The NBA just signed a nine-year deal with ESPN worth $24 billion. Not to be outdone, the NFL signed an even larger deal with multiple networks, netting some $7 billion per year in total TV rights. This is fantastic news for network executives, team owners, agents, and players.
But what does all of this money changing hands mean for the sports-centric cable consumer? Here are seven truths about the sports/television relationship that should be important to the consumer:
- Sports networks account for around half of the three-digit balance on your cable bill monthly. On the flip side, TV accounts for an equal amount of revenue to professional sports teams and leagues. Without each other, sports would not be the bullish business it is today and television would unbundle, literally and figuratively.
- Pro leagues put a premium on their products because it is the only programming the television consumer prefers to watch live. As the leagues charge more for the rights to their games, the networks pay more. As the networks pay more, they in turn recoup their costs by up charging the service providers for the right to carry their network. Ultimately, the service providers try to cover their costs by raising your cable bill.
- The number of cable subscribers has decreased at the same rate that high-speed internet subscribers has increased but the cable subscription prices have increased even faster than the subscriptions have decreased, keeping television profitable.
- Live sports driving up the cost of cable is the most likely root of losing subscribers to the alternative internet based “a la carte” marketplace but live sports are also the only way to keep subscribers. Mainstream sports programming offered exclusively online is almost non-existent and this keeps sports fans from cutting the cord, even though 45% of millennials are exploring the idea.
- This business model could lead to bad sports decisions. The Big Ten adding Rutgers and Maryland dilutes the brand but earns them a potential 15 million east-coast cable subscribers that would pay their network “sports tax”. Even more common, a team might sign an aging superstar or a GM might build a volatile team to secure a lucrative television contract, preferring the money to wins. Expect more conference juggling and bad player contracts as networks fight over rights and territory.
- Understand the bundle. Disney owns ESPN. When Disney sells their network rights to your provider, they bundle their networks together so consumers who want one but not the other don’t have a choice in the matter. You get both and you pay for both. Bundling.
- Fans prefer the freedom of choice and lower costs associated with Internet television. Providers prefer the low cost and high returns of providing Internet subscriptions. But don’t expect ESPN to follow HBO’s lead by selling online network subscriptions any time soon. ESPN brings in $6.5 billion in cable affiliate fees, $3.5 billion from TV advertising and less than $1 billion in digital ad sales.