Tag: NFL

The Odds and Ends of the NFL Media Rights Deals – Most Important Story of the Week – 19 Mar 21

Last week the NFL media rights story went from “potential” to “actual” news. (The latter happens, the former is rumors.) Not to toot my own horn, but I wrote last week that the Disney-NHL deal would set the template for the NFL deal (and all future rights deals). And I was right.

That’s our story of the week. Which is a bit delayed because, frankly, March Madness basketball slowed me down.

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Most Important Story of the Week – The NFL Media Rights Grow 5.9% Per Year and Go Digital

Editorially, the NFL didn’t help me out. I had hoped the NFL would take a few more weeks to finish these deals, so my weekly column wouldn’t cover sports two weeks in a row. Last week’s column explored the strategic issues for all parts of the digital video value chain. This week, I’d like to provide a bit of context to the specific numbers for the NFL, speculate about the two remaining wild cards in the NFL media rights package, and give my overall thesis. In short, a bit of an “odds and ends” column.

Bottom Line: This Deal Isn’t “Earth Shattering”, But “Evolutionary”.

The NFL signed a big rights deal that we all knew was coming, and most observers assumed that all the major linear channels (Viacom, Fox and Disney) would insist on digital rights as well. Which is the deal we got. Did this stop some outlets from hyperventilating that this deal would “end the bundle as we know it”? 

Of course not.

Will it? Not really. If “earth shattering” means to figuratively have the Earth break apart like Alderaan in Star Wars, then this deal is not that. Unfortunately for narratives, most business trends resemble the slow but steady movement of the continents rather than earth-destroying super lasers.

For the vast majority of customers, they can (and will) watch TV mostly how they have before. Amidst this, TV consumption is slowly changing, as more Americans cut the cord. More but not all. As I often remind readers, though, this rate is still in the single digits percentage-wise. In 2021, cable “only” lost 6 million subscribers. Yes, this is a shrinking business, but the majority of TV viewers use cable or satellite to access TV.

This deal matches that slow evolution, not the online narrative. Since many customers are digital only, the NFL needs to reach them and ESPN+, Paramount, Prime video and Tubi provide that reach. But there are still so many traditional customers that the NFL can’t blow up the linear bundle entirely. Again, think “tectonic shifts” not “earth shattering”. 

(This is the “aggressively moderate” take versus the “headline grabbing soundbite” take.)

Whither Sunday Ticket?

Partly, I’m a bit disappointed that Sunday Ticket, the subscription service that lets DirecTV customers watch every NFL game, hasn’t been awarded to a suitor. Given the sorry state of DirecTV’s finances–they were just spun off from AT&T–it is unlikely they will renew this extremely expensive and exclusive contract.

So who grabs it? Amazon is often rumored, but likely the NFL has concerns that Amazon alone doesn’t have the reach to justify a deal. Neither would any one cable company, since no one cable company covers all of America. (That’s why the deal made so much sense for DirecTV, since every house was a potential customer.)

Hence Sunday Ticket is a “wildcard”. I think that the NFL could actually generate more revenue by letting multiple MVPDs and OTTs sell it as an add-on, for a given up front fee and splitting per customer revenue. (Say ESPN+, Apple TV+, Peacock, and Prime Video, plus any cable provider.) But that is much riskier for the NFL overall. The NFL prefers a big upfront paycheck, which may lend itself to one big (likely tech) player going all in. We’ll see which way they go.

Whither NFL Network?

One of the rumored sticking points in Thursday Night Football to Amazon was whether the deal was totally “exclusive”, meaning on every platform, or “digital exclusive”, meaning the only digital provider, as it was the last few years. The answer is the former, as TNF will leave its sometime home on the NFL Network. Losing an actual live sporting event will hurt the NFL Network’s negotiating position in the future, so conceding the point likely means the NFL knows the smaller linear sports channels days are numbered. Plus Amazon doubled the price tag, which likely makes up for the loss.

That said, there is the caveat that in their Press Release, the NFL said the NFL Network will carry some games. Hmmm. It will be fascinating to see what and how often these games show up on the calendar:

Screen Shot 2021-03-23 at 12.55.46 PM

Amazon Will Syndicate Airings to Local Broadcasters

That said, here’s a fun point: Amazon must syndicate rights to local markets for Thursday Night Football. That’s a footnote with big implications I didn’t see highlighted in the coverage!

