DirecTV, NFL Scrimmage Over Games Package Fee

It’s third down and long yardage for DirecTV.

The nation’s leading satellite TV service is trying to close a deal with the National Football League for a premium package of games, but the two sides are hundreds of millions of dollars apart. DirecTV is owned by El Segundo-based Hughes Electronics Corp.

According to sources close to the negotiations, DirecTV has offered to pay about $200 million annually for the next five years to keep exclusive rights to “NFL Sunday Ticket,” a lineup of games that helped launch the satellite service.

Although that offer is 30% higher than DirecTV’s current contract, which expires at the end of the season, it’s not close to what league officials are asking. They’re seeking $400 million to $500 million a year, sources said.

To drive up the price, the NFL is pitting satellite operators against cable providers, which covet the package of Sunday afternoon games. Cable industry executives say the league is considering several expansion opportunities to include them, such as offering new packages that would allow subscribers to watch games of only their favorite teams or of one conference or the other.

The television industry is closely watching the negotiations because of concerns about a steep rise in sports rights fees over the last decade.

The NFL has been more successful than any other sports league in extracting big increases for its rights, doubling cable and broadcast rates under an eight-year, $18.3-billion contract struck in 1998 with CBS, ABC, ESPN and Fox.

Yet many experts say sports rights have peaked, pointing to the contract the National Basketball Assn. struck this year with the networks at about the same rate as its previous deal. They say a $1-billion write-off on sports contracts taken this year by Fox is another sign that network buyers can no longer afford rate increases.

DirecTV would not comment on the discussions, which have been underway since spring. But NFL spokesman Brian McCarthy said Friday that no deal with DirecTV is imminent.

“We are still talking to satellite companies,” McCarthy said, indicating that the league also is holding discussions with DirecTV rival EchoStar Communications Corp. “Cable is still in the mix” as well, he said.

Nearly 1.5 million of DirecTV’s 10.5 million subscribers pay $179 a year to receive “NFL Sunday Ticket.” That entitles them to as many as 13 games on any given Sunday.

Football fans who do not subscribe can watch only the games being televised locally by Fox and CBS.

Both Fox and CBS are compensated by the NFL for sharing their Sunday games with DirecTV.

Although DirecTV is losing money on the football package, the company has been willing to pay a premium to keep the package out of the reach of its cable rivals.

DirecTV has carried the games since its 1994 debut as a way to lure subscribers from cable and appeal to sports fanatics willing to pay extra to watch their teams.

Cable operators such as AOL Time Warner Inc. have met with NFL officials in recent weeks, eager to offer these so-called out-of-market football games to their own subscribers.

But cable’s chances of prevailing in any bidding war are slim. Fox and CBS have long worried that making games available on cable would siphon viewers from their broadcasts. DirecTV doesn’t pose as big a threat because the satellite broadcaster reaches only about 10% of American homes, compared with the 70% that subscribe to cable.

The cable industry’s odds of winning the package are even narrower because of the role in the negotiations played by News Corp., owner of the Fox broadcast network. Under the eight-year television contract struck in 1998, Fox and CBS were granted the right to block any sale of “NFL Sunday Ticket” to any outlet other than DirecTV because of the potential risk to their ratings.

Last week, federal regulators blocked the proposed $18-billion merger of the nation’s two satellite TV providers, EchoStar and DirecTV. That gives News Corp. another opportunity to purchase DirecTV after an ill-fated attempt last fall.

Television executives say News Corp. is not going to approve any NFL deal with cable or with EchoStar now that it has another chance to buy DirecTV and keep the exclusive advantage for itself.

Although DirecTV may not have won federal approval for its merger, it may in the end have the upper hand in its dealings with the NFL.

Said one source, “DirecTV is putting pressure on the NFL, saying take it or leave it, because once News Corp. enters the picture to buy DirecTV, the NFL loses its leverage.”