Sports execs had better pray that pay TV’s programming bundles stay intact. Rights payments from television networks and other media will grow 37.8% from 2013 to $17.1B in 2017, according to a study out today from PwC. That makes it the fastest growing source of revenues ahead of gate receipts (+10.9% to $19.1B), sponsorship deals (+25.7% to $17.7B) and merchandising (+4.6% to $13.8B), The cash cow could dry up if sports channels move to special tiers, reducing the subsidy they receive from pay TV subscribers who don’t watch. For now, though, teams recognize that sports broadcasts win solid ratings, and — since they’re usually watched live — appeal to advertisers. That’s important because teams can’t expect much growth from ticket sales, their biggest source of revenues. Popular teams already are packing their stadiums, but over the last decade rising ticket charges have “created price pressure on certain buyer segments,” the report says. The business is no longer considered recession-proof; many pro and college teams reduced or froze prices after the 2008 downturn, and are just now beginning to raise them. In some cases the higher prices are tied to changes designed to enhance the fan experience including installation of WiFi systems, large video boards, and venues within the stadium for parties. Meanwhile, “major league expansion is unlikely, with the exception of [Major League Soccer].” And licensed merchandise “is viewed as a fairly mature segment, with its rate of growth tied closely to the outlook for consumer discretionary income.”
The FCC enacted the rules in 1975 to help broadcasters and the NFL: Regulators say that if a sports league requires a TV station to black out a game – usually a football match that isn’t sold out — then cable and satellite distributors can’t offer it in the community either. But that may not serve the public interest “at a time when high ticket prices and the economy make it difficult for many sports fans to attend games,” Acting Chairwoman Mignon Clyburn says today to explain why she circulated a Notice of Proposed Rulemaking to possibly scrap the rules. How much impact would that have? Possibly little. It wouldn’t prevent sports leagues, broadcasters and pay TV providers from “privately negotiating agreements to black out certain sports events,” she says. Indeed, the FCC notes on its website that the rules are “rarely involved in the sports blackouts you may have experienced” because they’re almost all due to contract terms between sports leagues and distributors.
This could come as a helmet to the ribs of the uber-lucrative NFL broadcasting-streaming game and the notion of sponsorship vs. rights deals. Not to mention possibly expanding the broader sports world’s ever-growing “TV everywhere” game plan. Verizon today finalized a $1B extension of its deal with America’s dominant sports league that – beginning with the 2014 season — will allow streaming of all CBS and Fox in-market Sunday afternoon games to mobile phones (regular blackout rules apply). Not only that, but the deal comprises all NFL playoff games, including the Super Bowl. The four-year agreement expands Verizon’s current NFL Mobile package, which gives access only to games on airing on NBC, ESPN and the NFL Network – read Monday, Sunday, and Thursday night football – along with the league-owned NFL Network and its NFL RedZone.
Verizon’s billion (with-a-B)-dollar deal makes the wireless giant one of the NFL’s biggest business partners outside of its media-rights holders. It marks a significant increase over Verizon’s previous NFL pact: Sports Business Daily says the company had been ponying up about $50M a year to the NFL since 2010 — including rights fees, team spend commitments and media spending on NFL media partners – but will make a $210M payment in the just Year 1 of the new deal. A potential hitch is that the new agreement includes access to games only on mobile phones, which certainly should give rise to a kerfuffle about exactly what defines a “mobile phone” in the age of tablets and Galaxy IIIs and such.
Pay TV subscribers who don’t watch sports likely will have to cut the cord if they want to escape the rocketing costs for programming rights and new channels. At least that’s one of the conclusions I take away from RBC Capital Markets’ David Bank’s smart, 91-page report this morning about the state of sports media. He notes that programmers have a powerful incentive to engage in an arms race for sports: The rewards for airing games — from rising ad sales and pay TV affiliate fees — still outweigh the rising amounts that football, baseball, and other sports rights holders are charging. As a result, channels offering sports “should be able to expand [profit] margins,” Bank says. Won’t that lead to a war with distributors such as DirecTV and Time Warner Cable, who say that subscribers will bolt if monthly bills continue to rise? Not necessarily, because their hands aren’t clean. “How can these distributors complain about unfair pricing when they are in turn asking for the same kind of pricing on the same kind of content?” Bank asks. DirecTV owns three major regional sports networks (ROOT Sports in Pittsburgh, Rocky Mountain states, and the Northwest) while Time Warner Cable has a new channel for the Los Angeles Lakers. Bank acknowledges that “we must ask ourselves whether the [growing number of regional sports networks] risk damaging the ecosystem.”
