Amazon (NASDAQ:AMZN) reupped its deal with the NFL to stream 11 Thursday Night Football games during the 2020 through 2022 regular seasons. As part of the agreement, Amazon will also receive the exclusive rights to broadcast one game per season, starting with a Saturday night game in the second half of the 2020 season.
That broadcast could be pivotal in the NFL's decisions regarding its upcoming contract renewals with Fox (NASDAQ:FOXA), ViacomCBS (NASDAQ:VIAC), Comcast's (NASDAQ:CMCSA) NBC, and Disney's (NYSE:DIS) ESPN. It could also determine how the NFL handles distribution of its all-inclusive Sunday Ticket package, which currently belongs to AT&T's (NYSE:T) DIRECTV.
A successful NFL broadcast from Amazon could open the door for the retail giant or other tech companies to win exclusive sports rights to the world's biggest sports leagues. Amazon has been moving closer to that goal for years.
Some big contracts are expiring soon
The NFL's contracts with broadcasters are set to expire in the next couple years. ESPN's contract for Monday Night Football expires after the 2021 season, and the deals with Fox, CBS, and NBC all expire the season after that. DIRECTV's deal for Sunday Ticket expires after 2022 as well.
The contracts combine to generate the NFL about $6.5 billion in revenue per year. That makes Amazon's $65 million per year that it pays to rebroadcast 11 games seem like a drop in the bucket. (However, the new deal ups the price an undisclosed amount.)
Amazon has some very deep pockets, though. It ended 2019 with over $36 billion in cash on its balance sheet. Its free cash flow for the year topped $25 billion. The other FAANG companies interested in sports rights also have strong balance sheets and cash flows. If the NFL opens the door to exclusive rights for those bidders, they might be able to steal them away from broadcasters.
What Amazon has to gain
Amazon has found it profitable to pay $65 million for the simulcast rights to Thursday Night Football for the last two years, and it's paying even more for the next three seasons. It's invested heavily in its broadcasts beyond obtaining the rights as well, hiring its own announcer team, offering fans additional insights and statistics, and promoting the games through various channels outside of its own platforms.
There are two parts of the equation for Amazon. The first part is straightforward: It generates ad revenue from broadcasting the games. For its Thursday Night simulcasts it gets about two minutes of commercial time per hour -- the same as local affiliate networks broadcasting the games from CBS or Fox. It's reasonable to assume Amazon will control nearly all of the ad inventory during its exclusive broadcast.
The other part of the equation is how many Prime members Amazon signs up. While Amazon also offers the broadcast through Twitch without a subscription, most consumers are more familiar with Prime. Still, though it's unlikely the games convince consumers to sign up in the first place -- you can just watch the game on your TV for free -- it could be a deciding factor in keeping the subscription due to its convenience.
The networks won't give up that easy
Fox, CBS, Disney, and NBC aren't going to give up their NFL contracts very easily. Even as the price is likely to climb yet again with this round of renewals, the NFL is one of the most valuable pieces of content for any media company.
Live sports accounted for 89 of the 100 most-watched broadcasts in 2018, with NFL games accounting for 61 of those broadcasts, according to AdAge. That makes NFL games particularly attractive to advertisers looking to reach a broad audience. Moreover, it makes networks like ESPN or even the broadcast networks NBC, CBS, and Fox that much more important to the cable bundle, increasing the affiliate fees they can charge distributors.
DIRECTV may change its tune on the Sunday Ticket package. Its original negotiations with the NFL took place when it was still an independent company. Even then, the Sunday Ticket contract was likely a loss leader to get consumers to sign up for expensive pay-TV service. But now, DIRECTV's subscriber base is much smaller, and AT&T is shifting its focus to AT&T TV. It may be willing to pass on Sunday Ticket, and it could fall into the hands of a tech company instead.
But in the end, the biggest winner of a successful exclusive Amazon broadcast this season may be the NFL, as it could gain significant leverage in its negotiations with broadcasters by inviting more rights bidders to the party.