In December, Riot Games agreed to a seven year, $300 million deal with BAMTech, giving the digital distribution company exclusive rights to build and monetize a PC and smartphone streaming application for Riot's massively popular eSports title League of Legends. BAMTech will sell ads against the events and tournament broadcasts similar to a network selling ads for traditional sporting events. BAMTech also retains the rights to distribute the streaming content on other platforms such as Twitch and YouTube, allowing them to work out their own licensing deals with competing companies. The ramifications of this deal could be wide-ranging, but one of the more interesting effects could be a canary-in-the-coal-mine scenario for the major sports leagues and teams.

Live sports programming is extremely lucrative for networks and cable companies. It is one of the main reasons that networks are paying the National Football League a reported $4.6 billion this year for the rights to broadcast their games. The National Basketball Association signed a nine-year, $24 billion pact with ESPN and Turner just a little over two years ago. Live events drive significant ad dollars for these networks because the majority of the audience is not time-shifting as much as they are with regular programming, giving the advertisers better ROI and reach. Cable companies rely on these events to keep subscribers coming back every month.

However, the Riot deal with BAMTech gives the major leagues an opportunity to see if a digital-first distribution deal for a livestreaming service will pay off. Major League Baseball's TV rights are up in 2021, the NFL's rights are up in 2022 and the NBA's are up in 2025. None of these leagues will want to disrupt the large cash flows derived from their current deals, but they will all have an eye on the future of content distribution. Considering the length of the agreement with Riot, the growing eSports market opportunity and the comparable rights deals for other sports, BAMTech is continuing to position itself as the premier partner for digital video live streaming and OTT distribution.

The risk for the leagues is that the market will shift before their current agreements expire. According to Parks and Associates, 63% of all U.S.-based broadband households subscribe to at least one OTT service and traditional pay-TV subscriptions continue to fall. Seeing these trends, owner Steve Ballmer and the Los Angeles Clippers purposely held back some of their digital streaming rights to experiment with new direct-to-consumer opportunities. The NFL has also been experimenting with various digital distribution partners, such as Yahoo, Twitter (who farmed out the backend video to BAMTech), Verizon and CBS All-Access. The leagues currently offer full-season digital subscription services, but the costs are prohibitive for many consumers, as opposed to the current ad-supported model that attracts millions of viewers per event.

Digital video providers are looking for ways to attract new viewers and subscribers. Netflix and Amazon invested $6 billion and an estimated $3 billion, respectively, on content alone in 2016. By the time league rights become available in the early 2020s, digital streaming services will be even more ubiquitous than they are today, creating a comfortable environment for the leagues to distribute their product without fear of losing the masses. Other deep-pocketed digital companies like Facebook and Google will also be in the mix bidding on the rights, as well as the future digital distribution platforms that have yet to be defined-2021 is still four years away, which is an eternity in the digital industry.

BAMTech's strategy to maximize the value of the LoL rights will be important to validate the digital-first market, while creating a compelling consumer-facing product that keeps them coming back for more. One advantage is that LoL is a natively digital-first community, so there is no significant shift in viewing habits for an online streaming application. The other leagues will no doubt be watching and waiting to see if BAMTech can succeed in this new digital ecosystem. In the end, they may be vetting their next long-term distribution partner.