The NBA will play a key role in Snap’s pursuit of 50% revenue growth

It is labeled as the perfect 360 relationship, and Snap plays a considerable role in helping the National Basketball Association to entertain its young audience.

This weekend, the NBA is closing its annual All-Star game in Atlanta due to Covid-19. Fan participation will be restricted. The players are only partially enthusiastic and things are far from normal for an event with many celebrities. But the NBA will be one of the first major sports leagues to return to playing an All-Star event, almost a year after being the first to suspend its season due to the pandemic.

For this different All-Star game, the NBA is relying on Snapchat to engage Generation Z users who want to keep them interested in the sport.

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

“Innovative,” said NBA executive Sam Farber in describing the partnership. “And another [word] it can be ‘comprehensive’. We use all the resources and tools available on Snap. We see our partnership with them as a true 360º partnership. “

The NBA deal with Snapchat is in its seventh year, having been renewed last June. It is a revenue sharing model in which Snapchat shares revenue from NBA video ads with the league. Snapchat says the revenue from its six-second video ads has more than doubled year after year, but has not released financial data.

The NBA is also a merchant and pays Snap to advertise on Snapchat. The league uses Snapchat Discover channels to drive content and promote line-up for its Disney-owned ESPN media partners and AT&T-owned Turner Sports. And the league relies heavily on Snap’s augmented reality capabilities to promote its content.

Generation Z, the 13- to 24-year-old age group, is a major consumer of the NBA. Snapchat claims that it reaches 90% of the age group and 75% of users aged 13 to 34 in countries such as the United States, the United Kingdom and France.

“This provides us with a new canvas for interacting with our fans and is also an incredibly important platform for us among young fans,” said Farber, NBA senior vice president, digital strategy and business development. “It is a valuable platform for us to reach what is normally a young audience that is difficult to reach.”

The parties also take advantage of a daily “NBA Highlights” program and say the number of daily viewers around the league’s content has increased by almost 25% for the 2020-21 season, the company said. And for the 2021 All-Star events, which will take place in one day, the NBA will capture exclusive highlights for Snapchat.

Bob Carney, senior vice president of social and digital content for the NBA, said the one-day All-Star event fits the Snapchat strategy perfectly. “It will be filled with incredible moments,” said Carney.

MediaRadar, an advertising data company, 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 offer an audience that the NBA would not otherwise have,” said MediaRadar CEO Todd Krizelman.

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

Last July, when the NBA restarted its season in the Orlando bubble, Snapchat created AR lenses to allow users to transform their mobile screen to create an NBA court. The company said more than 20 million people have used the feature and plans to launch new AR features for the NBA playoffs and finals this semester.

Deutsche Bank analysts said last fall that the opportunity for ads for AR lenses and filters could be worth $ 4 billion in revenue in the coming years.

In the November NBA Draft, Snapchat also sent gift boxes to 30 potential customers, including their QR code capabilities. When scanned, it allowed players to be taken for virtual AR experiences. And it is rumored that Snapchat could expand its Snap Minis product around sports, as leagues such as the National Football League transition to contactless payment options.

Snapchat declined to comment when asked by CNBC about a potential deal for selling sports tickets. But it wants to maintain its current user base – about 265 million daily active users – with more AR offerings and achieve projected revenue growth of 50% for 2021 and beyond.

And as Snapchat seeks to gain more space in the mobile ad space, it needs NBA content to attract marketers.

“The more advertisers we have, the more diverse the set of ads that we can show,” Peter Sellis, senior director of advertising products at Snap, told investors in February. “This makes these ads more relevant and makes Snapchatters more likely to engage with them. This, in turn, increases ROI and makes us more efficient with our inventory.”

In February, Snapchat reported revenue of $ 911 million in the fourth quarter of 2020, but the company provided an adjusted EBITDA forecast for the first quarter that was far below Wall Street analysts’ consensus expectations. And it is also warning that Apple’s privacy changes on iOS 14 may interrupt its advertising demand.

It is not clear how the changes will affect the future of Snapchat, but it is a safe bet, regardless of the future, sports will be part of it.

The global presence of the NBA, which is greater than the reach of the NFL, is very valuable. In this pact, the league is a paying customer and aimed at young consumers. And Snapchat needs the NBA to help retain its users and increase ads. A great 360.

“It is an extremely multifaceted partnership,” said Malhotra. “I think it benefits both sides.”