It's been a rough couple of months for professional sports. Reacting to the COVID-19 crisis, pro sports leagues in the United States (and across the world) have suspended their seasons. But there's a spot of good news for the sports industry this month: Prices for sports broadcast rights are expected to rise in the coming years.
Sports broadcast rights have been on the rise for some time now, but continuing that trajectory against such historic headwinds is remarkable. That sports would continue to grow in value even as they disappear from TV during the COVID-19 crisis is a reminder of just how important sports are to pay-TV bundles. It's also something that could have consequences for the pay-TV and streaming industries.
Why sports matter in pay-TV
Sports broadcast rights have always been valuable, but things really began to take off for pro sports leagues as new technologies arrived to change the ways in which viewers consume TV. The DVR, pioneered by companies like TiVo Corp. (NASDAQ:TIVO), allowed consumers to time-shift content viewing and, more importantly, fast-forward through commercials. DVRs allow viewers to turn live TV into on-demand content. On-demand content is also, of course, available from subscription video-on-demand (SVOD) services like Netflix (NASDAQ:NFLX). The arrival of the streaming revolution allowed viewers to swap commercial-filled live TV for on-demand, commercial-free content. (Some SVOD services, like Disney's (NYSE:DIS) Hulu, have commercials of their own, but that doesn't do much good for the legacy pay-TV companies that are losing ground to SVOD competitors.)
On these shifting sands, sports were quickly identified as a spot of firm ground for pay-TV companies and their advertisers. Unlike most other forms of TV content, sports are closely tied to the live viewing experience. Most sports fans don't "DVR" their sports for later; they watch them live if they watch them at all. On top of that, sports have long been tougher to get through streaming services. Some leagues have their own services (like baseball's MLB.TV or basketball's NBA League Pass, for example), but prices tend to be high, and regional blackouts abound. By and large, sports are things that are hard to stream, easy to find on legacy pay-TV, and preferably consumed live on channels like Disney's ESPN, Fox's (NASDAQ:FOX) (NASDAQ:FOXA) FS1, and Comcast's (NASDAQ:CMCSA) NBCSN.
This unique cocktail has made sports incredibly valuable to legacy pay-TV bundles, so much so that some have speculated that sports rights are a "bubble" due to pop. If there was ever a time for popping, now is that time.
Under the circumstances
Right now, sports aren't on TV. The NBA and NHL have suspended their seasons. MLB's season never started. The NFL is in its off-season, but even it didn't escape COVID-19-related issues: The NFL draft, usually a big event with a live audience, became a virtual event. That event, at least, made it to TV on Disney's ABC and ESPN, but it is one of a very few live sports-related programs still making it to broadcast.
The industry seems to view the current problems as temporary and surmountable. Broadcast rights fees are likely to keep going up, sometimes by quite a bit, according to an analysis by MoffettNathanson.
New rights deals are on the way. The NHL's new contract will begin in 2021, and new deals on MLB and NFL broadcasts will start in 2022. These deals should be worth significantly more to sports leagues annually than are the deals being replaced, according to MoffettNathanson's analysis. An already announced deal between MLB and Fox, good through the 2028 season and reportedly worth more than $5 billion, appears to match the trend that MoffettNathanson predicts.
Percent increase in
|NHL||NBC Sports||100%||$375 million|
|NFL||ESPN (Monday Night Football)||26%||$2.4 billion|
|NFL||Fox (Thursday Night Football)||61%||$1.06 billion|
|NFL||NBC (Sunday Night Football)||75%||$1.68 billion|
|NFL||Fox (Sunday NFC games)||75%||$1.93 billion|
|NFL||CBS (Sunday AFC games)||75%||$1.75 billion|
There's a common-sense aspect to this: Assuming that this crisis ends in something resembling business-as-usual, one might reasonably assume that sports will remain valuable to pay-TV providers for all of the reasons that they were before. But there are other dimensions to this, too.
What happens now?
Sports will surely be back, but will fans? Sports leagues try to avoid lockouts and strikes not just because of the huge immediate losses, but also because the perception within the industry is that fans who are denied their sports for a significant period of time may be less likely to return. These fears haven't always been borne out in pasts strikes and lockouts. For instance, attendance actually rose in some markets in the 2005-06 NHL season that followed the infamous 2004-05 lockout. Still, a popular perception persists that the 2004-05 lockout did lasting harm to the league. Will a lost season across the board do harm to sports as a whole?
There are other reasons to keep an eye on sports broadcast rights growth, whether we think it's a "bubble" or not. For one thing, sports prices have the potential to actually accelerate the very cord-cutting that sports are supposedly helping pay-TV companies combat.
Fee increases of the sort predicted by MoffettNathanson could be high enough to push up prices of the channels that buy them and, in turn, the cost of pay-TV bundles. Sports fans are important customers in the pay-TV space, but by embracing these sports fans too much, pay-TV companies may be pushing non-sports fans out the door toward the tech industry's SVOD competition. A customer who wants to watch movies and sitcoms instead of sports might reasonably ask why they are being asked to subsidize sports fans' passions by paying for a bundle that includes sports channels, which often cost pay-TV carriers double or triple what other channels do. The problem is illustrated by Philo, a private company that offers a streaming live TV "skinny bundle" with no sports (or news) and manages to offer a nearly 60-channel bundle of brand-name networks like AMC and Comedy Central for a mere $20 per month. For reference, one analysis found that ESPN costs customers an average of $18.55 per month by itself.
And while Philo is the main sports-free option, it's not the only "skinny bundle." There are plenty of non-cable and satellite live TV options for those who do like sports, too. Dish's (NASDAQ:DISH) Sling TV, Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube TV, and others still threaten pay TV, regardless of how much fans love sports. Of course, these services still have to find a way to get channels like ESPN and FS1 into their bundles while those networks grow more expensive.
A more intriguing streaming threat may come from direct-to-consumer options. Sports leagues themselves are getting better at streaming. Recent years have seen league-streaming services like MLB.TV and NBA League Pass unveil single-team bundles with lower prices -- a better fit for casual fans of specific teams and for budget-minded consumers who might not have liked the eye-popping prices that full-season, full-league packages often command. Meanwhile, MLB's streaming-rights situation looks very different now than it did a year ago. Individual MLB teams are now charting their own local streaming futures. There may soon come a day when Bronx fans can watch the Yankees on Amazon (NASDAQ:AMZN), which would be bad news for legacy pay-TV companies. And it's worth remembering that the biggest sports network of all, Disney's ESPN, has long threatened to go direct-to-consumer -- and has a good foundation to build on in the form of ESPN+.
Nothing to do but sign on the line
Sports rights may be valuable, but they are also complicated. When sports cost more, so do channels, and so, most likely, does pay TV. Rising prices that push up bundle prices could push even more non-sports fans away from pay TV, which will only make legacy pay TV still more reliant on live sports and, therefore, more vulnerable to threats like streaming-sports alternatives and problems with the sports business as a whole. There aren't many better options for companies in the pay-TV business, though, so there's every reason to expect new high-priced sports deals to go through as predicted, even as dangers loom.