DirecTV (DTV) shares fell from a nine-year high after a Wells Fargo analyst said an NFL lockout could hit 2011 earnings.
“Given that DTV is paying a LOT of money ($700 million to $1+ billion per year – higher in the latter years of the contract) for the exclusive right to carry the NFL Sunday Ticket through the 2014 season – plus the fact that the NFL Sunday Ticket is a huge selling point for both subs and investors – we see risk as it relates to both headlines and 2011 estimates,” wrote Marci Ryvicker, Wells Fargo broadcast and cable analyst, in a note today. “While we don’t have full details of DTV’s NFL contract, we do believe that it is similar to the broadcasters’ – which means that the NFL gets its distribution payment regardless as to whether or not the games are actually played.”
DirecTV shares are still up 13 percent in 2010, having touched the highest level since 2000 earlier this month. The biggest satellite provider in the country raised its 2010 forecast in May as U.S. consumer demand for high-definition television remained strong. The company also cited growth in Latin America.
Ryvicker, who cut the stock to ‘market perform’, also cited competition from the DISH network and the fact that the company has yet to declare a dividend for shareholders as reasons for the downgrade.
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This month the NFL Players Association, whose collective bargaining agreement expires after next season, filed a grievance with an arbitrator about the $4 billion in guaranteed money the league will get from its television distributors in 2011 whether the players take the field or not.
DirecTV has exclusive rights to the NFL Sunday Ticket package through 2014, which would mark its 20th season carrying the special programming. This season, Sunday Ticket will feature every Sunday game in HD, a channel showing 8 games at once, and Smartphone compatibility, according to DirecTV’s web site. The stock has gone pretty much in a straight diagonal line since DirecTV signed a four-year contract extension of the deal in March 2009.
“I think they’ll find a resolution,” said Pete Najarian, a ‘Fast Money’ trader and former NFL linebacker. “Both sides see how damaging strikes were to the NBA and NHL and the last strike in 1987, when I played, was resolved rather quickly anyway.”
Najarian, who noted that remarkably many players opt to get paid 1/16th of their hefty annually pay each Tuesday during the season, said the superstars and the older players are not likely to hold out for every single last union demand.
But the trader, now of OptionsMonster.com and TradeMonster.com, isn’t buying DirecTV shares today. After the big run, the shares may be overbought at these levels, he said. Najarian is waiting for any deeper pullback on lockout fears to pick up the stock.
With reporting by Courtney Gartman.
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