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Jockeying for NFL Rights Nears End

Nov 15, 2004  •  Post A Comment

Sunday’s set, but there’s plenty of prime-time pigskin up for grabs.

Fox and CBS stayed in the NFL lineup last week, agreeing to pay $8 billion for six more seasons of Sunday afternoon football games. Each network paid increases of more than 25 percent for its new pact. The deals give the league more flexibility to move games into prime time late in the season and to sell in-broadcast sponsorships to advertisers.

DirecTV, meanwhile, effectively blocked the cable industry by kicking in $3.5 billion to continue its exclusive NFL Season Ticket package through 2010.

The sudden moves left The Walt Disney Co. alone in deciding whether or not to punt on “Monday Night Football,” which delivers high ratings but big losses for ABC, and “Sunday Night Football,” which makes ESPN one of the highest-priced and most valuable channels on cable.

Both the NFL and Disney expressed interest in extending their current agreements. Disney may not have known how close CBS and Fox were to deals, but has been engaged in high-level talks with the league for some time, despite reports that Disney may have football on the back burner while working out its other high-level corporate issues. NBC, with its broadcast and cable networks, is waiting on the sideline for a crack at “Monday Night Football”-at the right price. Turner Broadcasting’s TNT also is interested in regaining some of the Sunday night cable games. (Technically there are two Sunday night cable packages and ESPN owns both of them for now.)

NBC had no comment on the NFL, while David Levy, president of Turner Sports, said, “I still have an interest in the NFL at the right price that works economically for my business models.”

The league is also looking to draft other broadcast and cable players into the huddle.

The new agreements with CBS and Fox also permit the NFL to create a new late-season package of eight games played on Thursday and Saturday nights, perfect for a cable network looking to boost its ratings and male demos.

That could include TNT, Viacom’s Spike or even the new sports network News Corp.’s Rupert Murdoch has reportedly been considering. Or the league could put the games on its fast-growing, year-old NFL Network, which at this point only shows preseason games.

The new package is a part of the NFL’s strategy to increase its TV revenue. But experts say Thursday and Saturday night games aren’t comparable in value to the Monday night or Sunday night contests.

“Thursday is a very competitive entertainment environment,” said Neil Pilson, president of Pilson Communications, a sports consultancy. “Saturday night has very low HUT levels.” Mr. Pilson added that while “Monday Night Football” has a 35-year track record and is scheduled by the league to create marquee matchups, the new package is starting from scratch in terms of establishing itself as a destination for fans.

Nevertheless, Mr. Pilson said, “I think there are people out there who may be interested. NBC, with Universal cable, it seems to be tailored for their level of interest. Or it could be that Turner would see value in getting back with the NFL. Those would be my top two candidates. There might very well be others.”

Mr. Pilson thinks it is possible that games could go on the NFL Channel, which now has about 22 million subscribers.

“I think the NFL would evaluate what it could get from commercial broadcasters and will make the decision about the channel depending on how the marketplace reacts to the opportunity,” he said. “I think the first priority will be to see what the commercial marketplace will pay.”

Both CBS and Fox have seen the difference football can make in a network’s fortunes, and their decision to re-sign with the NFL was no surprise. As always, the key issue was price.

While the value of the packages was substantially higher than the previous deals, comparing the year-to-year increases from the final year of the old deal with increases beginning in the first year of the new contract yields an increase of about 4 percent.

“That’s a pretty fair price,” Mr. Pilson observed.

While Fox has taken huge write-offs on its NFL and Major League Baseball sports rights deals, Viacom co-President Leslie Moonves said CBS has made money on its current NFL deal and plans to make more on its new one. Mr. Moonves said he expects the “full cooperation” of affiliates in helping CBS pay for the new NFL deal. “Affiliates have been very helpful,” he said. “We expect that will continue.”

In a research report, Richard Greenfield, an analyst at Fulcrum Partners, estimated that Fox is paying $713 million per season and CBS is paying $621 million per season. While those are smaller increases than the last time the NFL went up for bid, “depending on ratings over the next several years, the new NFL deals could modestly pressure Fox and CBS earnings,” Mr. Greenfield said.

As for DirecTV, analysts said the deal is expensive at $700 million annually, up 75 percent from its prior deal, according to Mr. Greenfield. “This will have a negative impact on DTV’s free cash flow,” he said in his report.

Other analysts said it was a deal DirecTV had to make. “While some may question the price paid for the content, we believe the NFL Sunday Ticket will negatively impact cable operators. “We believe that video distributors must become more aggressive in differentiated services and/or content to be successful in this heated video battle,” analyst Alan Bezoza of Friedman, Billings, Ramsey said in a report.

“The contract takes Comcast out of the running for what would likely have been a non-exclusive contract,” said Craig Moffett of Bernstein Research in a report. “We believe Comcast still covets a deeper affiliation with the NFL, and may still enter the bidding for a potential Thursday- or Saturday-night package.”

In its deal, DirecTV acquired the ability to add enhanced and interactive features to its Sunday Ticket telecasts, offer highlights to subscribers with DVRs, distribute enhanced versions of postseason games, including the Super Bowl, and offer subscribers remote access to games via broadband or wireless devices.

The NFL will be able to boost the value of its sponsorship packages by including a limited number of on-screen in-game sponsorships to the benefits it offers marketers. The league will sell the on-screen sponsorships on behalf of its broadcast partners, which are likely to be paid for the on-screen impressions as well as additional advertising spending.

The NFL eliminated features like a sponsored lineup announcement in 1998.