One media deal upped stakes
In 1998, the NFL returned to CBS after a four-year hiatus. CBS agreed to pay $500 million per year to take the AFC package away from NBC.
Today, CBS pays $1 billion per year for that package.
In 2001, ESPN and Turner paid a combined $776 million per year to carry the NBA, a deal that brought the bulk of regular-season and playoff games to cable.
Today, ESPN and Turner pay a combined $2.6 billion per year for NBA rights.
TV network executives have complained about the ever-escalating state of sports rights since the 1970s. But the dizzying growth of sports rights fees has been the dominant sports media storyline over the past 20 years.
Ground zero for that change was 2008, when ESPN surprised the business by taking BCS rights from Fox with an audacious bid that was a full $100 million higher than Fox. ESPN’s bold move — and the broadcasters’ response to it — did more to escalate the cost of rights fees than any other development.
It’s hard to believe now, but ESPN was something of a sleeping giant in 2008. The Bristol, Conn.-based media company had a ton of rights to program its many TV channels — including ESPN, ESPN2, ESPNU, ESPNews, ESPN Classic and ESPN Deportes. It cut deals with the country’s biggest leagues, including the NFL, MLB, NBA and NASCAR.
But the network never seemed to be taken seriously by the broadcast community. Sure, it carried more regular-season games than any other network. But no championships were won or lost on ESPN. Even the NBA Finals migrated to ABC, not ESPN.
Because of the number of games it carried, ESPN had a reputation among leagues as a network that was more concerned with volume than quality. Broadcast executives found it hard to believe that a big sports league would entrust its crown jewel programming — its championship — to a cable channel that was in 16 million fewer homes.
Then came the BCS. Fox wanted to renew, but ESPN bowled the group over with a $495 million bid over four years.
Fox executives were incredulous. They considered the move a money grab by the college presidents, opting for money over exposure. But they also realized that it was becoming harder to compete with ESPN. After all, ESPN made its eye-popping bid in the middle of the Great Recession. While the rest of the country was tightening its belts, ESPN was poised to go on a spending spree.
Broadcasters quickly realized that ESPN had several built-in advantages. It had two revenue streams in advertising and affiliate revenue, which meant that it had much more money at its disposal. Fox and the other broadcasters only brought in revenue from advertising.
Broadcast executives were starting to realize the power of sports programming — live viewing mattered in 2008 just as it does today. Viewers increasingly would watch entertainment programming on demand, skipping commercials. Advertisers would pay a premium for sports programming, which viewers would watch live. Broadcasters could not afford to lose the biggest sports events to cable channels like ESPN.
Broadcasters realized they had to make changes if they were going to compete with ESPN. First, broadcasters needed to develop a second revenue stream, similar to ESPN. That’s when they started leaning on retransmission consent — a regulation that made distributors gain permission from broadcasters to carry (retransmit) their signals.
In the past, broadcast groups used this rule to force distributors to carry new TV channels, which is how channels like FX and CNBC launched.
After ESPN’s BCS deal, broadcasters decided to change that strategy. Instead of launching new channels, they decided to charge distributors a carriage fee. This change led to several carriage disputes that are still being fought today. In 2017, for example, Fox used its production of the Super Bowl to cut retransmission deals with several distributors.
ESPN had another advantage over broadcasters in that they could carry any game at any time. The broadcast networks carried sports on weekends. But their prime-time hours were devoted to entertainment programming.
That led Fox and NBC to launch 24-hour sports channels that could help them compete with ESPN for rights. NBC relaunched the Versus sports channel as NBCSN in January 2012. A year and a half later, Fox relaunched the Speed motorsports channel as Fox Sports 1.
The two broadcast groups started competing with ESPN for rights. FS1 picked off some college rights and soccer rights. NBCSN placed its bets on the NHL, NASCAR and other motorsports.
At the same time, leagues were investing in their own TV channels, adding yet another potential competitor into the mix. MLB Network launched in 2009, soon after ESPN’s BCS deal. In 2012, NFL Network began showing a full-season slate of “Thursday Night Football” games. Even college conferences, like the Big Ten and SEC, launched their own channels.
Recently, though, the pay-TV channels have lost some of their influence. As more video is streamed digitally, channels like ESPN, FS1 and NBCSN have seen their subscriber base shrink.
Now leagues hope that digital companies like Facebook, Amazon, Apple, Netflix and Google will step in and push sports rights costs even higher, with the same strategy that pay-TV channels used to grow so big over the past 20 years.