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$2B? To experts, it sounds reasonable
Published January 10, 2011, Page 1
Twenty-four years later, in 1994, people lampooned Fox, saying the new network was grossly overpaying for an NFL game package. That check was worth $395 million a year.
Fast forward to last week when news broke that ESPN had agreed to broad terms on an extension that would see it pay nearly $2 billion a year to keep “Monday Night Football,” and the lack of a response was surprising. There were no arched eyebrows and few sky-is-falling diatribes. Rather, there were knowing nods that the NFL is the country’s strongest sports entertainment property and poised to get stronger.
The deal, which has not been formalized, will include highlight rights, broadband rights and some form of mobile rights, sources say.
What’s notable about it, however, is what it doesn’t include. That nearly $2 billion doesn’t include any Super Bowls. It doesn’t include a wild card game initially (though it does put ESPN on the path to get one eventually). And, sources say, ESPN gives up cable exclusivity, allowing the NFL to create another live-game package to sell to another cable network.
Still, despite the rights fee, financial analysts who cover ESPN’s parent, Disney, weren’t concerned. While high, the price fits within ESPN’s cost structure. And the increase to an average of $1.8 billion through 2022-23 fits in with what ESPN already was paying, particularly if the added content from an 18-game season is factored in.
BTIG analyst Rich Greenfield suggested that ESPN will be paying close to $1.3 billion once its current deal ends in 2013. He speculates that a $1.8 billion average most likely would start around $1.5 billion, with escalators. With subscriber revenue of around $6 billion per year, ESPN still is sitting pretty.
“It doesn’t sound like a ridiculous number to me,” Greenfield said. “I never expected ESPN to lose ‘Monday Night Football.’”
The length of the deal, which goes into effect in 2014 and lasts for nine or 10 years, also makes the $2 billion number seem less outlandish.
“One of my concerns for ESPN has always been that they don’t own the content,” said David Bank, managing director of global media and Internet research for RBC Capital Markets. “But a deal like this gives ESPN a decade of visibility with the most important sports franchise on network television. That’s really important for them.”
With the NFL locked up for the next decade, ESPN can be more selective with other sports properties, Bank added. “It puts ESPN in a stronger position with everyone else.”
The deal, obviously, is a massive one for the NFL and its teams. Combining the average yearly payout from all of the league network deals, including the $1.8 billion that ESPN is negotiating, then splitting them among the league’s 32 teams, that equals about $150 million to $160 million per team annually. And that’s before teams sell a single ticket or any licensing, new media and sponsorship deals.
The deal clearly could have ramifications on the current labor talks.
“The NFL should be congratulated for another billion-dollar network contract. It does make one question how they can announce both a single TV deal worth $2 billion for ‘Monday Night Football’ and ‘negative cash flow’ in the same week,” said NFLPA Executive Director DeMaurice Smith. “Fans and players continue to be confused about their claims of a financial hardship as justification for a lockout.”
The NFL and ESPN started talking about extending the deal around Labor Day, when an exclusive negotiating window opened in ESPN’s current eight-year, $8.8 billion deal. The window originally expired around Thanksgiving, but talks progressed far enough that the two sides agreed on an extension. Talks reached the highest levels of both companies, with ESPN/ABC Sports President George Bodenheimer visiting NFL Commissioner
|TIFFIN WARNOCK / STAFF|
ESPN’s George Bodenheimer was involved in talks, along with the NFL’s Roger Goodell.
Even with a potential work stoppage next year, the NFL is in a clear position of strength during these negotiations. Its games are the most-watched shows on television.
All of the league’s TV partners posted viewership gains this year, with Fox, CBS, NBC, ESPN and NFL Network posting all-time viewer highs for their packages.
“Sunday Night Football” is this season’s top-rated broadcast show, and “Monday Night Football” is this season’s top-rated cable show. “MNF” games made up the 11 most-watched shows on all of cable in 2010.
“It is an astounding amount of money,” said sports media consultant Lee Berke. “But it’s in keeping with the fact that the league’s ratings continue to grow and that it’s the most valuable programming on television.”
The NFL carried a lot of other leverage into these negotiations beyond its wild popularity. Many of ESPN’s affiliate contracts would allow distributors to pay a lower rate to ESPN if it didn’t have NFL programming. ESPN
Prime-time football on Sunday and Monday has been a ratings champion this year.
The NFL also has a lineup of cable networks that would be willing to pony up the cash to get such a marquee NFL package, including Turner Sports, Comcast (Versus) and Fox (FX).
ESPN executives were particularly concerned that the NFL could wind up with an ownership stake in Versus if the league cut the channel in on a bundle of rights.
ESPN’s worries aren’t unfounded. Comcast already offered the NFL a stake in the channel once before in 2004,when it was bidding on the eight-game package that eventually landed on NFL Network.
And Comcast’s regional sports networks have followed a similar strategy, allowing the rights holders in various markets to obtain stakes in Comcast’s RSN. The Astros and Rockets own a combined 80 percent of CSN Houston, for example; the Giants hold a 30 percent stake in CSN Bay Area and the White Sox, Cubs, Bulls and Blackhawks hold 70 percent of CSN Chicago.