SBJ/March 14-20, 2011/Leagues and Governing Bodies

Moody's: NFL media rights to double

Potential jump seen as impetus for CBA battle

NFL media fees will double to $8 billion annually by the end of the decade, a significant reason why the league has been striving to reduce the share of revenue the players receive, said Neil Begley, a Moody’s Investors Service senior analyst.

Those conclusions are in a yet-to-be-released, but finished, report that Moody’s plans to publish if the NFL locks out the players, Begley said.

The NFL and NFL Players Association at press time late last week were engaged in federally mediated negotiations regarding a new collective-bargaining agreement. The most likely outcomes of last week’s talks — the two sides agreeing to a third deadline extension, or the union decertifying and the league locking out the players — had not occurred as of Thursday evening.

Among the key issue in the talks is the sharing of revenue. Ownership has pushed for a greater share of the pie, which itself is expected to increase from lucrative media fees and other sources. The league’s deals with Fox, CBS, NBC, ESPN and DirecTV fuel about $4 billion in annual revenue currently, with deals running through 2013 and an ESPN extension in the final stages that sources have said would see that network’s fee double.

“It’s why this CBA needs to be fixed now,” Begley said, “before this big surge [in media fees]. Because otherwise, [the NFL] won’t reap enough to offset costs associated with building stadiums.”

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Analysts say NFL Commissioner Roger Goodell has leverage with the networks.
Twenty of the NFL’s 32 teams are playing in stadiums that are new or have been substantially renovated dating to 1999.

“The league felt with the new stadiums there would be a tremendous upswing in pricing, and they would be fine,” Begley said. “What happened was a little different. The elasticity in [ticket and premium-seat] pricing wasn’t as vibrant, the recession occurred, and ultimately the plan was largely a failure. As a result of that, they have been bearing a lot of the credit risk without the profit. The upshot is they would like to get a more reasonable portion of the media revenues to cover the risks they have taken.”

Moody’s is projecting the huge rights fee increases largely, Begley said, because of the “TV everywhere” concept, in which consumers can view shows not just on TVs but also on computers, handheld devices and tablets. For example, Time Warner Cable recently cut a deal with ESPN to allow its cable customers to view ESPN programming on computers, requiring customers to authenticate who they are with their cable bill number.
Cable companies will pay a lot more for these rights, Begley said.

“The leagues are going to have more leverage [in media negotiations] than ever before,” he said.
Begley covered the NFL for Moody’s until 2007. His area of coverage now includes media companies, stadiums and concessions companies, all of which are affected by the outcome of the CBA talks.

Every media analyst contacted for this story agreed with the changing dynamic. David Bank, an analyst with RBC Capital Markets, said TV networks have relied on the huge NFL ratings to save their TV seasons. Last year, NBC’s “Sunday Night Football” was TV’s highest-rated broadcast show, and ESPN’s “Monday Night Football” was the highest-rated cable show.

“This is a really good time for the NFL to negotiate,” Bank said. “The league has to be aware of how reliant the networks are [on] the league’s ratings.”

Bank said the NFL could indeed see its media fees surpass $8 billion annually in a decade, but he warned that it is misleading to say that the figure would double what’s being paid currently because of escalators that are built into the league’s media contracts.

“To gauge the increase in real costs from a new contract, one probably shouldn’t compare average price to average price, but rather peak price on the old contract versus trough price on the new contract,” he said.
Rich Greenfield, a financial analyst for BTIG, also pointed to the league’s TV ratings as evidence that the NFL’s leverage will get stronger in coming years.

“The NFL clearly has become more important to the TV industry each year,” Greenfield said. “It’s the one thing broadcasters can use to get [retransmission] fees and cable companies can use to fight cord cutters.”
Under the NFLPA’s proposed 50-50 split of all revenue, players would get $2 billion annually of the increased media fees that Moody’s is projecting. The league’s desired percentage is uncertain, but for each percentage-point drop, the players would lose $80 million annually. Presuming a 3 percentage-point difference, and media terms of five years, that translates into a $1.2 billion difference.

Mike Trager, a sports TV consultant, agreed with the Moody’s projection, saying that given just the projected rise in the “Monday Night Football” package — which will average close to $2 billion a year — the sport was on its way. But Trager also pointed to retransmission consent fees that distributors are starting to pay broadcasters. Last year, for example, Fox used New York Giants games as leverage during its retransmission dispute with Cablevision in the New York market.

The rights fees the networks pay to the NFL have not risen a lot in recent years, Trager said, but that should change now that broadcasters are getting retransmission fees.

Staff writer John Ourand contributed to this report.

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