The long-controversial BCS format that has crowned college football’s national champion since 1998 is being replaced by a four-team playoff beginning in 2014. That plan was approved today by …
Bernstein Research analyst Craig Moffett says it’s possible in a provocative, and well timed, note this morning. The escalation in TV sports costs has “gone to unimagined proportions,” he says. If unchecked, he adds, it could ”blow the entire media model apart.” And the business does appear to be unchecked. The huge price increases from the $15.2B NFL deals that ESPN, Fox, CBS, and NBC cut last year kick in with the 2014 season. Meanwhile, NBCUniversal likely will want higher payments for its NBC Sports Network — formerly Versus before it was rebranded in January. News Corp is considering a similar upgrade of its action sports channel Fuel into a mainstream national sports service. And the Magic Johnson-led consortium that just paid more than $2B for the Los Angeles Dodgers is thinking about stealing a page from the playbook for the New York Yankees’ YES Network by launching its own regional sports channel — which would be the sixth in LA.
Sports television couldn’t have gotten off to a better start to the year than last night’s Super Bowl. NBC had the game, the most-watched event in TV history. A total of 111.3 million viewers tuned in to see the team from the nation’s largest media market win the championship in the nation’s most popular sport. As if anyone needed further proof, the New York Giants’ victory over the New England Patriots is the latest example of how important live sports is to broadcasters and the advertising industry that pays their bills. The leagues and the networks that show them know this better than ever, and watching how each exploits and benefits from this reality will make for a fun spectator sport in 2012 as they go head-to-head with the carriers who are increasingly blanching at the increasingly high fees sports-rich networks can and plan to command. In the middle and up for grabs is the biggest slice of what ZenithOptimedia estimates is $61.9 billion in expected TV ad spend this year, led by anticipation for the London Summer Olympics. Here’s a scorecard of the players to watch:
If the Super Bowl isn’t enough, the most powerful sports league flexed its muscle in December by inking a broadcast rights deal with NBC, CBS and Fox for a combined $27.5 billion over nine years — a whopping 63% increase over the previous contract. (ESPN and the NFL Network have a separate contract for cable.) The deal comes just in time for the networks and affiliates’ retransmission consent negotiations with cable and satellite providers and sets up a showdown over those fees – Miller Taback analyst David Joyce crunched the numbers and found that for all media partners to break even on the new contract, the average pay TV subscriber would have to pay an extra $11.23 a month, up $6.87 from the previous contract that ends after next season. It will be a serious fight. “Congress and the Federal Communications Commission need to throw a flag, because rules and regulations shouldn’t force consumers to bear the burden of broadcasters’ profligate spending, which will surely enrich NFL owners and players just as much as it will impoverish all pay-TV subscribers, particularly those who will never watch an NFL game,” American Cable Association CEO Matthew Polka said after the deal was announced. The new contract, struck in December, came after a labor lockout that threatened the start of the season and centered on how owners and players would split its revenue, including lucrative TV rights. In effect, the potential loss of games only proved how valuable the NFL is, much like the NBA’s own labor stoppage, which trimmed the season but it quickly re-upped with key advertisers and sponsors.
NBC bet big on the Olympics in June on the backs of new owner Comcast, blowing out rivals’ bids with a $4.38 billion move for a comprehensive rights deal through the 2020 Games. We’ll begin to figure out how smart that was right away: the network is prepping the London Summer Olympics for July and August. The all-in for Olympics programming is part of a bigger play by Comcast, which is setting itself up to compete with the likes of ESPN and Turner in the sports realm by rebranding its niche Versus channel the NBC Sports Network. Visions of ESPN’s $4.69-per-customer carriage fee are spurring the move — Versus took in $122.6 million in ad revenue last year, according to SNL Kagan, while ESPN took in $1.48 billion in ad sales and $5.27 billion in affiliate revenue. It’s a long-term play for sure, but Olympics coverage will plant NBC Sports Network’s flag in a bunch of new homes this summer, as eventually will new deals signed last year with the NHL (10 years, $2 billion; ESPN and Turner were in the race for that deal) and to a lesser extent Major League Soccer (three years, about $30 million). NBCUniversal and Comcast aren’t the only ones gunning for ESPN. Fox Sports in October beat out the sports giant for English-language rights to the next soccer World Cup contract in 2018 and 2022, in bidding that also saw NBCUniversal-owned Telemundo claim Spanish-language rights from Univision. Fox Sports and cable sibling FX also inked a multiyear deal with UFC, the mixed-martial arts league.