I’m a sports fan. Usually come July, this is a bummer. Because nothing’s on. It’s a barren wasteland with only some baseball to occupy my time.
This year, though, what a wonderland of competition. The delayed NBA Finals filled the sports itch in early July and now I’m binging the Olympics 24/7. (On cable, for those curious.) By the time August starts, we’ll have the NFL and (formerly amateur) college football to enjoy as well.
You know what? We haven’t discussed sports in a while. And the largest sports story in the last few weeks was the Milwaukee Bucks winning the NBA championship. The business side to that was the latest update to the story plaguing broadcast and cable TV the last few years: the steady decline of broadcast ratings.
But this year threw a curve ball–wrong sport analogy, I know–to this narrative, since ratings were “up” from 2020. But they’re down from 2019. So are ratings up? Or down? And what does it all mean?
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Most Important Story of the Week – NBA Ratings Are Down, But In Context They Aren’t Terrible
Ratings are messy. You can slice and dice them numerous ways, hence competing narratives can live side-by-side in the same story. “NBA ratings are up from last year. The NBA is back!” and “NBA ratings are down from 2019. The NBA is doomed!” Triangulating on reality feels nigh impossible.
So let’s do what we can. We’ll figure out a rough and quick look at reality. Then we’ll discuss not just if ratings matter, but how much. Then, we’ll look at the strategic landscape to see how this will impact sports media rights deals.
Triangulating on Reality – NBA ratings are up from 2019, but down about 50% from 5 years ago.
Last year was a mess for long-term trends.
Seriously, I wonder if most graphs would do better to just leave a gap between 2019 and 2021. If the lines are suddenly smoother, that’s really a better depiction of reality. A huge spike or drop does more to throw off the brain trying to understand the visual than not.
The best visual for NBA Finals’ ratings comes from Wikipedia. Take a look:
If you throw out 2019, the drop doesn’t look as steep. But as you can see, there is absolutely a drop since 2017 or so. Ratings are down about 50% from the average viewership of 2015-2017, from an average of 20 million viewers to about 10 million in the 2021 NBA Finals. But they’re up about 33% from 2019’s low of 7.5 million viewers. Presumably, a drop this large is a disaster. But…
Do Down Ratings Even Matter?
It seems silly to have to ask this question, but I am because, well, a bunch of my favorite NBA podcasts asked this very question. (This isn’t a “straw man”. Four different basketball podcasts–which I love–asked some version of “Do ratings even matter?”)
Usually it was phrased with this caveat: the NBA is going to sign a massive contract extension for their media rights soon. The league itself–in a move as self-interested as you can get–speculates they can triple their current rights deal. (From $2.6 billion per year to around $8 billion.)
Tripling their deal seems high, but an increase is absolutely on the table, as seen by every sports media rights deal going back to last year. But this doesn’t mean “ratings don’t matter”. Instead, the more nuanced position is, “Sports rights will continue to increase in value, even if linear ratings decline.”
But ratings still matter.
Think of it like this. There are a lot of smaller sports than the NBA. Formula 1. UEFA soccer. Premier League football. The NHL. If ratings don’t matter one bit, then ESPN/Disney or TNT/WarnerMedia could buy any of those other sports and simply plug them into the schedule and achieve all the same business objectives.
But they won’t, because they wouldn’t. Because the viewership would go down. And the deal then wouldn’t be worth it!
Ratings drive value for the networks. (And will drive value for the streamers too.) When it comes to subscriptions, the more folks who watch, the more they demand the subscription. Folks don’t demand programming they don’t watch. When it comes to advertising, the math is even simpler: the more eyeballs, the more you get paid. For example, every NBA Finals game, ESPN earned something like $50-100 million dollars in advertising. If ratings had doubled, those numbers would double too.
Let’s not be too clever. If ratings declined in any major sport precipitously, the value of that brand would decline with it. The question more particularly is…
How Much Do Ratings Matter?
This is the better question. To answer it, it also means comparing ratings to something else. Because ratings don’t occur in a vacuum. I’d phrase it like this:
- How much are NBA ratings down compared to past seasons?
- How much are NBA ratings down compared to other sports?
- How much are sports ratings down compared to other content on linear TV?
