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The NBA will play a key function in Snap's quest for 50% gross sales development

The Snapchat application on a smartphone was arranged in Saint Thomas, Virgin Islands, USA on Friday, January 29, 2021.

Gabby Jones | Bloomberg | Getty Images

It's known as the perfect 360-degree relationship, and Snap plays an important role in entertaining the young audience through the National Basketball Association.

This weekend, the NBA is suppressing their annual All-Star game in Atlanta due to Covid-19. The participation of fans is restricted. Players are only partially enthusiastic, and for the usual celebrity event, things are far from ordinary. But the NBA will be one of the first major sports leagues to play an all-star event again, almost a year after being the first to suspend its season because of the pandemic.

For this other all-star game, the NBA is relying on Snapchat to motivate their Generation Z users who want to keep their interest 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, director of sports partnerships at Snapchat, told CNBC. "With that 360 degree focus, they're doing a good job and can improve the experience of casual, hardcore, and non-sports fans in their league."

"Innovative," said NBA manager Sam Farber, describing the partnership. "And another [word] could be 'comprehensive'. We use all the features and tools Snap has available. We consider our partnership with them to be a true 360-degree partnership."

Snapchat works with the NBA using augmented reality capabilities from Snapchat-NBA.

Source: Snapchat

How this partnership works

The NBA's contract with Snapchat is already in its seventh year and was extended last June. It's a revenue-sharing model where Snapchat shares advertising revenue for NBA videos with the league. According to Snapchat, sales of its 6-second video ads more than doubled year over year, but no financial data was released.

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

Gen Z, the 13- to 24-year-old age group, is a major consumer of the NBA. According to Snapchat, it reaches 90% of the age group and 75% of users aged 13 to 34 in countries like the US, UK and France.

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

The parties also take advantage of a daily "NBA Highlights" show and say the number of daily matchday viewers surrounding the league's content has increased nearly 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 game event was a perfect fit with Snapchat's strategy. "It's going to be packed with amazing moments," said Carney.

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

"Snapchat can deliver audiences that the NBA may not otherwise get," said Todd Krizelman, CEO of MediaRadar.

What's next for Snapchat

Meanwhile, Snapchat has continued to invest heavily in AR. Many believe that this will be the technology that will usher in a new era of computing beyond the smartphone. Snapchat introduced AR capabilities in 2015 and leveraged the NBA's user base to expand in 2016.

Last July, when the NBA restarted their season in the Orlando Bubble, Snapchat created an AR lens that would allow users to remodel their mobile screen to create an NBA court. The company said over 20 million people have used the feature and 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 advertising could see $ 4 billion in revenue in the next few years.

In the November NBA draft, Snapchat also sent 30 gift boxes for prospects, including the QR code functionality. When scanning, the players could be guided to virtual drafts of AR experiences. And there are whispers that Snapchat could expand its Snap Minis product to include sports as leagues like the National Football League transition to touchless payment options.

Snapchat works with the NBA using augmented reality capabilities from Snapchat-NBA.

Source: Snapchat

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

And since Snapchat wants to gain more stake in mobile ad space, it needs the content of the NBA to attract marketers.

"The more advertisers we have, the more diverse the number of ads we can run," Peter Sellis, Snap's senior director of ad products, told investors in February. "This will make those ads more relevant and Snapchatters will be more likely to interact with them. This in turn leads to a higher ROI and makes us more efficient with our inventory."

In February, Snapchat reported fourth quarter 2020 revenue of $ 911 million. However, the company released an adjusted EBITDA forecast for the first quarter that was well below Wall Street analysts' consensus expectations. It should also be noted that Apple's privacy changes in iOS 14 could interrupt the advertising request.

It is unclear how the changes will affect the future of Snapchat, but it is certain that sports will be a part of whatever the future brings.

The NBA's global presence, larger than the NFL's reach, is too valuable. In this pact, the league is a paying customer and is aimed at young consumers. And Snapchat needs the NBA to keep its users and run ads. A big 360.

"It's a partnership that is extremely diverse," said Malhotra. "I think it's good for both sides."

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