AT&T has closed on the deal to spin off DirecTV as a standalone entity with an assigned enterprise value of $16.3 billion. Per terms of the deal, which will see AT&T retain 70% of the new pay-TV entity—the private-equity firm TPG Capital is paying $1.8 billion for a 30% share of the new company’s common stock—the telecommunications giant will assume up to $2.5 billion in net losses generated by DirecTV’s extant NFL Sunday Ticket contract.
While the out-of-market NFL package has been a key differentiator in DirecTV’s battle with rival satellite operator Dish Network, it’s been hemorrhaging money for years. When DirecTV renewed its Sunday Ticket deal in October 2014, it agreed to a 50% rate increase, signing off on a commitment to pay the league an average fee of $1.5 billion per year through the end of the 2022 season.
DirecTV keeps its Sunday Ticket subscriber count close to the vest, but insiders estimate that some 2 million customers buy into the legacy service each season. As the price of a full-season Sunday Ticket pass is just under $300, it’s clear that DirecTV isn’t getting much of a return on its investment. (Estimates for the flagship product do not include the subs who pay nearly $400 per year for the streaming Sunday Ticket Max package. At present, the streaming-only service is available in just 29 of the 210 U.S. media markets.)
Re-upping with Sunday Ticket effectively was a condition of AT&T’s $48.5 billion ($67 billion with debt) acquisition of DirecTV in 2015. A year before that deal closed, AT&T reported in a filing with the Securities Exchange that if the NFL package were not renewed, it “may elect not to consummate the merger.”
In announcing the completion of the spinoff, DirecTV emphasized its role in the sports-media multiverse, name-checking Sunday Ticket while underscoring its delivery of live sports in 4K HDR. And while DirecTV is expected to retain its rights to the NFL package through the end of the contract, suitors have been sniffing around the property for months.
Formal negotiations have yet to begin, but among the parties said to be interested in making a play for Sunday Ticket are the tech goliaths Apple and Amazon, as well as traditional media players Disney and Comcast. Jeff Bezos’ company is already well acquainted with the NFL, having begun streaming Thursday Night Football games via Amazon Prime Video in 2017. Amazon further cemented relations with the NFL when it snapped up the exclusive rights to the Thursday night package in March.
Weeks later, Amazon accelerated the timeline of its TNF stewardship, picking up an additional year in an extension that will see it assume the full rights as of 2022.
Talk of Apple’s interest in Sunday Ticket began picking up last month after NFL commissioner Roger Goodell was spotted in conversation with Apple CEO Tim Cook at the Allen & Co. tech and media conference in Sun Valley.
Thus far, the Apple+ strategy has been to invest in original scripted content (Ted Lasso, The Morning Show) rather than live sports, and while the gizmo manufacturer certainly has the cash to throw around, given its $2.4 trillion market cap, it’s not entirely clear how an out-of-market NFL package would be accretive to the company’s core business. That said, Apple a year ago seemed to make a fairly unambiguous statement about its plans for the future when it poached Amazon sports chief Jim DeLorenzo.
Given the NFL’s desire to grow the Sunday Ticket base by way of a far more aggressive streaming push, Disney and Comcast may look to bolster their respective OTT services (ESPN+ and Peacock) with a deeper dive into football. In May, Disney CEO Bob Chapek told investors that his team had been kicking the tires on a Sunday Ticket pickup, saying: “That’s something that we’re in conversations with and we’re considering. Obviously, it’s an attractive property, but we’ll only do it just like our other rights, if it is something that adds shareholder value.”