The NBA will play a key role in Snap's quest for 50% revenue growth

  • Snapchat said its NBA content is up 25% as the league prepares for its 2021 All-Star Game in Atlanta.
  • The parties renewed their revenue-share agreement last June, and it allows the mobile platform to further leverage an NBA highlights show.

It's labeled the perfect 360 relationship, and Snap plays a considerable part in helping the National Basketball Association entertain its young audience.

This weekend, the NBA is tamping down its annual All-Star Game in Atlanta due to Covid-19. Fan attendance will be restricted. Players are only partially enthusiastic, and things are far from ordinary for the usual celebrity-heavy event. But the NBA will be one of the first major sports leagues back to playing an All-Star event, nearly one year after it was the first to suspend its season due to the pandemic.

For this different All-Star Game, the NBA is relying on Snapchat to engage its Generation Z users it wants to keep interested in the sport.

"It's one of our most unique relationships in the sense that the NBA can touch every corner of our platform," Anmol Malhotra, head of sports partnerships at Snapchat, told CNBC. "They do a good job with that 360 focus and can amplify casual fans, hardcore and non-sports fans' experience around their league."

"Innovative," said NBA executive Sam Farber when describing the partnership. "And another [word] might be 'comprehensive.' We use every feature and tool that Snap has available. We view our partnership with them as a true 360 partnership."

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How this partnership works

The NBA's deal with Snapchat is in its seventh year, having been renewed last June. It's a revenue-share model where Snapchat shares ad revenue around NBA videos with the league. Snapchat says revenue from its six-second video ads has more than doubled year over year but didn't disclose financials.

The NBA is also a marketer and pays Snap to advertise on Snapchat. The league uses Snapchat Discover channels to boost content and drive linear tune-in for its media partners Disney-owned ESPN and AT&T-owned Turner Sports. And the league leans heavily into Snap's augmented reality features to promote its content.

Gen Z, the 13-24 age group, is a major consumer for the NBA. Snapchat says it reaches 90% of the age group and 75% of users ages 13-34 in countries including the U.S., United Kingdom and France.

"It provides us with a new canvas to engage with our fans, and it's also an incredibly important platform for us among young fans," said Farber, the NBA's senior vice president of digital strategy and business development. "It's a valuable platform for us to reach what is typically a hard-to-reach young audience."

The parties also leverage a daily "NBA Highlights" show and say the number of daily game-day viewers around the league's content is up nearly 25% for the 2020-21 season, the company said. And for the 2021 All-Star events, which will occur in one day, the NBA will capture exclusive highlights for Snapchat.

Bob Carney, NBA senior vice president of social and digital content, said the one-day All-Star game event fits perfectly for the Snapchat strategy. "It will be jam-packed with amazing moments," Carney said.

MediaRadar, an advertising data firm, told CNBC that during the 2019 NBA season, 195 brands were seen advertising on NBA-sponsored Snapchat Discover channels, including State Farm, Call of Duty and Amazon.

"Snapchat can deliver an audience that the NBA might not otherwise get," said MediaRadar CEO Todd Krizelman.

What's next for Snapchat?

Meanwhile, Snapchat has continued to invest heavily in AR, which many believe will be the technology that ushers in a new era of computing beyond the smartphone. Snapchat introduced AR features in 2015 and used the NBA's user base to grow it in 2016.

Last July, when the NBA restarted its season in the Orlando bubble, Snapchat created an AR lens to allow users to transform their mobile screen to create an NBA court. The company said over 20 million people used the feature and it plans to roll out new AR features for the NBA playoffs and finals this spring.

Deutsche Bank analysts said last fall that the opportunity for AR lens and filter advertisements could be worth $4 billion in revenue over the next several years.

In November's NBA Draft, Snapchat also sent 30 prospects gift boxes including its QR code features. When scanned, it allowed players to be taken to virtual draft AR experiences. And there are whispers Snapchat could expand its Snap Minis product around sports as leagues such as the National Football League transition to touchless options for payments.

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Snapchat declined to comment when asked by CNBC about a potential sports ticketing business. But it wants to sustain its current user base — roughly 265 million daily active users — with more AR offerings and reach its projected 50% revenue growth for 2021 and beyond.

And as Snapchat looks to gain more share of the mobile ad space it needs the NBA's content to draw marketers.

"The more advertisers we have, the more diverse the set of ads that we can show,"  Peter Sellis, Snap's senior director of ad products, told investors in February. "That makes these ads more relevant and it makes Snapchatters more likely to engage with them. This in turn drives higher ROI and makes us more efficient with our inventory."

In February, Snapchat reported $911 million in revenue for the fourth quarter of 2020, but the company provided a first-quarter adjusted EBITDA forecast much lower than Wall Street analysts' consensus expectations. And it's also cautioning that Apple's privacy changes in iOS 14 could interrupt its advertising demand.

It's unclear how the changes will impact Snapchat's future, but it a safe bet that whatever the future entails, sports will be a part of it.

The NBA's global presence, which is bigger than even the NFL's reach, is too valuable. In this pact, the league is a paying customer and targeting young consumers. And Snapchat needs the NBA to help keep its users and grow ads. One big 360.

"It's a partnership that is extremely multifaceted," Malhotra said. "I think it benefits both sides."

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