The end of big money in pro sports?

This year the NBA began its new 9-year $24B deal with Turner Sports and ESPN, an incredible 180% increase over the last TV deal signed in 2007. The growth in TV revenue over the last two decades has changed the face of the league… In 1995 Karl Malone made $3.68M, this year James Harden will take home $25.6M! But will this trend continue? Come 2024, will we be looking at a $50B deal? or will we look back at this deal as the last big deal in pro sports? I believe that this is the beginning of the end…

The fight for subscriber fees has decoupled the valuation of pro sports rights in the United States from their intrinsic value.

The market prices for sports rights are no longer supported by the sport’s ability to directly generate revenue, but instead by a gambit by television networks to increase their leverage with cable operators.

Subscriber fees are not simply correlated to ratings as one might expect. Source: http://www.thewrap.com/cable-network-carriage-fees/
It all started in the early 2000’s when the television ecosystem began to notice slowing subscriber growth (“cord cutting”). This reduction in growth put opposing pressure on both the cable operators and the television networks.

Pay TV providers have been aggressively negotiating down the fees they pay to cable networks to manage their own margins and profit growth in the face of declining revenues. On the flip side networks were incentivized to find a way to gain leverage on the cable companies to prevent giving up their revenue stream: Enter Live Sports.

Television networks (broadcast and cable) found that in this new and changing world, subscribers still tuned in for live sports. If a network acquired premium live sports rights, they had an upper hand in their negotiation with cable providers. How could Comcast explain to it’s paying subscribers that they do not carry the NBA? Television networks finally had found their trump card.

New deal math had arrived.. yes ratings were key, but what really juiced the prices was the subscriber fee increase that the network could secure from the cable operator using the sports rights as leverage. It is that negotiating synergy that drove the NBA deal from $930M per year to $2.6B per year under the new deal.

What type of IP will ultimately drive adoption of new platforms amidst the competition we are sure to see over the next 10 years?

When the NBA signs a new deal in 2024 the landscape will be much different. The dominant viewing platform will likely be mobile (enter Telcos) or OTT (“over the top”) rather than traditional cable. Will live sports continue to be the differentiator that drives adoption of new, emerging platforms? If not, will TV’s last stand be the high watermark for sports rights?

Some predictions!

2018: US Telco’s will become even more aggressive in acquiring exclusive content to differentiate their offering. I believe they will take the torch from cable networks and continue the tradition of overpaying for live sports rights in the short term.
2020: As the pain Disney feels from its ESPN subsidiary becomes more acute (declining revenues and fixed long-term sports rights deals) they will sell ESPN to an US Telco player (e.g. Verizon or AT&T)
2022: The last big sports rights deal will be signed
2025: Investors will look back at TV deals of the 2010’s as an accelerant of cable TV’s financial decline.