Could NFL Sunday Ticket Sink the AT&T/DirecTV Deal?

If the NFL and DirecTV don't make a deal to renew their deal for Sunday Ticket, the $48 billion acquisition of the satellite provider by AT&T could be off.

May 21, 2014 at 11:37AM

NFL Sunday Ticket, which offers access to every out-of-market NFL game, has been the most powerful tool DirecTV (NASDAQ:DTV) has had at its disposal since launching as an alternative to cable in 1994.

For NFL junkies, fantasy football addicts, people living outside of their favorite team's broadcast market, and, of course, hard-core gamblers, the service represents the only option aside from spending football Sundays in a bar to watch every NFL game. DirecTV's deal with the National Football League costs around $1 billion a season, and AT&T (NYSE:T) finds it so important that it has made its $48 billion deal to acquire the satellite television provider contingent upon its renewal.

The football package has been a key part of DirecTV's identity since the service launched. In addition to Sunday Ticket helping differentiate DirecTV from cable, it is also the main difference between DirecTV and rival satellite service Dish Network (NASDAQ:DISH). Though the two services have some variance in their channel lineup and exclusive content, they're essentially the same aside from Sunday Ticket. 

Sunday Tickey has been so essential to DirecTV's success that roughly one in 10 of its 38 million subscribers gets the package, according to The Wall Street Journal. The deal between DirecTV and the NFL expires at the end of the 2014 season. The exclusive negotiating window between the two companies has already expired, leaving DirecTV vulnerable to a rival making an overwhelming, financially reckless offer for the package.

Sunday Ticket has been good for business

DirecTV has also used Sunday Ticket as a loss leader to bring customers into the service with a two-year commitment for its mid-level "Choice" channel package, which costs $39.99 a month, by offering a year of football free with a two-year commitment. Choice costs $10 more than the company's entry-level "Select" package (though DirecTV is currently running a sale on Select).

DirecTV's 38 million paying customers dwarf the 14 million Dish reported in its first quarter 2014 financial press release. If DirecTV loses Sunday Ticket it becomes essentially the same service as its rival with both being basically cable that can go out during bad weather. If that happens it could force DirecTV to lower prices to remain competitive. AT&T clearly shares these concerns -- it wants out if DirecTV can't renew its deal at agreed upon (but not publicly disclosed) terms.   

DirecTV thinks it has a deal

Announcing that your $48 billion deal to be acquired is contingent upon renewing your football rights deal may not be the best negotiating ploy. It's sort of like telling a person making an offer to buy your house that you already committed to buying a larger, more expensive home and are in real trouble if you can't sell yours fast.

Still DirecTV and the NFL have been in business together for nearly 20 years so the two sides appear to be negotiating in good faith.

On a conference call Monday, DirecTV CEO Mike White said he and AT&T Chief Executive Randall Stephenson had spoken with NFL Commissioner Roger Goodell as well as New England Patriots owner Robert Kraft who heads the league's broadcast committee, and the parties were in "positive and constructive" discussions with the league, Reuters reported. 

"I am still highly confident that we are going to get our deal done," White said.

Does the NFL have other suitors?

DirecTV has been a great partner for the NFL. It has given the league a way to market out-of-market football games without angering the individual cable systems that carry its games. Satellite used to be the only way to offer that type of service, but digital streaming has changed that.

A major player in streaming video -- like Netflix (NASDAQ:NFLX) or Hulu -- could be an option as could an upstart service. Netflix, which charges $9.99 a month, would need to add over 800,000 subscribers paying $120 a year to cover the current $1 billion cost of the deal. Since winning the contract away from DirecTV would likely cost significantly more than $1 billion, the numbers would be even higher.

That's not an impossible number of users for Netflix or another streaming service to add, and the company could charge more for access to the football package. Spending more than $1 billion a year for an NFL package is a huge amount, but offering exclusive access to out-of-market NFL games makes anyone who puts up the funds an instant player. 

DirecTV needs this deal

DirecTV is in a very difficult place -- it knows it has to make a deal to keep Sunday Ticket but the company has a ceiling on how high it can bid based on its deal with AT&T. 

That added leverage will likely give the NFL a slightly bigger deal, but unless a third party makes a truly overwhelming offer, it's hard to see the league leaving its longtime home. If the NFL leaves DirecTV, it abandons a number of its fans who committed to the service over cable just to have access to NFL games. If Sunday Ticket moves, the diehard fans will follow but a percentage won't, which would cost the NFL some fans.

The reason this deal has lasted for almost 20 years is that DirecTV and the NFL need each other. Digital streaming networks may mean that those days of need will come to an end in the future, but for now the best place for Sunday Ticket is likely still DirecTV. 

Your cable company is scared, but you can get rich

You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Daniel Kline has no position in any stocks mentioned. He would get DirecTV if he lived outside of the New England Patriots' television market. The Motley Fool recommends DirecTV and Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers