Networks Could Be Net Losers In Worst Case NFL Lockout Scenario
CNBC Sports Business Reporter
Television networks which broadcast NFL games stand to lose plenty of programming if the NFL lockout extends into the season. They also could lose money, even if they don't have to pay rights fees and production costs, says a new report by credit rating agency Standard & Poor's.
The exact risk to the networks is not known since it's not clear the extent to which the networks would have to pay the league, if at all, during a work stoppage. Judge David Doty found that the $4.2 billion that the networks were going to owe the league, whether there were games played or not, was not bargained in good faith.
The S & P report says that NFL live game programming is "minimally profitable or loss inducing" to the networks that have rights including CBS, NBC, Fox, ESPN and DirecTV.
The replacement programming would cost significantly less, both in rights fees and in production costs, the S & P report said, but would obviously also draw fewer viewers and therefore only attract a small portion of the roughly $3 billion in ad revenue that NFL games bring in each season.
"In a worst case scenario of an entire lost season, we believe that the ad revenue decline during replacement programming and the drop in ad revenue for programs immediately following games would overwhelm the net savings of having cheaper replacement programming instead of the NFL production costs," the report said. "Thus, even with the production cost savings, we believe there is a risk that the networks could still be subject to profitability declines for the season."
Standard & Poor's said NBC would probably suffer the most because it airs its games on Sundays in primetime versus CBS and Fox , whose games air during the day. Critics might say NBC is less exposed because it doesn't have double headers -- so it has less ad inventory. Thanks to greater access to alternative programming, due to the other sports rights it owns including college football, the effect on ESPN's business would be more modest, according to S & P. It is also believed that ESPN is less exposed because cable operators own some of the local inventory for their own use. S & P says that DirecTV , whose new four-year, $4 billion contract for NFL Sunday Ticket is set to begin this season, is also modestly exposed because "lower subscriber acquisition costs would temper the impact of lower revenue growth," the report said.
On March 12, the NFL locked out its players, who hours before decertified its union in order to file an antitrust lawsuit, dubbed Brady v. NFL, against the owners. The owners have filed a claim with the National Labor Relations Board claiming the decertification is a "sham." Next Wednesday, Judge Susan Nelson will consider each side and might rule whether the players can be granted an injunction against the lockout so that play can continue under the terms of the previous deal while the two sides work towards a new Collective Bargaining Agreement.
"We're optimistic that the situation will be resolved," said ESPN spokesperson Amy Phillips. Phillips wouldn't comment on the report, as was the case with officials with NBC, CBS and Fox. A DirecTV spokesperson couldn't immediately be reached.
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