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

How Much Could The NBA’s Huge TV Deal Cost You?

Image courtesy of Barstool SportsAdam Silver is the Michael Jordan of TV contract negotiations.

Consider this: the NFL’s current network TV deals, which began this season and are worth nearly $5 billion a year, represent a 60% increase over its previous TV deals. (That does not include CBS’ one-year, $250 million deal for Thursday Night Football and the new $1.5 billion Sunday Ticket deal with DirecTV, which begins next season.) Major League Baseball’s current TV deals, which also started this season, are a 102% increase over its previous deals.

Most people expected the new NBA deal to have a increase somewhere in between what the NFL and MLB received. Then along comes the new NBA commissioner, shrugging off expectations like Bryon Russell and nailing a legendary winner.

[youtube:https://www.youtube.com/watch?v=vdPQ3QxDZ1s]

ESPN and Turner Sports agreed to pay the NBA a record-breaking $24 billion over nine years. The new contract, which begins with the 2016-17 season, represents a 187% increase in the NBA’s current $930 million-per-year deal with ESPN and Turner.

In the wake of this deal, that urge ESPN and Turner felt to shed their TV deals with NASCAR becomes obvious. They needed a ton of money to keep the NBA on their networks. This might also explain why ESPN was willing to let Fox Sports win the new FIFA contract after this year’s World Cup and extend its deal for the UEFA Champions League — small potatoes for ESPN, sure, but still $80 to $90 million it doesn’t have to spend on something other than a core sports property.

No question that Silver played this game perfectly. He must have reminded both networks about how much they collected in subscriber fees every step of the way, and he wasn’t going to walk away without getting his 30 bosses a healthy slice of that pie.

Those subscriber fees, of course, come right out of your cable bill. So how much can you expect to pay for this deal?

In order to determine that, we have to make a few assumptions about the contract. For starters, we’ll assume that the contract has an annual escalation rate of 5.15%, or roughly the same escalation rate as the Pac-12’s current deal with ESPN and Fox. (Keep in mind that ESPN’s subscriber fee grows at a rate of 6.5% per year.) We’ll also assume, based on this report, that ESPN and Turner are splitting this deal roughly 55/45, with ESPN paying the larger portion since they still have the rights to the NBA Finals.

With all that in mind, here’s what the networks will likely pay the NBA over the course of this contract:

NBA TV contract estimates

Not quite $24 billion exactly, but we can round it up for reporting purposes.

Now we’ll estimate how much you, as a pay TV subscriber, will likely pay for this deal. We’re going to make a few more assumptions here. First, we’re going to bring cord-cutting into the equation. Let’s say ESPN and Turner will lose 1.25 million subscribers in the next twelve months. That might be a conservative estimate, given that both channels lost slightly more than that in 2013, but we’ll start there. Let’s assume further that the rate of cord-cutting increases by 20% per year.

With all that in mind, here’s how much of your pay TV bill could go to the NBA during the span of this contract.

NBA TV deal subscriber cost

Keep in mind that the NBA currently takes about $9.61 out of your TV bill if you have ESPN and TNT in your bundle. With this new deal, the NBA will take 2.4 times that amount from your TV bill in the first year. Toward the end of the deal, as the cost of pay TV becomes too much for many to bear, that amount will jump higher than Michael Jordan ever did.

Again, though, we’re assuming cord-cutting actually will increase by 20% per year. It could be less than that, as over-the-top video services like Dish Network’s NuTV come online. The Walt Disney Company, which owns ESPN, has a distribution deal with Dish in place for NuTV. If NuTV can remain relatively inexpensive, that might keep more pay TV customers in the fold during the span of this contract.

Keeping those customers will be crucial for both ESPN and Turner. Consider what happens if they don’t…

Cord cutting impact on ESPN and TNT

If cord-cutting continues increasing at its current rate, revenue from subscriber fees could start decreasing during the last two years of this deal. Both networks could still cover their fees to the NBA, but the increasing impact to the bottom line would be immense — especially for ESPN, which will not only have to negotiate new deals with the NFL and MLB in 2021, but also will be on the end of back-loaded deals with at least four college conferences. The size of this deal almost guarantees that ESPN will let someone else pay for the Big Ten when that contract comes up in a couple years.

That might explain why ESPN is starting to explore selling an OTT package of NBA games as part of this deal. The bundle is still strong for now, but in the long-term, ESPN will need to supplement that revenue in order to continue covering the increasing costs of TV deals. Creating a package it can sell directly to sports fans — with or without pay TV — would be a good way for ESPN to test the online video market without disrupting the bundle just yet.

At least, that appears to be the plan. Either way, the NBA should profit mightily off this numbers game for another decade. The only question is how much longer pay TV customers will continue to buy into this game. For now, though, this deal is more evidence that the house is winning big.

***

Want to know how much of your cable or satellite TV bill gets funneled into sports? Check out our front-page app and find out!

8 Responses to How Much Could The NBA’s Huge TV Deal Cost You?

  1. Hi, off topic…

    From this:

    Outgoing commissioner Bud Selig is in San Francisco on his victory lap, receiving deserved congrats for a period of unprecedented growth in Major League Baseball. The top bullet points on Bud’s résumé: revenues have grown from $1.2 billion to $9 billion in Selig’s two-decade administration; the last 10 years represent the top 10 years of baseball attendance; the sport has enjoyed labor peace since the cancellation of the 1994 World Series.

    http://www.bostonglobe.com/sports/2014/10/25/world-series-isn-what-used/zQc6Q2OkZUuWgnvyToxzSN/story.html

    What percentage of this increased revenue has come from the broadcasting rights from regional sports networks and big networks such as ESPN? I doubt much of it is due to increased merchandise sales and tickets.

    In other words, I am asking for you to quantify how much of this increased revenue is from people who are at most casual fans that do not care about baseball.

    • That’s going to require a far more detailed analysis than I could give in a day, but I’ll say this:

      * Gate receipts were $2.4 billion in 2012 and should be on par or slightly higher this year.

      * MLB Advanced Media, which sells streaming packages and apps directly to fans, made $620 million in 2012. We don’t have 2014 numbers on them yet, but it could be as much as $700 million.

      That amounts to ~$3.1 billion, and we can presume that it comes from people who *do* care about baseball, because they’re going to games and buying tools to help them watch and/or keep track of games.

      * MLB’s current national TV contract will pay the league $1.55 billion per year through the 2021 season.

      * Local TV deals are worth roughly another $1.35 billion.

      That amounts to about $2.9 billion of that $9 billion. It’s tricky to say how much of that comes from people who don’t watch the games, but I’d venture to guess that 70% to 80% of that money comes from people who don’t watch baseball. So that’s at least $2 billion that MLB collects from people who aren’t watching.

      Maybe the TV ads subsidize a lot of that. Hard to say without a lot more data than one guy with a web site can get. So it does seem like MLB makes a healthy majority of its revenue from people who follow their game.

      That said, if baseball’s bringing in that much money from fans, why does it need that extra $2 billion from non-fans? Why force non-fans to contribute to your bottom line at all?

  2. The value of my OTA TV antenna just increased with the announcement of an eight game ABC NBA Saturday Night package. Total cost to our household….$0.00.


     

Site created by Tenth Key Digital Media.