We already answered the first question. The near-term trend is down about 50%. Over the long term, NBA ratings peaked in the 1990s at about 30 million viewers per Finals. (Though there were less people in America, so “ratings” are down even more.)
The second question is much more interesting. And while it depends on the sport, ratings are down everywhere. Here’s the World Series’ average rating for context:
In other words, ratings and viewership are down across all sports on broadcast and cable TV. In many cases, the lowest on record, except for 2020’s terrible ratings. And streaming isn’t making up the gap yet.
But the last question really matters. In context, ratings are down for all of linear TV. (Linear meaning TV delivered over-the-air, through cable or through satellites. Through a box.) Thus, if all ratings are down, but basketball’s ratings aren’t down by as much compared to scripted programming, then basketball is still valuable. Indeed, as I and many others have covered before, sports are now essentially the most popular programs on linear TV. In 2018, 88 of the top 100 programs on TV were sports.
In sum, the NBA’s ratings are down compared to itself. But in the context of a world where all sports are down, but non-sports programming is down much, much more, the decline isn’t as bad.
The Potentially Lucrative Strategic Situation
Live sports are in a surprisingly lucrative situation right now. Linear TV faces the specter of “disruption” by streaming, and their only solution is live sports. Meaning sports rights are increasing in value for the traditional cable bundle. Meanwhile, “over-the-top” distributors view sports as the next most valuable piece of programming.
So demand (which will translate into sports media rights) might peak for live sports across both linear and OTT platforms at the same time!
Because if you’re a TNT or an ESPN, you know you need live sports to keep charging subscriber fees. Sure, at some point, if ratings keep declining, then cable distributors will have to cut costs, which will mean lower sports rights deals. But, so far, enough folks still have cable to justify the fees. That situation might still be five or ten years away.
Of course, then the sports will shift to digital distribution. This battle is being waged by some of the traditional platforms (HBO Max with TNT/TBS, ESPN+ with ESPN, and Peacock with NBCUniversal), but some is by upstart channels, like Amazon Prime Video and DAZN. Whenever you have multiple bidders fighting over limited real estate–in this case, live sports–prices are bound to go up. Since these deals are often for the rest of the decade, if you want a place at the sports streaming table, you need to buy the rights now.
Why Ratings Matter
The opportunity is there for the sports leagues to get huge paychecks. The question is, “Who will get the largest paychecks?”
A few factors determine the value of media rights. First, the number of games. And the length of those games, to determine the number of ads you can sell or the number of times a subscriber will use your service. (The more often they log in, the higher the likelihood of renewal.)
But the biggest factor is the number of fans who watch a given game.
Which is logical. Because you don’t pay billions of dollars for a sport no one watches. There is no value to “having the rights” to a sport. If folks don’t watch it, they don’t actually value it. The higher the ratings, the more implied (and actual) value.
Using some back-of-the-envelope math, you can see how relative ratings imply the value of sports media rights. The NBA’s Finals ratings are about four times higher than the NHL’s Stanley Cup ratings. And their deal is multiples higher. (The NHL’s new deal will amount to about $600 million, and the NBA’s current deal is about $2.6 billion.) The NFL’s deal is about the same as what the NBA hopes to get in their new deal, but they also offer many, many fewer games than the NBA. On a per game basis, then, the NFL dwarfs everyone.
In other words, the higher the ratings, the higher the sports media rights deal. Ratings do matter!
The Current Trends
Thus, the ratings for NBA matter, but mainly in context to other live sports. Comparing the NBA ratings to other major sports, I’d put it like this:
– The NFL is clearly America’s most popular sport, and it isn’t close.
– Globally, club soccer is the most popular, particularly the English Premier League and some other major clubs, and it isn’t close.
– The MLB and NBA are almost tied in popularity.
– College football is about tied with the NBA and MLB and maybe ahead.
– The NHL is way behind both.
– College basketball peaks with a popular March Madness but a smaller regular season.
– The Olympics are only every four years but are still bigger than everything except the NFL in their two week period. Though you’ll see a lot of headlines about down ratings over the next couple of weeks.
– As I mentioned last week, Formula 1 ratings are up. So are UEFA ratings in the U.S.
Thus, Despite Down Ratings, The NBA Will Be Fine. But Higher Ratings Would Be Even Better.
