories 10 years ago. There’s hundreds of them. We define the market in terms of sports tech. So we know [that for] any organization that wanted to increase revenue for their sponsors on their sponsor’s side, there’s a lot of new categories that are opening up that weren’t defined and haven’t been defined because these technologies are new. So again, the sponsors and the brand discussion is shifting enormously from “I want to understand my impact when I’m spending hundreds of millions of dollars.” And there’s also money on the table that I think is being left on the teams’ and league side because they don’t actually understand the new categories and new opportunities to sell sponsorship. So there’s an enormous shift there, which is… They’re going to continue to plow money into sports. We know it’s a phenomenal platform to get your message out and to actually connect to these consumers in an intimate way. But you know the measurement piece of that and the impact piece of that is fan engagement. When you activate those sponsorships onsite or at home, that model is shifting enormously as well.

Ben Shields: Yeah, I think that we’re a long way from the CEO of Company X being a fan of a team and then spending money to sponsor the team. I think we’re definitely moving into a very exciting and new direction in sponsorship where data and analytics will help. There’s clearly been some disruption on the merchandising side of the business as well. I think of FanAddicts, of course. How are sports organizations, based on your work, rethinking their approach to merchandising?

Angela Ruggiero: Yeah, it’s e-commerce, right? It’s not: I have to physically be at the venue or physically find a shop. It’s back to that personalization and knowing which teams and leagues and players specifically are resonating with the fan. And the fluid fan, you know, [in] our report, which is this fickle fan that you need to do more to service them and to support them — this is another alignment with that thesis, which is again, if Angela’s favorite player is LeBron James or Serena Williams, you could streamline merchandise. FanAddicts has figured out a way to do that quicker, more personalized, and at a lower cost than the brick-and-mortar approach. So just think about the shift from Amazon, you know, what we’re seeing in the marketplace more generally. And now you’re taking that approach with FanAddicts and some of these other organizations that are understanding the fan and delivering to them what they want, when they want, how they want. And that is the big shift, again, across all these different verticals.

Ben Shields: So I have a question for all the entrepreneurs that are in our audience. And I’m curious from your perspective, you’re studying this all the time: What does your research say about the sectors of the industry that are most vulnerable to disruption?

Angela Ruggiero: Yeah. No, it’s a really good question. I think the way that we, in our fluid fan report, talk about the traditional revenue streams: it’s merchandise, it’s ticketing, it’s your broadcast revenue, and your sponsorship revenue. So those are the big buckets. Obviously food and beverage, and you could break it down in a million different ways that are changing overnight. The way that you deliver food or merchandise or that fan experience is all being impacted by technology. So there’s disruption happening in every part of that ecosystem. I’m really looking at what are the new revenue streams in addition to just changing the way that you make money in the traditional. So think about sports betting. Everyone is grappling with this massive new revenue stream in the sports industry and figuring out ways to capitalize on it. I think about the athlete data itself and how the better that data comes when you can better understand that athlete, that’s an enormous opportunity from a fan engagement perspective. You know it’s interesting to see what athlete heart rates are or how they’re performing through data and analytics. So disruption is happening absolutely across the entire ecosystem. But I would really push hard on: How can you deliver a better experience at home? VR, AR — I mean tons of investment in that space. If you’re actually going to not go to the venue, how do you make that more immersive? When you’re in the venue, what are the technologies that are clear? Some of these organizations are making it safer to get into the venue or [so that] you can bring food and beverages to your seat.

Ben Shields: Well and I think that goes back to the original thesis of this episode, which is the sports business is being disrupted across the board. And it’s been fascinating to learn more about it from your perspective. Angela, I’ve got one final question for you. And I realize this is a tough one, but we are talking about the future here. So give us one prediction.

Angela Ruggiero: So there’s the thesis that the big get bigger and better and dominate. You know, we talked about the Big Four, right? Or, you know, now it’s not even domestic. It could be FIFA or global football. The counter to that is the long tail, which is every sport has the opportunity to now, through technology, democratize access. That long tail of Netflix, right? The smaller sports, women’s sports, niche men’s sports, Olympic sports. Obviously as an Olympic athlete, I’m bullish that technology will level the playing field. So there’s a huge opportunity for the incumbents, the bigger sort of more established sports leagues and teams to grow and win and to push everyone out. But there’s an equal opportunity for these niche sports to use technology to democratize engagement and access to their sports, where they could actually rise and surpass the big sports in the long, long run.

So I know that’s not perfect. I think we’re going to either just see the shifts, and we’re going to empower the big to get bigger and more dominant or the long tail, which I’m really betting on. I’m hoping that everyone has the opportunity with the right strategy and the right data to make the right investments to actually engage everyone and have that long tail be not a long tail anymore, but more of a leveling of the playing field. I don’t know if that’s a prediction, but you know, tech can move the needle one way or the other. And I’m hoping it’s for everyone.

Ben Shields: I think that’s a great and exciting prediction, Angela. This has been fascinating. Thank you so much for sharing your perspective. We really appreciate you taking the time.

Angela Ruggiero: My pleasure. Have a great day.

Ben Shields: To find out more about Angela’s latest report, go to www.sportsilab.com. This has been Counterpoints, the sports analytics podcast from MIT Sloan Management Review.

Paul Michelman: You can find us on Apple Podcasts, Google Podcasts, Spotify, Stitcher, Overcast, and wherever fine podcasts are streamed. If you enjoy Counterpoints, please take a moment to rate and review the program on Apple Podcasts.

Ben Shields: Counterpoints is produced by Mary Dooe. Our theme music was composed by Matt Reed. Our coordinating producer is Mackenzie Wise. Our crack researcher is Jake Manashi, and our maven of marketing is Desiree Barry. We also want to express our gratitude to Jinette Ramos, Richard Marx, Michael Barrette, Deborah Gallagher, Lauren Rosano, Ally MacDonald, Jenny Martin, Judy White, and Sean Brown, whose efforts make this show possible.