As early as 2017, only a year after launch, reports started to surface that DAZN might be facing financial issues. With the expected difficulty of breaking into a new sector, the company brushed off suggestions of poor sales and ROI, return on investment, as part of the plan to play the long game. DAZN’s plan was always to play the long game, investing millions each year on their streaming service and building subscriptions, as they attempt to revolutionize sports broadcasting.
Then with DAZN managing to successfully reduce their debt burden from $980million to $275million between 2017 and 2018, helped by Len Blavatnik’s $848 million investment, speculation about their financial future abated for a while.
It’s normal for many big companies to operate in a state of debt while remaining successful, the lack of fluid finances usually due to investing heavily in things like marketing, assets and talent contracts, all of which are vital for future growth. As the adage goes ‘You have to spend money to make money’, so the fact that DAZN was in the red was not initially a sign for concern.
However, with the arrival of COVID-19 marketing the suspension of global sports events, DAZN might be faced with a very uncertain future. The investment they made that put them in a negative balance, was all well and good while money was still rolling in and their key assets i.e. massively expensive sportspeople, were still bringing them subscriptions. Now the money has stopped coming in though, DAZN has already spent millions acquiring contracts and investing in their streaming infrastructure, mainly with borrowed cash.
As many of us are all too aware, our creditors want their money, pandemic or not. Many of us are still making monthly payments on the car we’re not driving to work, the phone we’re basically only using for Twitter or Sky Sports with nothing all to watch but replays. Meanwhile, DAZN is stuck paying out millions for athletes, their servers that are running at 1%, office space that’s empty, and employees that aren’t working on anything.
As the COVID situation developed, DAZN announced to its creditors that the money owed would not be paid until sports resumed. At the weekend The Financial Times reported, “The global suspension of sports fixtures during the pandemic has seen some subscribers pause monthly payments. DAZN has also sought to defer payments it owes to sports leagues, citing the lack of live action.”
Len Blavatnik is currently looking for investment in DAZN, even willing to give up some stake in the company, to recover some of the money he has invested. The article in the Financial Times went on to report “Research group Enders Analysis has estimated DAZN’s financial commitments on securing sports rights total at least £3.7bn”.
Responding to questions regarding the article posted by the Financial Times at the weekend, Hearn took to Instagram live recently to quell the rumors, “Don’t believe everything you hear. Got meetings on Friday to sort the schedule… It ain’t ideal times for anybody. I mean if you’ve got a subscription company that thrives off live sport and there’s been no live sport, it’s obviously not the best… I think Mr. Blavatnik’s going to be just fine”.
Before the global pandemic shut the world down, I was incredibly skeptical of news surrounding DAZN’s financial issues. It’s common for rumors to spread when a company’s debt level is revealed to the public, as generally there is a lack of understanding about financial investment during a company’s growth phase and how it appears on the balance sheet.
Many Fortune 500 companies operate with low accounting liquidity, meaning that most of their financial assets are tied up in investments, during periods in which they are focusing on growth. The companies flow in and out of profitability in cycles, as they invest, grow, then reap the rewards.
The problem for DAZN right now is that they have invested, they’ve grown, but are now unable to reap their rewards. DAZN announced last year that 2019 and 2020 were to be times of strategic growth for them. The pay-off for them would have come towards the end of 2020 as all the huge events they had planned were completed.
We hope Eddie Hearn is right and that Len Blavatnik and his $3billion fortune are going to be ‘just fine’. Not because we have a soft spot in our hearts for Ukrainian billionaires, but because DAZN’s model of a set-price sports subscription service is only going to be good for sports fans worldwide if they can pull it off.