Sports rights have continued to go up, partly because consumers watch them live and don't skip the commercials. This has increased the value of live sporting events, which has forced cable companies to keep raising prices.
The most recent example of this is WWE's deal with FOX that puts Smackdown Live on the network for $200 million a year. That's a huge number for a show that averages less than 3 million viewers per week. These deals may represent the peak -- at least for anything that isn't a big four sport -- and a fall may be coming.
A full transcript follows the video.
This video was recorded on Dec. 4, 2018.
Vincent Shen: These solutions, they've taken different forms. We're seeing more and more streaming services, which we'll talk about later. We're seeing price increases with the cost of an average cable package almost doubling in the past 15 years. Even some of the newer services like DirecTV Now, Sling TV, PlayStation Vue, they've all raised prices in the past six months. I think a big driver of these growing monthly bills for consumers lies in sports. Dan, you sent me a bunch of reports of these huge deals being made for the rights to sports programming. What does that look like?
Dan Kline: There's a theory, and maybe it's true, that live sports is the last thing people will watch not on a DVR, meaning they will see the commercials. It's not only valuable in terms of selling ads, it's valuable in terms of promoting the rest of your schedule. There's a bunch of examples. The rumor is the new Major League Baseball deal with Fox is going to be 30% higher, despite the fact that it's a declining audience. But the biggest one I'll point to is, Fox is paying $1 billion over five years for rights to two hours of programming from WWE. That show, SmackDown Live, is going to air on Friday nights. Right now on USA, where it airs live on Tuesday nights, which is a better night to air, it does between two and a half to three million viewers. That is about a million viewers less than the sitcom block that almost certainly costs less than $200 million a year for Fox to produce. That said, there'll be 52 weeks of live WWE programming. They're saying that a million less people is worth more at a higher cost because we know people are going to watch it live. And that's for wrestling, which traditionally gets pretty lousy ad rates compared to other sports.
So, any sports. UFC got huge money from ESPN to be part of their streaming service. DAZN, which is a service you probably haven't even heard of, is paying billions for mixed martial arts and boxing. Really, if you and I were going to start up a sports league right now, we could probably get like $50 million a year from someone. [laughs] Dan And Vince Play Ping-Pong Live could completely be a thing.
Shen: Do you think, then, there is some merit to this idea, where sports programming still is king of the heap in terms of the content that some of these traditional pay TV companies can lean on to maintain their audiences?
Kline: I think the premier stuff is. If you're the NFL, the NBA, to a lesser extent hockey and baseball, which, while their audiences are small, they have a very loyal, defined audience. I think the WWE contract is too high, but they're going to perform exactly how they've performed, plus or minus 10% over the five years. They know what they're getting. It's not a mistake.
But, you're going to see -- Bellator got big money from DAZN. I don't think you're going to see those deals get renewed. I think right now, there is a huge rush to sign anything up. "Hey, we've got soccer from Spain!" Whatever it is. I think the lesser sports are going to prove to not be valuable enough, so there will be a bubble as opposed to rates have been up, up, up. But, do I think someone will pay more for the NFL or the NBA when they come up? Yeah. I don't think we're there yet, because people are still watching, and they'll watch on whatever platforms you can put them on.
Shen: We're also seeing some non-traditional players get into the mix with sports content, as well. I'm on Amazon Prime, I'm streaming through my Roku or my phone, I'm seeing them advertise their NFL content constantly. Watch it live, watch it live.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. Vincent Shen owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.