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Will the NBA Double Its Television Rights Fees?

By Daniel B. Kline and Jake Mann - Jul 23, 2014 at 11:41AM

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The league is looking to follow other sports and take in much more money for the right to televise its games.

In a DVR-driven television world, live sports brings in live viewers who watch commercials in real-time. That's caused an escalation of rights fees, which has benefited every major sport, from the National Football League to lesser properties like Major League Soccer and the Ultimate Fighting Championship. 

The National Basketball Association looks to be the next league to profit from the trend, as its television deals with Walt Disney's (DIS -0.11%) ABC and ESPN and Time Warner's (TWX) TNT expire after the 2015-2016 season.

The NBA is looking to double the rights fees it bring in, which may not be so crazy when you consider that MLS tripled what it takes in from its various TV partners -- going from $27 million annually to more than $90 million -- in a deal announced in May. UFC did the same thing with the long-term deal it signed with Fox (FOX) in 2011, raising rights fees from around $35 million a year to $100 million.

The NBA is much more mainstream than those sports and it has a huge inventory of regular-season games, plus playoffs, and the incredibly lucrative NBA Finals. Still, the numbers for a major sport are much bigger than they are for fringe leagues, and doubling an already big number may be a lot to ask for. Jason Hellmann, Daniel Kline, and Jake Mann debated whether the league could get what it's looking for in the latest edition of Business Take, the show that gives you the Foolish perspective on the most important business stories of the week.

Just how much money are we talking about?
Under the current deal, ABC and ESPN pay $485 million per year, while TNT pays $445 million. That brings the total to $930 million. Doubling those numbers would make for a $1.86 billion-a-year total -- or a nearly $15 billion contract, if the league makes a deal for the same eight-year length as its current contract. 

The NBA is likely to negotiate with its existing partners first. But if it can't get what it wants, there are numerous potential suitors waiting in the wings. Fox needs content to boost its FS1 and FS2 sports networks, which are fledgling competitors to ESPN. Comcast (CMCSA -1.66%) also needs programming that will bring eyeballs to its NBC Sports Network. That struggling channel's signature property is the National Hockey League, which is much less popular than the NBA.

The NFL has seen its rights fees explode over the past two decades because it has always had a least one more network that wants football than it has had football packages to sell. The NFL's latest major deal -- not including the one it made this year for a package of Thursday night games -- was for $27 billion over nine years with NBC, Fox, and CBS. That new agreement raised rights fees 60% from the previous deal. The league also has a separate agreement with ESPN for Monday Night Football, which brings in another $1.9 billion annually.

The NBA is not nearly as popular as the NFL, but it offers a lot more programming hours due to the length of the season and playoffs. The basketball league also pulls in the young demographics that advertisers want.

Mann believes that the NBA has a trump card in its pocket in that it can split the finals between multiple networks.

"I don't think Disney is going to be willing to lose the finals, and I think TNT wants a piece of it," Mann said. "I think you could see twice the current rights fees."

Do you agree? Can the NBA double its rights fees? Watch the video below and then share your thoughts. 

Daniel Kline has no position in any stocks mentioned. Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. 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.

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