American hero: Tom Brady plays one of the most profitable sports in the world. Photo: Getty Images
With most of his time dedicated to looking after the Australian Football League, Gill McLachlan uses any spare moments to catch up on another of his sporting passions, American football's New England Patriots.
Like an increasing number of fans, McLachlan uses his computer to watch the exploits of star quarterback Tom Brady through so-called internet protocol television - IPTV.
The AFL deputy chief executive, who is tipped to take the top job when Andrew Demetriou steps down, has little choice in how he watches the American NFL, with IPTV and internet video delivery the best means for Australian fans to get detailed coverage of the NFL from afar.
But the growing importance and popularity of IPTV is set to shake up the world of sports broadcasting closer to home.
The popularity of IPTV and the increasing trend of splitting broadcast rights between different providers poses a big challenge to Australian broadcasters such as Nine Entertainment and Seven West Media, which rely on popular sports such as NRL, AFL and cricket to boost their wider broadcasting schedules.
Internet television looms as a growing rival to television networks - both free-to-air and pay - which are inking increasingly expensive deals for the right to telecast the big sporting codes. But those codes - while still banking on big deals with the television networks - are also eying deals with digital broadcasters, which offer a growing and potentially lucrative revenue stream.
In Australia, not only do sports generate significant revenue for television networks - almost enough to cover the considerable cost of broadcast - but they also create goodwill with viewers, known as the halo effect.
Gone are the days where big US shows rate well in Australia, with the rights to those shows being locked up behind pay TV.
With the possible exception of news and current affairs, football and Test cricket are the only sure-fire winners remaining on free-to-air TV.
''Live sport is one of our key pillars,'' Seven chief revenue officer Kurt Burnette says. ''It needs to have the right fit, it needs to be the right model and it needs to make financial sense of course, but live sport is a key point to any broadcaster around the world. There are no questions about that.''
Previously, negotiations for the right to broadcast sports focused on television - free-to-air and pay-TV rights - with little thought given to potential digital rights.
But when he walks into the next round of AFL broadcast rights negotiations, McLachlan will have an astute understanding of the potential dollars to be earned in the sale of digital rights.
The AFL keeps a close eye on the business dealings of the American NFL, with Demetriou having recently returned from the US where he watched the Super Bowl.
There's little doubt that Australia's major sporting codes would love to emulate the NFL, which has cashed in by splitting broadcast and digital rights between a host of different parties, all while maintaining its own IPTV offering.
The NFL is one of the most profitable sporting associations in the world, with an estimated annual revenue of $US10 billion ($10.9 billion). Roughly $US5 billion of that comes from rights to broadcast games, according to Navigate Research.
The US is, of course, a different market, with a much bigger audience and about 90 per cent penetration of pay TV services.
Less than 30 per cent of households in Australia have pay TV. But the US market may still hold clues to what lies ahead in Australia.
''I think IPTV is a huge part of sports broadcasting's future, not just for the rights owners, but to all media companies including both pay and free-to-air television broadcasters,'' McLachlan says.
Across all major sports in Australia, television advertising revenues total roughly $405 million annually during match broadcasts, analysts estimate.
In 2012, Nine and Fox Sports signed a $1.025 billion deal to broadcast the NRL for five years.
Nine is paying $85 million a year plus $10 million on contra advertising, or free air time, while Fox Sports is forking out $100 million annually plus $10 million on contra advertising.
The AFL's broadcast deal struck in 2011 was even bigger, worth $1.253 billion, with rights split across Seven, Foxtel and Telstra. Telstra owns 50 per cent of Foxtel with the remainder held by Rupert Murdoch's News Corporation.
It is clear broadcasters are willing to pay big bucks for that crucial halo effect. ''The advertising written against these isn't enough to match the costs, but when you add in some of the sponsorships, some of the content adjacencies, like The Footy Show, and a little bit of the cost promotion benefit, you could definitely argue there is still more value for the network,'' Citi media and telecommunications analyst Justin Diddams says.
But for the television networks, the huge outlay is getting harder to justify, with audiences increasingly viewing content on multiple devices.
‘‘I think there’s probably one more round of inflation to come, where you can say well the risk of losing them to a competitor, or another distribution platform is far too great, so I think they’ll be willing to pay more, but beyond that, it starts to become challenging because you need a certain amount of halo effect,’’ Diddams says.
Telstra has been quick to recognise the trend towards digital, picking up mobile and tablet streaming rights for the NRL and AFL.