Screen Shot 2021-03-23 at 12.56.17 PM

In other words, if hypothetically the Los Angeles Rams play the Kansas City Chiefs, a local broadcaster like KTLA could buy the rights for Los Angeles. In fact, Amazon must sell the rights to someone. Same for Kansas City. Everywhere else? They have to go to Prime Video to watch that week’s games.

How much does this decrease the overall value? Somewhat. Diehard NFL fans will tune in to Prime Video.  But the casual fans who only follow their team will have a non-Amazon option, which does decrease the upside for Prime Video. Does this make it a bad deal for Prime Video? Probably not. They still need to convince people to use Prime Video on a regular basis, and sports offer that opportunity.

This isn’t a “108%” increase, but a “5.9%” per year increase.

Whenever a big sports deal is announced, the league loves to celebrate the huge increase in price. Often announcing it “doubled” the previous deal. What they fail to mention is that the previous deal took place ten years before, so it doubled over ten years, which is less impressive. Since 2010, the S&P 500, for example, has gone up 249%, so if a sports right deal doubled in value, that’s less impressive than the just basic growth of the stock market!

I wrote about this before, here or here. How does this apply to the NFL? Well the previous deals were signed in 2014, roughly, meaning 9 years. Using the prices per year–from this great Sportico article–the actual per year increase is from $5.67 billion to $9.46 billion. That’s a combined annual growth rate (CAGR) of 5.9%, or an average growth rate of 7%.  Still really, really good to grow revenue by 5.9% per year! But not nearly as eye popping as 108% growth sounds.

For new readers, here’s the picture of what I call the Video Value Chain in all its glory.

The last two weeks, I’ve written about the Digital Video value chain. Here is that laid out in all its glory for those who don’t know:

image-7-video-value-web-1

What did the Twitterati have to say?

Every so often I collect your thoughts on Twitter. Here are the best hot takes I found:

Context Update – Antitrust Heats Up as Biden Appoints Lina Khan to FTC

Mergers & acquisitions are fun to write about. You get to imagine two companies putting together their combined business heft and dominating a new industry, or presenting a unique new value proposition. Ignore how often the mergers fail to deliver the expected value in real life; on paper they’re fun! (Especially compared to building a real strategy, which is often much harder.)

This game was especially fun over the last four decades, as US and global regulators mostly allowed every deal to pass through. (There are a few exceptions, like Comcast and Time-Warner Cable and AT&T and Sprint, but they are vastly the exception.) But has the tide turned on antitrust? And does the business community have an accurate gauge on that yet?

Maybe not. That’s my outlier hypothesis right now. As I wrote last November, whether or not Democrats will fundamentally change antitrust enforcement (from lax to aggressive) depends on President Biden’s appointments. On this front, he has been mixed. Some appointments are traditional (meaning lax) corporate lawyers. Others are strong advocates for renewed antitrust enforcement. Some advocates for stronger antitrust enforcement were disappointed when Biden nominated Rohit Chopra for head of the Consumer Financial Protection Bureau, since he was very aggressive on antitrust as a member of the Federal Trade Commission. Then Biden nominated Lina Khan to the FTC. She’s just as fierce of a critic, and a protege to Chopra, . Khan helped write the House Subcommittee on Antitrust report on Big Tech last year, and is a rising star. She’ll likely be a strong advocate for increased scrutiny on future mergers and acquisitions. 

Toss in economist Tim Wu joining the White House Council of Economic Advisors, Chopra’s commitment to enforcing rules at the CFPB, and the Senate weighing new antitrust bills that may–but likely won’t–have bipartisan support, and I see a changing landscape. Heck, when a Republican Senator writes an op-ed in favor of unions, anything is possible!

Yet the business community isn’t ready for this outcome. After a down year in deal-making due to Covid 19, they’re ready to get back on the merger train. (Speaking of, two big train companies want to merge.) Writing in his newsletter, Matt Stoller noted:

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So what is the most likely outcome? Well, deal making won’t slow down until the Biden Administration sends even clearer signals that it will stop deals from happening. I expect this will start first with increased scrutiny on “megadeals”, those over $5 billion in value. 

As for entertainment, this biggest potential impact is that Big Tech will be a pinch more worried. (Big Tech being at least Apple, Google, Facebook and Amazon, maybe Microsoft, maybe Netflix.) Sure, maybe increased antitrust scrutiny won’t come for train companies, but clearly Big Tech is in the crossfire. This could hamper the long hoped for M&A spree of Big Tech on smaller media companies. That would change a lot of potential strategy.

