The NFL Sunday Ticket package -- broadcasting every out-of-market game to subscribers -- is up for grabs, and Apple (AAPL -0.08%) and Amazon (AMZN 3.32%) are the leading bidders. The winning bidder will likely pay more than $2 billion, according to a report from the Sports Business Journal. Based on the NFL's contract renewals over the past couple years and other reports, it could be closer to $2.5 billion.
That's a massive outlay, even for cash-rich tech giants like Amazon and Apple. Would it be a mistake for Amazon or Apple to pay so much?
Image source: Getty Images.
A big football bet
The rights to NFL Sunday Ticket have historically been a loss leader. DirecTV last agreed to pay about $1.5 billion per year for the rights to the package. But the satellite TV provider wasn't selling nearly $1.5 billion worth of subscriptions every year. In fact, when AT&T (T 1.45%) announced its plans to spin off its video unit, it said it would eliminate $2.5 billion in NFL Sunday Ticket losses it accrued since acquiring DirecTV in 2015.
So Amazon or Apple would have to sell a lot more subscriptions to the service than DirecTV ever did in order to make the deal worthwhile. And that's certainly possible. Without the requirements to subscribe to an expensive pay-TV service, both would have a larger addressable market.
But odds are Amazon or Apple will take a loss on selling NFL Sunday Ticket subscriptions to customers via their streaming platforms. Instead, they'll need to sell enough of their other products and services to make up for the losses associated with the expensive sports deal.
The case for Apple
Apple's interest in the package is a bit curious. The appeal of NFL Sunday Ticket relative to its active user base is minuscule. It has over 1 billion active accounts on Apple devices, and just a few million people subscribe to Sunday Ticket every year.
It makes a bit more sense compared to signups for its fledgling Apple TV+ streaming service. Apple hasn't released subscriber numbers for the service, but it reportedly had less than 20 million last summer. Sunday Ticket could add 5% to 10% more subscribers for Apple TV+.
But the package price would also equal all of Apple's 2021 content budget for the streaming service. This suggests it's not the most efficient use of funds to grow a streaming service. So while sports rights could broaden the appeal of Apple's streaming service, the company may be better off spending on more general entertainment content.
The case for Amazon
Amazon seems like a much better fit. Amazon already has a deal with the NFL as the exclusive home of Thursday Night Football starting with the 2022 season. Adding Sunday Ticket could bolster viewership of the important Thursday Night property. Amazon also owns a number of other sports rights, so Sunday Ticket could be a gateway for sports fans to discover all of what Amazon has to offer.
The important factor that makes Sunday Ticket a better fit for Amazon than Apple is advertising. While there's minimal ad inventory associated with the Sunday Ticket broadcasts, Amazon will have a lot of ad inventory to sell during its other sports broadcasts. The more eyeballs it can attract to those streams, the more it can charge.
Moreover, Amazon can sell those streaming video ads alongside its other ad inventory as it looks to expand to more brand advertising from direct response. Most of Amazon's current ad sales are focused on producing strong sales conversions when a user clicks on an ad. TV commercials are about as high up in the brand advertising funnel as it gets; they attract lots of eyeballs but don't produce immediate results. The push could help diversify Amazon's ad business, which brought in over $31 billion in 2021.
Still, $2 billion or more per year is a very big bet to draw in sports fans to Amazon's streaming service. And while it might also sell a few more Prime memberships, it may not be able to justify such a price tag.
Peak pricing?
The fact of the matter is that NFL Sunday Ticket may not be worth as much in a post-cable-bundle world. With more and more consumers cutting the cord, it doesn't work as well as a loss leader for streaming services. And while Apple and Amazon may have other services to market, they're already so big that the consumers signing up for Sunday Ticket won't move the needle too much.
The NFL is (smartly) looking for a long-term deal, and Amazon or Apple are most likely to pay. Amazon may be able to make it work, but Apple likely has better ways to spend its cash.