To sum it up, the NBA happens to find itself in a great situation. Even a sport with falling linear ratings is valuable because sports still demand tune in. So linear and OTT services will fight for access, and the rights should increase accordingly.
However, imagine if the NBA ratings were actually going up. Or even flat this decade. Would that cause potential suitors to pay even more? Absolutely. If the NBA Finals demanded tune in like the NFL, they could drive their rights even higher.
Which seems…obvious? Did you need the Entertainment Strategy Guy to tell you that higher ratings demand more money?
Well, yes. Yes you did, because you’ll see hot takes that ratings don’t matter. (And hot takes that the sky is falling.) Reality is fairly nuanced, but most hot takes are not. Just remember: ratings do matter, higher ratings are even better, and due to this extraordinary moment in time, the professional sports leagues will continue making lots and lots of money.
In Case You Missed It – Previous Most Important Stories on Media Rights
Almost Most Important Story of the Week – HBO’s Earning Report and Strategic Update
HBO Cancels EU Roll Out
The headline is that HBO Max grew subscribers by over 2 million for the third quarter in a row in the U.S., reaching 47 million. Given that they just launched in Latin America, their growth should continue globally in the next quarter as well. (I hope to update my “US streaming subscriber” estimates shortly.)
The more interesting story, though, was the strategic decision to slow their global growth plans–specifically plans to roll out in the EU–and to focus on Latin America. Without knowing the details, you could convince me that this move is either good or bad. The good? Going slowly, but going well is often a better strategy than growth at all costs. Further, they already make lots of money in EU territories from existing deals. The bad? Well, Disney pulled off fairly aggressive growth.
Related: WarnerMedia Unveils CNN+
A CNN-only streaming service has long been expected, but did it have to have a “+” too? When we get more details, I’ll expand my thinking on it, but right now, it feels too small to support a service by itself. However, in a bundle with HBO Max, Discovery+, and maybe a TNT sports bundle, it would be a value add.
Other Contenders for Most Important Story
AMC Settles Walking Dead Lawsuit with Frank Darabont
The owners of The Walking Dead, AMC Networks, settled a lawsuit with Frank Darabont over backend fees for The Walking Dead. While this is notable for the high prices, it’s also notable that backend deals are notoriously difficult to negotiate in an SVOD only world. And in a world where the producers are the distributors. And in a world with no syndication. I recommend this take by Eriq Gardner arguing that point.
All the Netflix Executive Changes
Usually, executive reshuffling doesn’t make the “other contenders” column. But two fun strategy tidbits in this one:
- Over on the movies team, Netflix now has two teams making “commercial films”. That feels fairly redundant, which is what happens when companies get large and need to balance politics with efficiency. So welcome to the traditional studio model, Netflix.
- The move to shift physical production decisions to international territories feels like a smart move by Netflix. And does show how international productions are increasingly being made by the international teams.
Vince Gilligan Re-Ups at Sony for “mid-eight figures”
If you’re talking showrunners who make hit shows, how low on that list is Vince Gilligan? While he doesn’t share the prolificness of a Greg Berlanti or Ryan Murphy, he arguably made the second most popular cable show of the 21st century with Breaking Bad. And yet he re-upped for “only” a deal in the mid-eight figures with Sony. That seems way below the values Netflix is offering. This is another example of how the accounting at traditional studios just doesn’t match the streamers.
(It’s also a key deal for Sony, since their competitive advantage now is talent.)
Update To An Old Story – Imagine Entertainment Wants a Pay Day Too
Last week, when I listed Reese Witherspoon, A24 and LeBron James’ content companies as trying to sell themselves for huge paychecks, I left out Ron Howard’s Imagine Entertainment, which is also trying to sell. Good luck to all of them.
Context Update – Inflation!
Every other business story I read is about inflation and its potential (often scarily overhyped) impact on society. Probably because I read Kevin Drum regularly, I’m remarkably more sanguine about this issue. Despite some short-term blips, most of inflation right now is driven by energy prices and used cars. Since TV and movie shoots don’t require lots of used cars, this shouldn’t immediately impact production budgets.
The more important long-term trend is keeping America from falling into a recession. Since causing a recession is really the only tool to fight inflation, let’s hope inflation stays steady and low (around 2%) going forward.