While Fox Sports still has the right to broadcast five NRL games a week to tablets and internet enabled television, Telstra's five-year $100 million deal allows it to stream eight live games per week, plus special events, such as State of Origin, Test matches and the finals series.
The AFL and NRL official apps for smartphones and tablets, developed by Telstra, have been downloaded 1.8 million and 800,000 times respectively. Telstra will also launch a laptop streaming subscription for the NRL this season.
The AFL, meanwhile, has maintained laptop streaming rights. ''It'll be interesting to see in the next rights deal, if they do really get some good thinking behind what that 10-year road map looks like and they say, 'we need to have more ownership of this infrastructure because it will become core to how we sell rights going forward','' Deloitte head of digital agenda Damien Tampling says.
''One does beg the question on whether [codes] go and approach someone like IBM, SunMircoSystems Cisco, some of these guys that have all the software and infrastructure and IPTV distribution know-how and learnings, and say to them 'we think to build this it's going to cost us $25 million to $30 million, could we possibly do it where you guys pay us and we give you a sponsorship?'''
Australia's anti-siphoning laws protect sport on free-to-air to an extent, but in a world of exorbitant prices, networks may have to reach out to smaller players, or to each other, for joint-venture rights deals.
Placing an event on the list means pay TV broadcasters can't acquire the rights to that event before free-to-air broadcasters have had the chance to do so.
Anti-siphoning legislation does not stipulate a minimum number of games that need to be broadcast. It is possible Nine, or Seven, for example, could purchase rights to a single game of NRL or AFL per week.
''I think there could be some more innovative tie-ups next time around. I think that it wouldn't be crazy to think that combinations of more IPTV oriented players … might actually think about working more closely with a free-to-air broadcaster,'' Tampling says.
Nine's deal gives it three NRL games a week, two on Friday, one on Sunday, while Fox Sports broadcasts five live games. With a split audience, these deals inherently devalue the product for broadcasters which undoubtedly value holding all rights.
''If you fragment the rights then there's a potential for the value of the rights to go down,'' Foxtel's head of sport Ben Buckley says.
Fragmenting of broadcast and digital sports rights between different providers may dilute the offering, but this is only true for the holder of the rights who will see its viewership split, but evidence suggests that it increases the dollar value for the sport.
‘‘As advertising revenue gets spread across more players, including the technology players, there’s obviously less money in the broadcast production system and the amount that needs to be spent on the big sports,’’ Deloitte national leader of media practice Claire Harding says.
One need only look to the United Kingdom as an example of what the future of sports rights could look like.
Murdoch’s BSkyB was built on securing the rights to Premier League Football back in 1992. Sky’s current English Premier League deal to broadcast 116 games per season through to 2015-16 is worth £2.3 billion, 40 per cent higher than it previously paid. But the price increased significantly due to entry of internet provider BT, which picked up 38 games for £738 million.
Despite a 20 year relationship between the EPL and BSkyB, the league was more than happy to pit the broadcaster against another rival in order to jack up the price.
Nomura analysts predicts that will be closer to £3.6 billion from the start of the 2016-17 season.
This will only be compounded by BT securing rights to the UEFA Champions League for £900 million.
‘I think we will see different people going for those rights. We see that happening overseas and there’s been some talk about different international players maybe bidding internationally,’’ Nine director of strategy Melanie Kansil says. ‘‘I‘m sure over time you’ll see digital rights become a bigger slice of the pie simply because there are more people watching it. Rights are fundamentally based on viewer demand.’’
Closer to home, a fierce battle between Channel Nine and Network Ten for international cricket, saw Cricket Australia secure a contract worth $450 million over the next five years. Network Ten had offered $550 million. Ten received Big Bash League rights for $100 million. Ten claims it ‘washed its face’ or broke even on the deal.
Nine’s previous deal with Cricket Australia over the prior seven years was initially worth $45 million annually and increased to $65 million over the span of the contract.
The deal excludes the digital rights in which Nine negotiated a $60 million joint-venture with Cricket Australia.
But broadcasters have one big advantage over competitors nipping at their heels: the TV screen.
The overwhelming majority of Australians still watch traditional broadcast TV and until the NBN unfolds, the audience reach is limited.
''We get really excited about all this awesome technology, but a lot of people quite like sitting on their couch, watching their large screen TV, and watching sport in HD and enjoying the experience,'' Diddams says.