With the pay-TV ecosystem ever reliant on live sports, the value of broadcast rights continues to climb for most valuable properties. Major League Baseball recently announced a seven-year, $3.75 billion deal with Turner Sports (a 65% increase on their expiring pact) and reports indicate Fox is prepared to spend $2 billion annually to retain its Sunday NFL package (+85% on the deal expiring in ’22). But with the number of eyeballs trending downward at an accelerated rate, it’s reasonable to wonder how networks paying increasingly large sums to retain broadcast rights are going to turn a profit on the programming. As Michael Spirito (managing director, Sapphire Sport) said, “They’re definitely not going to be able to offset the increase on a one-for-one basis from an advertising perspective, and with the pay-TV universe dwindling, [networks] are going to struggle to keep up no matter how much they increase carriage rates.”
Our Take: The short answer is that networks know they are going to be in the red on their new pacts, for at least the first few years of the deal—and they are OK with that. Claire Enders explains any profitability achieved would really be a bonus anyway. The Enders Analysis CEO said the networks view these rights agreements as “loss leaders [necessary to] sustain much broader activities that would otherwise be facing an inevitable decline” (think: Comcast and its broadband service).
Even if a network lacks a more holistic approach to monetization, it is not as if there is an alternative to paying the increase. “The counterfactual is to think what would happen to these businesses without live sports rights. They would simply implode,” Enders said. “Survival is the driver that hits the elbow when a network is writing a check for something 50% to 100% more expensive than they paid last year. Without MLB, TBS would become a general entertainment channel, and WarnerMedia would find it almost impossible to sustain carriage fees [not just for TBS, but the entirety of their portfolio]. Long-term carriage of the sport on the network also makes baseball programming sellable to advertisers in a way that most of the material on TBS does not. Turner had to [renew the package], at basically any price, in order to [keep TBS] in business,” she said.
Sportico media rights guru Anthony Crupi agreed adding the need for sports programming will only increase “as affiliate revenue/reverse comp/retransmission consent fees [make up] a greater % of the broadcast/cable model—advertising now accounts for ~50% of CBS’s revenue haul, down from 65% just a few years ago. Next year, ESPN’s carriage fee will reach nearly $9.50 per sub per month, which means Bristol will rake in ~$9.35 billion simply for turning its signal on. [The Disney subsidiary] can’t command those sort of nosebleed rates without the NFL, NBA and MLB. The same applies for [every other] rights holder.”
Networks paying out sharp increases on big four broadcast rights do not expect their sports business to stand up on its own during the early years of the deal. But Enders suggests by the end of a long-term extension the rights could very well be a money-maker for the holder—particularly if the networks are successful in finding new digital ways to derive value from the broadcast (think: sports betting, interactivity). Spirito pointed to Buzzer, one of his portfolio’s companies, as an example of how technology could help a rights holder substantiate an increase in the cost. The early stage platform “is designed to make it easier for authenticated subscribers to find the live streams they want, as well as allow people not currently in the pay-TV universe to transact via micropayment,” he explained.
Funding a 50% to 100% increase on big four broadcast rights shouldn’t be an issue for the linear networks (even as subs decline). “All of the [traditional broadcast players] can weather huge uncertainties, huge cash-flow holes by issuing debt,” Enders said. While that might be comforting for the NFL, MLB, NBA and NHL to hear, it remains to be seen if there is any money left over for more niche sports properties. Enders suggested it was unlikely networks would take on the costs associated with tier-two leagues—particularly those looking for a bump in value—after agreeing to pay such large increases to their most prominent rights owners. At the end of the day, there is only so much money to go around.
NLL Commissioner Nick Sakiewicz wasn’t so sure. “It’s a much different strategy and more near-term acquiring rights to the NFL or MLB–100-year-old leagues with largescale, mature audiences–than rights [to an emerging, upstart league],” he said. Aside from the costs being significantly less expensive, a league like the NLL reaches a much younger demo (Gen Z) and evolves over the years with them as they grow and enter their earning years. On a cost per hour basis, it might make sense for the networks to continue programming smaller sports properties with potent young audiences. It is not difficult to envision a barbell scenario where there is network money available for properties at the top and bottom of the totem pole and little in between. Leagues that can bring their own advertisers to the table (see: incremental ad dollars) should also continue to find linear broadcast interest.
(This story has been updated to correct advertising’s shares of CBS revenue in 2010 and 2019.)