Two headlines stood out last week that we should discuss.
The first one comes courtesy of Streaming Observer, who posted this gem last Wednesday:
The article details a recent survey, which found that 53% of people choosing a pay TV service don’t see the inclusion of live sports channels in their package as an important consideration. Streaming Observer then reminds us that 87,349,000 homes pay for ESPN and ESPN2 — which, according to the latest SNL Kagan data reported by Variety, is $8.84 per household per month. That’s more than $772 million per month. (Streaming Observer reported old SNL Kagan estimates of $7.21 and $0.90.)
Streaming Observer continues:
Given that 53% of pay TV subscribers don’t care if they have ESPN or other live sports channels, that means 46,294,970 of ESPN/ESPN2’s subscribers don’t really want the channels.
If we presume that figure is accurate, ESPN is actually collecting $4.9 billion per year from people who don’t watch sports — many of whom don’t even realize they’re paying for sports.
Fast forward two days later, and the headline of the basketball world is that Steph Curry, who led the Golden State Warriors to their second NBA title in three years, signed a five-year, $201 million “super-max” contract with the Warriors — by far, the richest contract in NBA history.
Most people still fail to see how intertwined these two headlines are.
Whenever an athlete signs a record-breaking sports contract, questions inevitably arise about whether any athlete is worth that much. Newspaper columnists typically ask this question:
What all of these arguments fail to address is where all this money is coming from — because a lot of it is coming from millions of pay TV subscribers who still don’t realize they’re paying for sports they don’t watch.
In October of 2014, ESPN and Turner Sports agreed to a 9-year, $25 billion TV contract extension with the NBA. That deal kicked in last season. ESPN will pay $1.46 billion per year for the right to broadcast NBA games, while TNT will pay an average of $1.2 billion per year.
All of that money comes from pay TV carriage fees. If you get ESPN as part of your cable or satellite package, $7.86 of your monthly TV bill goes to ESPN, while $2.09 goes to TNT. That money gets funneled to the NBA through that $25 billion TV deal. So if 87,349,000 pay for ESPN, each ESPN subscriber pays $16.77/year to the NBA. Likewise, if 90,332,000 million pay for TNT, each TNT subscriber pays $13.16/year to the NBA.
You can see just how much money gets funneled to various sports leagues through your cable bill by using the app on What You Pay For Sports’ home page.
Each NBA team receives roughly $88.89 million per year from the ESPN/Turner TV deal, which means all those ESPN and TNT subscribers are contributing nearly $1 to the Warriors’ bottom line.
Now take into account Streaming Observer‘s conclusion that more than 46 million people who don’t actually watch live sports are paying for sports channels they neither want nor need. That’s nearly $46 million being funneled to the Warriors from people who don’t care a lick about the NBA — and that fully covers Steph Curry’s $40 million salary for the 2017-2018 season.
So what happens to the next NBA superstar’s salary when those 46 million people decide they don’t want to pay for ESPN and TNT anymore?
That’s a question very few people are asking, despite the fact that cord-cutting seems to be accelerating and some pay TV networks are attempting to build a cheaper, sports-free pay TV package. ESPN and TNT, meanwhile, continue to increase their carriage fees 6.5% each year. So far, those increases have outpaced customer losses, but will that still be the case by 2025, when the current TV deal expires? Will sports fans be willing to pay twice as much for sports channels? Or will there simply be much less money to go around?
Take nothing away from Steph Curry, of course; he’s earning what the market will pay him. The bigger picture, though, is that much of the money that pays Curry, LeBron James, Kevin Durant, and many other NBA stars, comes from millions of people who are victims of a massive scam perpetrated by greedy corporations concerned for nothing more than their profit margins and stock prices. As more people realize this, more people will refuse to pay. We should still see a few more $200 million-plus player contracts before 2025 — most likely for James and Durant, actually — but if the TV market continues in its current direction, don’t count on any after that.