Other Contenders for Most Important Story

Netflix May (Huge May) Crack Down on Password Sharing

To continue the game of the last two weeks, is this “actual or potential” news? Every few months something about password sharing and Netflix circulates on the Twitter (and then news websites) rumor mill.

Is this one different? Maybe. On the actual side, Netflix is genuinely running test messages telling customers to not share passwords. On the potential side, Netflix hasn’t actually limited password sharing to one household yet either.

Tubi May Produce Original Programming

Because of course they will. Everyone is making originals. However, paired with the news that Tubi will carry Fox NFL games, clearly the remaining pieces of Fox post-merger with Disney (Fox broadcast, Fox Sports and Fox News) see Tubi as the future.

Alibaba May Have to Sell Media Businesses

For a perfect example of a “potential” news story, see this Alibaba news out of China. Sources say that Alibaba may have to spin off media businesses to stay on the Chinese government’s good side. Let’s wait until this actually happens, but China seems to be cracking down on media consolidation by Big Tech in their backyard.

Walmart Considering a Smart TV Device

Walmart has a confusing approach to the Digital Video/Big Tech “dust up”, as The Economist recently described it. (Tech is having a dust up whereas entertainment is having a war.) A year after buying Vudu and then selling it to Comcast, Walmart is back exploring if they should manufacture/brand a streaming stick under their brand.

The WME IPO is Back!

Buried in the news coverage was the return of the WME IPO, derailed by Covid-19 and a weak economy last year. Will it stick this time?

Lots of News with No News – March Madness

I’m sure I’ll stumble across articles either bemoaning, celebrating, worrying or any other emotion over the ratings for March Madness this year. Whatever they are, folks will likely use them to justify their preexisting beliefs on the future of TV, digital videos and the streaming wars. (Apply this to awards shows too if you’d like.)

I, meanwhile, will enjoy the tournament and how well the Pac-12 is dominating, especially my Bruins. Let’s hope they don’t delay any more columns!

An Aggressively Moderate Take on Coronavirus and Sports

On Wednesday sports in America made their triumphant return! “The MLS Is Back” tournament declared that, well, the MLS is back.

This follows the June return for most of European soccer, starting with the Bundesliga and continuing to the English Premier League, the most popular global sports league.

Yet not all is sunshine and roses. The leagues are back…but the fans aren’t. And won’t be for the rest of the summer, if not longer.

So how should we think about Coronavirus and Sports? Well let’s bust out the EntStrategyGuy’s patented Covid-19 impact system to analyze it. We look at impacts on Supply, Demand and Employment (if relevant). We also try to separate what we know from what we don’t (and is usually guessed at).

(Curious for my “moderate” take on how Covid-19 will impact the rest of the entertainment industry? Here are my takes on…

The Entertainment Recession
Theaters
Pay/Linear TV
TV and Film Production

Supply

If you’d asked me in 2012 how sports teams made their money, I’d have told you extremely confidently that they made their money by signing huge TV sports rights deals. That’s what I kept reading in the news, after all. Then one day a famous NBA GM spoke at my school and disabused me of that notion in a way that’s stuck ever since. And understanding that explains the trouble for sports leagues over the next year or so.

Yes, the headline buzzy numbers about multi-year deals for TV rights are indeed true. Sports rights for TV have grown by about 4-5% per year for the last two decades. (Math here.) That’s tremendous growth! And hence why everything related to sports has also grown in value. (The price of teams, the salary of players, the size of sponsorship deals.)

But it isn’t the entire story. The second or first biggest chunk of revenue for nearly every sports team in America (and I believe globally) is ticket sales. That’s fans attending live games. It depends on market size, but not the way you think. Larger market teams like the Lakers, Dodgers, Golden State Warriors, Dallas Cowboys and Knicks have even more of their revenue as a percentage from local ticket sales than smaller market teams. This is because seats to sporting events are a constrained inventory for a popular product often in very economically wealthy areas. That’s a recipe for high prices.

This explains why the sports leagues, initially, were more willing to postpone the season than play games in front of empty arenas. Empty arenas meant permanently lost revenue and the NBA, NHL and MLB desperately wanted to avoid that happening. (This article says all live revenue is about 40% of the NBA’s total revenue.) They waited as long as they could, but now it’s clear sports in front of fans aren’t happening this year. 

And since it’s better to get some revenue than no revenue, the sports leagues–sans the NFL–have figured out how to bring competitions back without fans. (Good for them!) This means sports in America will be back on live TV soon enough. (Technically the PGA is already back in the US and as I said above the EPL and other European leagues are already back.) 

