Finding the Hidden Value of Entertainment

Sports and entertainment are a wealth generator in many countries. In Mexico, major events, such as the Mexico City Grand Prix and the NFL, are not just revenue sources; they are an opportunity to showcase the Mexico brand and culture. However, success requires a coordinated effort between the public and private sectors

The sports and entertainment industries have a unique power to bring people together while bolstering city and community economics by generating revenue and employment. Mexico, which is recognized as a world-class destination for sports and entertainment events, also benefits from the accompanying publicity and global visibility that contributes to its international positioning. But to realize the full potential this sector offers, cooperation between the public and private sectors is necessary.

During Enrique Peña Nieto’s administration, Mexico hosted over 35 international sports events and Mexico City alone hosted more than 450 sports events annually, both of local and national scope. Horacio de la Vega, former Director General of the Institute of Sports of Mexico City (Indeporte), says 2013 and 2014 were difficult because there was no interest from the private sector to support the organization of these events. An effective alliance between the public and private sectors was fundamental in improving the landscape. “I am convinced that the success we have experienced has been the result of the joint participation of the government and the private sector,” he says.

De la Vega says these relationships must be based on trust and credibility but they must also encompass an understanding of what the private sector needs. “What you promise, you need to deliver. It does not matter if it is a yoga class with 200 participants, the construction of a baseball stadium or a MX$1.5 billion (US$79.3 million) investment in the Hermanos Rodríguez racetrack.”

During the previous political administration, sports events in 55 cities and 26 states generated an economic impact of over US$5.3 billion in Mexico. International events, such as the NFL games, generated revenue of around MX$840 million (US$44.6 million). The 2015, 2016 and 2017 editions of the Mexico City Grand Prix together generated revenue of more than MX$23 billion (US$1.2 billion). All five races in the contract the city has with Formula 1 are expected to bring over MX$40 billion (US$2.1 billion) in terms of revenue. The economic impact is not the only lasting effect that sports events have.

The organization of different activities surrounding the main sports event contributes to the creation of social cohesion. “Even for projects such as those involving the NFL, NBA or MLB, our vision has always been to have a broader impact beyond the big event through the participation of passive spectators,” says de la Vega. As an example, de la Vega points to the associated events that accompany NFL games, such as the NFL Experience, which includes a series of activities for families and a flag football tournament prior to the game. “Our goal is to reach all levels of society through these projects. This contributes to improving social cohesion because it is no longer a matter of being a passive spectator but of actively participating.”

CHALLENGES

Although largely successful, the sports industry in the country faces significant challenges, particularly at a local level. Javier Salinas, Executive President of the Liga Mexicana de Béisbol (LMB), says the development and professionalization of national sports leagues and athletes requires support from the authorities. “We need to find a way to support national professional sports leagues in their efforts to develop athletes and sports events that bolster the development of local communities and contribute economically to the country,” says Salinas. Part of the problem he adds, is that when it comes to federal funds allocation, foreign sports are favored over national leagues.

Salinas says obtaining funds through the sponsorship model is always complicated in Mexico because sponsors demand a return on investment that is faster and more quantifiable than before. Adds de la Vega: “It is crucial to understand what our private-sector partners expect from their participation in an event.”

Beyond their recreational value, Salinas says pro sports are economic units that fully compete in the entertainment segment. “We play in the entertainment arena, where Netflix, Cinépolis, Disney or the National Auditorium also play. It is an industry that is very diverse and complex.” However, unlike other entertainment options, sports have a real-time component. Raúl Zárraga, Vice President and Managing Director of NBA México, says sports events need to work alongside TV channels to broadcast games, since, unlike other countries, TV viewership is not plummeting in Mexico. “Television is still king when it comes to massifying products.”

EVOLUTION OF MEDIA AND ENTERTAINMENT

The entertainment market and the media industry have evolved, but also fragmented, says Rodrigo Gómez, CEO of HR Media, citing the arrival of OTT media services such as Netflix, Amazon Prime and similar platforms. “New audiences are emerging, who can consume and produce content through different channels. TV consumption continues to grow steadily and will not disappear but digital media is opening access to content.”

Gómez says this change in consumption also reflects a change in consumer attitude. “Today, consumers are no longer passive, they also create content. This does not mean that TV is dying. On the contrary, TV audiences keep growing and people now consume video content in other media besides TV.”

The appearance of OTT media services and the subsequent fragmentation of viewership impacts traditional entertainment models like the cinema industry. “Netflix and Amazon are positioning themselves as significant players and are investing in the production and distribution of film content. These platforms are also fighting for the opportunity to release films on their platform at the same time as cinemas, which puts exhibitors and studios at a disadvantage because it takes away the appeal of movies being premiered at theaters,” says Rogelio Vélez, Director General of Cinemex. Mónica Lozano, Founder of Alebrije Producciones, says that studios must also adapt to the new reality generated by OTTs. “We are living in a multiscreen world … and all the audiovisuals that younger generations consume come from digital services,” she says.

Mexican content, in particular, has faced a disadvantage in such a competitive environment. Lozano says that when it comes to entertainment spaces, there is a significant misrepresentation of national content. “In Mexico, cinemas are supposed to reserve 10 percent of their screen share for national movies but this is not clearly defined.” She says the lack of clarity in the law allows for exhibitors to prioritize movies premiered rather than screen time, which prevents Mexican movies from finding an audience. “We believe that Mexican movies should be guaranteed at least a two-week run in theaters so these can find their audience.” Achieving this degree of visibility for the national industry is of the utmost importance. “We have to understand that this industry also has an impact on the economy, tourism, foreign relations, employment, economic competition and culture,” she says.