Major sports leagues earn BILLIONS of dollars every year. That money comes directly from YOUR cable bill.

Why The NFL And ESPN Still Need Each Other

NFL DraftIn case you still had any doubts about what the most popular sports league in America is

The first round of the NFL Draft posted a huge 6.8 overnight rating on ESPN, the highest rating ever for the draft.

A 6.8 rating translates to an average of 7.9 million households throughout the night.

To get a better sense of how big a 6.8 rating, consider this:

– The actual number of people who watched was even higher as the draft was also broadcast on the NFL Network.
– The draft went head-to-head with a Miami Heat playoff game.
– In last year’s NBA playoffs, there were 78 games prior to the Finals. Only one game, game seven of the Eastern Conference Finals (Heat-Pacers), posted a better rating (7.1) than last night’s draft.
– Those 78 games had an average rating of 2.7.

According to John Ourand of the Sports Business Journal, the Miami Heat v. Brooklyn Nets playoff game posted a 2.6 rating, while a Portland Trail Blazers v. San Antonio Spurs game posted a 2.7 rating. Oh, by the way, the draft was also shown on NFL Network, and that broadcast posted a 1.9 rating. Two Stanley Cup Playoff games on NBCSN posted even lower ratings than NFL Network.

So roughly three times as many TV viewers decided that watching a bunch of elite college football players hug Roger Goodell was better prime-time entertainment than playoff games in two other major pro sports leagues.

Clearly, the NFL is still king, and ESPN is a large part of the reason for that. Likewise, the NFL is the primary reason why ESPN has grown so much over the last two decades. As the New York Times wrote in this article last August:

Like most cable networks, ESPN draws revenue from two sources: advertising and subscriber fees. When it struck a deal with the (National Football League) in the late 1990s to carry a full season of games, that revenue stream became an ever-quickening cascade of cash. N.F.L. games, probably the most valuable commodity in televised sports, became the leverage that allowed ESPN to demand more money from cable companies, with fees nearly quadrupling in one seven-year period.

The success of the NFL Draft prompted Sports on Earth writer Patrick Hruby to pose this question:

@patrick_hruby asks...

 

I’m going to re-frame this question a bit, because we need to consider how much ESPN is currently paying for NFL programming.

ESPN just kicked off an 8-year, $15.2 billion deal with the NFL, which includes Monday Night Football. That averages out to $1.9 billion per year, though as we determined previously, there’s an escalator clause in ESPN’s contract that makes it look more like this.

In the year...ESPN paid the NFL...In the year...ESPN will pay the NFL...
2006$890 million2014$1.509 billion
2007$940 million2015$1.607 billion
2008$1 billion2016$1.711 billion
2009$1.06 billion2017$1.822 billion
2010$1.12 billion2018$1.94 billion
2011$1.19 billion2019$2.067 billion
2012$1.26 billion2020$2.2 billion
2013$1.34 billion2021$2.344 billion

In addition, ESPN will pay the NFL another $100 million to air a Wild Card Playoff game starting this season. So that’s more than $1.6 billion that ESPN is funneling to the NFL through our cable bills this season, with a 6.5% escalator on the main contract over time.

Why 6.5%? That’s the escalator on ESPN’s existing deals with pay TV providers. ESPN currently commands $5.40 per subscriber per month, and ESPN2 commands another $0.68 per subscriber per month. At last count, more than 97 million homes receive those two channels in their pay TV packages. When it kicks in this summer, that 6.5% escalator could add more than $460 million to ESPN’s bottom line.

Now let’s imagine all that content moved to NFL Network, which is currently in 70.6 million homes and charges $0.84/month per subscriber. That’s good for $712 million per year. In order to make up that $1.6 billion it’s slated to get from ESPN this season, NFL Network would have to do two things:

  • Get the channel into 20 million more homes, and
  • Add $1.48 per month to its subscriber fee.

Taking over Monday Night Football might get the first requirement settled with most pay TV carriers, but could the NFL pull a $2.32/month carriage fee? A sudden 176% increase in subscriber fees would likely be a non-starter for most carriers, who have been fighting back against sports network price hikes for years now. Unless ESPN is willing to concede on its carriage fee (fat chance) there’s no way any carrier lets the NFL dictate those sorts of terms to them. At most, NFL Network could pull another $0.50 for Monday Night Football right away. That’s only $540 million.

This is the main reason why the NFL can’t use NFL Network as any sort of threat against ESPN, unless NFL owners were willing to take a major hit in profitability (really fat chance). Money, however, is not the only reason that ESPN and the NFL remain very close partners.

Imagine if the NFL ditched ESPN and moved Monday Night Football to its own channel. Suddenly, ESPN is free to say whatever it wants about the NFL, isn’t it? The Worldwide Leader In Sports would no longer feel the need to distance itself from documentaries like League of Denial, which detailed how the NFL covered up the causes of brain injuries in players. It could send its reporters out to find stories that disgrace the league in as many ways as possible. It could bring back Playmakers without impunity. It could also take a portion of that $1.6 billion and start a new football league with it — a risky proposition, but one that would still be a pretty big PR headache for Roger Goodell.

Who wants to be a billion dollars poorer and make a very large, very vocal enemy today? Certainly not the NFL. Hence, this symbiotic relationship should continue for the foreseeable future. If you want the NFL, go to the NFL might be a great slogan for a commercial, but the bottom line is that the NFL and ESPN still need each other to reap the sort of profits they’re raking in now. As long as Americans remain unwilling to cut the cord, those profits will continue skyrocketing.

(It’s worth noting, by the way, that ESPN is currently planning to back a new spring football league based on the A-11 offense. Although the new league canceled its showcase games for this year, it is expected to launch in 2015. Perhaps promoting an offense where every player is an eligible receiver is ESPN’s subtle way of needling to Roger Goodell over the NFL’s health and safety issues. Then again, people have to watch in order to get the message, and good luck with that, eh?)

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