Still, this leaves the situation with ticket sales unresolved. The owners and commissioners desperately want that other huge chunk of revenue back.

Forecasting when fans can return to arenas or stadiums is fairly difficult. It’s worth comparing them to theaters because the different situations imply different economics. With theaters, I remain convinced that there are measures that can reduce transmission dramatically: have everyone wear masks, keep a checkerboard pattern in design, have a reduced congestion plan when leaving. (This is definitely a minority take not shared by public health officials, so take it for what it’s worth.) Moreover, with a new film, a theater can flex it onto many, many screens simultaneously, meaning you can support a checkerboard pattern while potentially achieving mostly the same volume of tickets sold.

This is not the case with sports. If you’re an NFL team, you only get 8 home games. NBA team gets 42. MLB gets 424 (it feels like). And so on. You can’t surge it into more stadiums or games. (The very thing that drives up prices in the absence of coronavirus hurts the sports leagues here.) Moreover, unlike theaters, stadiums are filled with choke points where people will crowd. (You’d have to have folks arrive 2 hours early or more to avoid crowding at ticket entrances.) Not to mention, a checkerboard seating pattern won’t make sense because you’d have to rearrange nearly every season ticket holder. Yikes.

This means that to have sports return with live fans, you are much closer to needing a full therapeutic cure or vaccine before sports can safely resume.

When will that happen? Well I don’t know. And it’s the biggest variable–and potential hit to the bottom line–for sports teams. However, if you assume we will one day cure or eradicate coronavirus, the supply problem will eliminate too. In the meantime, I expect players, owners, stadiums and all adjacent dependents to take a hit to their salaries and values.

As for the “Bubble” situation, I’m reasonably confident the leagues will find ways to play the games in largely safe ways for the players. It will evolve and folks will get sick, but the revenue draw is too high to avoid.

Demand

Here’s the good news: all signs point to sports fans clamoring for the return of their favorite sports. The Michael Jordan documentary did blockbuster ratings for ESPN. Same for the NFL draft. Even golf is breaking ratings records!

Everyone is trying new things during this quarantine. Some habits may change. But abandoning sports doesn’t look to be one of those things.

Of course, the flip-side to the above supply scenario is that maybe fans will abandon live sports for fear of the coronavirus. This is a risk, but feels low probability. First, sports will likely be constrained by having a therapeutic or vaccine before they return. Unlike theaters, which will test audience demand for their product, I don’t see live sports in arenas this year. 

Second, I don’t think coronavirus has turned us into a world of shut-ins. If anything, folks want to flee their homes more than ever. Admittedly, this is my opinion. It’s an unknown and I could be wrong. A pessimists could say it’s as likely fans flock back to stadiums as they abandon them in perpetuity. Where specifically it lands on that spectrum is up in the air.

As fro demand for live-sports on TV, again I expect it to be high. If folks are in perpetual shut downs with concerts, live-sports and many outdoor gatherings prohibited, live sports rights should be widely consumed. Not to mention, the slow down in TV and film production has meant fall will be light on new content. Sports can instantly step into that void.

Employment

I do see lingering pain the labor market related to stadiums staying closed. Entire ecosystems are built around attending live sporting events. Everyone associated with working that from ushers to security to restaurant staff will be hurting until sports return.

Even the players, as I mentioned above, will likely see a lot of pain. As long as salaries are a percentage of basketball related income, then the players will see cuts if fans can’t comeback in 2021. 

Overall, I’m less worried about the impact on the economy from sports compared to either TV/film production or movie theaters, both of which employ a lot more people.

Bonus: The Breaking of the Bundle?

The one variable that is neither “supply” nor “demand” is whether the absence of live sports will cause a further deterioration of the cable bundle (and maybe satellite bundle in Europe) that props up the current exorbitant sports rights fees. I’ve seen this thesis floated out there fairly commonly over the last few months. (If not directly, then via the rhetorical question headline.)

If prices to be paid are any indication, the answer is no. The prices for live sports rights haven’t decreased even during coronavirus–they’ve continued to go up actually–meaning sports will definitely be the anchor propping up cable and satellite providers in the near term. I’d recommend considering this mostly wild speculation. Folks have been predicting the end of TV since the beginning of this decade. And it’s still kicking.

However, the true test will be the upcoming earnings season. After all, the bundle won’t die because companies let it, but because customers finally opt out. That will be the true final test.