SBJ/February 26 - March 4, 2007/This Weeks News

XM-Sirius merger could cost leagues

The proposed merger of the country’s two satellite radio companies could potentially cost sports leagues and media networks hundreds of millions of dollars in lost rights  fees and advertising revenue over the next decade.

The problem isn’t with the contracts the leagues have signed with XM and Sirius over the past several years, which are expected to remain in place. The change would come once the leagues’ deals end and they have to negotiate new ones without  a bidding war between rivals.

Major Sports Deals

SIRIUS
AFL: Entering first season of a two-year deal
NASCAR: Five-year, $107 million deal through 2011
NBA: Multiyear extension signed in Dec. 2005
NCAA: Three-year deal for men’s March Madness ends after this year’s tournament
NFL: Seven-year, $220 million deal through 2010 season
NHL: Final season of three-year, nonexclusive deal
NLL: Multiyear deal announced earlier this month

XM
MLB: 11-year, $650 million deal through 2015
NHL: 10-year, $100 million deal through 2015
PGA Tour: Signed through 2008
U.S. Open Series and U.S. Open (tennis): Three-year deal through 2008

“In terms of negotiating leverage, the merger is certainly a negative for sports properties,” said David Bank, equity research analyst for RBC Capital Markets. 

That competition between the two rivals led to a windfall for sports leagues (see chart). 

The NBA would be the first to test the new market, since its deal with Sirius ends after 2007-08 season.

For sports-based programmers such as ESPN Radio, a big question centers on ad revenue. The combined company will have 13.6 million subscribers, double the number for either platform. XM has 7.6 million subscribers; Sirius has 6 million. But some ad buyers are skeptical that ad revenue would jump significantly with a merger.

“It remains to be seen if they get twice as much money for twice as many subscribers,” said Matthew Warnecke, vice president of national and local radio for Mediacom.

In fact, ad revenue could drop if government regulators impose conditions. One theory has the Federal Communications Commission placing an a la carte condition on the deal to allow subscribers to buy individual channels.

Officially, the leagues are keeping a brave face.

John Shannon, the NHL’s senior vice president of broadcast, said, “The ramifications, I don’t think we know yet. If you tell me we’re going to be getting our content to 13 million homes now, that’s a positive for us.” Similarly, MLB President Bob Dupuy said, “I expect no negative impact.” The NFL, however, is taking more of a wait-and-see approach, releasing a statement saying, “We are following the Sirius-XM merger closely, but are not in a position now to delve into the details of what it would possibly mean for our fans or our finances.”

Staff writers Eric Fisher, Daniel Kaplan and Tripp Mickle contributed to this story.

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