Inside the economics of Fox’s bold ‘TNF’ deal
BS and NBC lost a combined $100 million to $120 million per year on “Thursday Night Football,” according to a report released this month from Morgan Stanley.
Both broadcasters, who lived through the financials of the package over the last two years, knew enough about the economics to offer a lower rights fee to keep the package than the $450 million per year they previously paid, sources said.
When word came out that Fox agreed to a five-year deal where it would pay $550 million in the first year, with an annual 9 percent escalator (per a MoffettNathanson report), the instant reaction was that Fox overpaid. The company’s stock price fell by more than 4 percent the first day, from $38.46 to $36.90. But the stock price stabilized and went up the following day.
The reason for the stabilization may be that once financial analysts looked into the deal, they saw that it may not be as bad for Fox as originally thought. The deal still is worth a lot of money and carries a lot of risk. But it fits in with Fox’s strategy to bring more live programming to its broadcast network, and should help drive more retransmission consent revenue to the broadcaster.
Sources say the rights fee includes money for programming and services beyond the strict “Thursday Night Football” rights, such as enhanced digital rights and, potentially, a new wild card playoff game (see related story).
A source with direct knowledge of the deal also positioned it as closer financially to the previous deal than some reports have suggested. The source said the first-year rights fee is 10 percent to 15 percent higher than the final year of the CBS/NBC deal — a number that is in line with many sports rights deals.
The source said that CBS and NBC paid for other factors as part of their “TNF” deal — like the enhanced affiliate terms NBC parent Comcast granted NFL Network and the production costs CBS paid to house NFL Network’s morning show in its New York-based broadcast center.
“The average annual is used as a barometer for how good a deal is, but it has the least bearing on how you run a business,” the source said. “The only things that matter are the costs in any year and the revenue in any year.”
A couple of financial reports also suggest that the deal ultimately will benefit Fox, through added retransmission consent fees and increased digital distribution.
“While the deal is costly (and will likely be a drag on near-term numbers), Fox is banking on ‘Thursday Night Football’ to accelerate its retrans revenue growth,” a MoffettNathanson report read. “Compared to CBS, Fox’s monthly subscriber rate was projected to lag in the years ahead and now (bundled only with Fox News and FS1) will be expected to accelerate at a higher rate. Given the length of the deal (five years), New Fox will likely be able to drive a stronger negotiation with station groups than CBS and NBC could in the previous two-year deals.”
The report included a warning that Fox already had Sunday afternoon football, “so we question the incremental value that ‘TNF’ brings to the table.”
The MoffettNathanson report also highlighted how the deal can help Fox’s prime-time lineup, which averaged 3 million viewers on Thursday nights last season. “Even outside of Thursday nights, we can see that no general entertainment show on Fox network last season even came close to ‘TNF’s’ average rating. ‘TNF’ could also help Fox with higher promotional awareness for the rest of its schedule.”