ESPN cuts new football deal as sports rights fees keep rising
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The Super Bowl is five months away, but after the National Football League’s regular season starts Thursday night in Green Bay, the countdown will begin, and fans will start obsessing about the big game.
There is a similar obsession going on about the next round of television negotiations between the NFL and the networks that carry their games. Although the current contracts that CBS, NBC and Fox have with the league still have two years to go, the NFL would like to have new long-term contracts in place by the end of this season.
Indeed, Walt Disney Co.'s ESPN -- home to ‘Monday Night Football’ -- extended its deal through 2021 for the franchise on Thursday morning. The new deal will cost ESPN $15.2 billion or an average of $1.9 billion per season, according to people familiar with the deal. ESPN had been paying an average of bout $1.1 billion per-season under its current deal.
“Today, we’ve secured cable’s most valuable television franchise, along with an enhanced international package of year-round multimedia rights,’ ESPN President George Bodenheimer said in a statement. ‘It will help grow our business well into the next decade.’
The new deal may also mean that ESPN will look to charge the distributors that carry its programming even more. ESPN is already one of the most expensive channels on the dial.
The other networks that carry the NFL will face similar increases. News Corp.’s Fox shells out $730 million annually and CBS ponies up $625 million for their Sunday afternoon games. All three could end up joining ESPN in paying 10 figures per season by the time their next contracts expire.
“It’s not for the faint of heart,” said Fox Sports Chairman David Hill when asked about the next round of NFL negotiations.
The numbers have gotten so big that even some of the NFL’s own are wondering if a reality check is in order.
“I think the NFL as a league should be very concerned about the costs of carrying their games getting almost obscene,” said Art Modell, the former owner of the Cleveland Browns and Baltimore Ravens who chaired the NFL’s television committee for three decades. The 86-year-old Modell noted that the NFL has a “tremendous grip” on the American public that it “can’t screw up,” or “take advantage of” by gouging the networks. Asked how his thoughts would play in a meeting with today’s NFL owners, Modell cracked, “They’d run me out of the room.”
Sports rights have become so expensive in part because ratings for just about everything else on television have diminished over the last two decades. Viewers are not watching nearly as much live television, choosing instead to record their favorite shows on their digital video recorders and watch them on their schedule, usually with the ability to skip commercials.
But some distributors are wary of the rising costs and fear that subscribers who aren’t obsessed with who wins the big game will look to save money by cutting the cord to their pay-TV distributor.
“In this last quarter our industry has probably lost about a half-million subscribers,” said Derek Chang, an executive vice president at satellite broadcaster DirecTV. “What do you attribute that to? Most people are attributing it to the affordability of the product.” Chang said all sides are aware of the challenges that come with skyrocketing sports rights deals, but “we as an industry are sort of like the federal government kicking the problem down the road.’
Chang and other distributors advocate putting some sports networks on a separate tier so not all consumers have to foot the bill.
“It is valuable programming, but it is only valuable to a subset,” said Chang, who warned that the leagues and networks are “taking us down a dangerous path.”
Programmers will oppose a so-called a la carte offering of their channels because without wide distribution, they can’t charge advertisers as much and –- they argue -– would have to raise their subscriber fees even more to make up for the lost households. Industry analysts think programmers have the distributors over a barrel.
“The problem is the cable operators don’t have a great deal of leverage,” said Marc Ganis, president of SportsCorp, a consulting firm. ESPN and other sports channels have highly desired content and a vocal constituency. Cable operators, Ganis added, “complain about increased rights fees, but often they are complaining to justify their fees and make a larger profit.”
-- Joe Flint and Dawn Chmielewski