Consider the recent attempts by ESPN and Turner Sports to shed their TV deals with NASCAR. After NBC paid $4.4 billion for the rights to the second half of the Sprint Cup season from 2015 to 2024, word spread that ESPN and Turner didn’t even place bids to try and retain their contracts. Then they asked NASCAR if they could end their contracts a year early and let NBC and Fox take over NASCAR in 2014.
“While we were humbled by the desire of NBC and FOX to start 12 months early, we now consider this matter closed and look forward to finishing our current agreement in 2014 with our great partners at FOX, Turner and ESPN.”
-NASCAR VP of Broadcast and Production Steve Herbst
Why would ESPN and Turner want to back out of their deals with NASCAR a year early? Simply put, they’re trying to save money to keep their contracts with the NBA.
Currently, ESPN and Turner are paying the NBA $930 million per year through the 2015-2016 season. With Fox Sports looking to make a bid, that number is expected to jump by as much as 60%. (That’s how much the most recent round of NFL contracts increased over the previous round.) This would put the next set of NBA TV contracts in the range of $1.5 billion to $1.6 billion per year.
By dumping NASCAR early, ESPN would save $270 million in rights fees alone, to say nothing of the production costs for half of the Sprint Cup and the entire Nationwide Series. Moreover, Fox and NBC will pay NASCAR a combined $820 million per year on their new deals, so saddling them with those expenses a year early would leave both companies and their fledgling sports cable networks with fewer resources to put toward a massive NBA contract.
Not that this has stopped Fox Sports in the past, of course. In 1993, Fox outbid CBS by $100 million per year for the rights to the NFL’s NFC contract, which helped put the Fox broadcast network on par with incumbents ABC, CBS, and NBC. Fox still could put forward an outlandish bid to take the NBA away from either ESPN or Turner, thereby increasing the value of Fox Sports 1.
It’s important to note here that subscriber fees drive all of this. By obtaining the rights to more sports, networks can demand higher subscriber fees from pay TV carriers. In turn, those subscriber fee increases drive the rising costs of sports rights.
ESPN collects $5.40/month from more than 97.9 million pay TV subscribers. TNT collects $1.21/month from more than 98.3 million subscribers. Should either network lose the NBA to Fox, carriers would demand lower subscriber fees for those channels, which would leave those networks with less money for future TV deals.
The size of these TV deals, however, is forcing networks to choose the sports that add the most value to their channels. The bean counters at ESPN and Turner probably looked at the numbers and the networks’ commitments to college basketball and decided that the NBA was a better value proposition for them than stock car racing.
The end result for consumers, though, is that sports are spread across multiple networks, all the networks can point to their higher value propositions and demand higher subscriber fees, and your cable bill will go up.
This will continue for as long as people are willing to pay for cable TV. ESPN president John Skipper seems to think recent subscriber losses aren’t that big a concern. The network’s desire to dump NASCAR on its competitors might suggest otherwise.