NFL owners and the NFL Players Association are likely nearing a collective bargaining agreement after owners approved the terms Thursday. Media companies and the NFL have been waiting for the CBA's approval before negotiating new broadcast rights for NFL games, which are locked up until 2022.
The results will have a major impact on traditional media as millions of Americans cut the cord on pay-TV each year. Owning live football games is crucial for networks like ESPN to charge expensive affiliate fees to pay-TV distributors, and for Fox and CBS to remain viable against deeper-pocketed competitors like Disney and Comcast.
The NFL knows this, and is expected to jack up renewal rates on all of its major broadcast packages -- Thursday night, Sunday afternoon, Sunday night and Monday night, according to people familiar with the matter who asked not to speak publicly because negotiations are private.
Rates on Sunday afternoon games may double, jumping from $1 billion annually to $2 billion annually. ESPN pays $2 billion annually for Monday Night Football and may need to pay $3 billion to keep the package, two of the people said. Renewals will likely be seven or eight-year deals, the people said.
While Amazon, Apple, Netflix and Google may be the barbarians at the gate looking to disrupt traditional media, the NFL probably isn't ready to sell exclusive rights to streamers, according to people familiar the matter. Instead, the current players -- Disney (which owns both ESPN and ABC), Comcast (which owns NBC), ViacomCBS (which owns CBS) and Fox -- will probably just pay the league a lot more money for what they already have. The NFL is comfortable with existing relationships and isn't eager to rock the boat on a product that has seen ratings rise the last two years even as almost all other shows on traditional TV have fallen.
Live sports is "the most important Jenga block holding up the entire legacy media ecosystem," according to LightShed media analyst Rich Greenfield. In other words, the traditional players need to win renewal.
Technology companies like Amazon may buy digital-simulcast packages like they have for the last few years -- streaming games to a global audience as they're simultaneously broadcast on network TV in the U.S. -- as well as new, smaller packages carved out by the NFL.
If the league sticks with the status quo -- ViacomCBS and Fox owning Sunday afternoons, Comcast owning Sunday Night and Disney taking Monday Night -- traditional media will declare victory. Keeping the NFL (and preventing others from owning digital rights) will add enormous value to networks for future retransmission and affiliate fee negotiations while also propping up newer streaming products that may include live sports rights. (ViacomCBS already includes live NFL games in its CBS All Access streaming product.)
But those same media companies will also have to figure out how to to afford the NFL's increases with an ever-shrinking pool of pay-TV subscribers, which means fewer eyeballs for advertising and fewer subscribers from traditional pay-TV revenue.
If a company like ViacomCBS pays $2 billion a year for the NFL, it will likely lose money on the investment in the early years of the deal and will have to rely on a flourishing streaming business and other future monetization avenues (sports betting, etc.) to make up the difference. The NFL wants to maximize revenue but doesn't want to drive its media partners out of business, potentially making companies with smaller balance sheets (like Fox and ViacomCBS) more vulnerable to losing their rights deals.
The following is a breakdown of what's likely to come, according to people familiar with the companies involved and the NFL.
Disney is operating from a position of strength today, but has the most to lose as viewers shift to digital.
Its giant balance sheet, with an enterprise value of more than $300 billion, should allow the company to not only re-up Monday Night Football but potentially bid on a second package, whether that's competing against CBS for Sunday afternoon games or buying Sunday Ticket rights to out-of-market Sunday afternoon games for ESPN+. Disney is interested in potentially sharing or simulcasting Monday Night Football between ESPN and ABC, according to people familiar with the matter. It also wants ABC to be back in the playoff and Super Bowl rotation, two of the people said.
Disney CEO Bob Iger has already said publicly he would have interest in Sunday Ticket, although it remains unclear if the NFL will negotiate Sunday Ticket at the same time as its other packages or wait until later this year.
If Disney does nab Sunday Ticket away from AT&T, it would use the package to push ESPN+ subscriptions, according to two people familiar with the company's plans -- viewers would have to sign up for ESPN+ to have access to the games before paying the annual package charge, currently about $300. AT&T has viewed Sunday Ticket, which costs about $1.5 billion annually, as too expensive for the amount of customers it brings in for DirecTV and likely wouldn't be interested in winning a bidding war, according to people familiar with the matter.
Still, while Disney can theoretically afford a lot of live football, ESPN is losing millions of subscribers each year as more people cut traditional cable. Putting Sunday Ticket on ESPN+ might erode the traditional cable bundle faster, because it will make ESPN+ a better replacement product. Disney has the goods to make a big splash but is also arguably the most exposed by paying billions for rights that ESPN relies on.
These are the most straightforward -- ViacomCBS and Fox, each of which has a market capitalization of around $20 billion (ViacomCBS about $18 billion, Fox about $22 billion), both want to renew the Sunday afternoon packages they currently have. Fox has held Sunday NFC games since 1994 and CBS has owned AFC rights since 1998. However, it's possible that the NFL will eliminate the AFC/NFC split by network for Sunday games for this renewal, allowing either network to broadcast games with no restrictions by division.
Football is crucial to the narratives of both companies. Fox got dramatically smaller after selling the majority of its assets to Disney in a $71 billion deal last year. The new Fox is focused on news and sports and would be crippled without NFL rights. ViacomCBS needs all the valuable content it can get as it looks to compete with deep pocketed competitors.
Fox also has rights to Thursday night football and will likely bid to retain that package, one of the people said.
Of the two companies, ViacomCBS is seen as more vulnerable to lose its Sunday NFL package. LightShed's Greenfield predicts the company will, in fact, lose its package to either ABC or NBC -- the two most likely candidates to swoop in, according to people familiar with the matter. Still, people close to ViacomCBS are adamant CBS will do whatever it takes to keep the games.
NBCUniversal is focused on retaining Sunday Night Football, which has been the most-watched prime-time TV show for the last nine years.
Like Disney, Comcast could also challenge CBS or Fox for Sunday afternoon games.
Amazon is most likely to simply renew its Thursday Night Football package from the last two years. Amazon has been pleased with the package as a way to entice global customers to Amazon Prime, its $119 annual subscription service that offers a variety of perks, including video content and free one-day shipping for packages to many locations.
Amazon will also consider Sunday Ticket, according to two people familiar with the matter, as a tool to get people subscribed to Prime, just as Disney is looking to use the package as an entryway into ESPN+. Amazon would be interested in a smaller package of exclusive games, such as the London and Mexico City games, if the NFL were to make that available, one of the people said.
It's possible the NFL could split up Sunday Ticket rights, either between a streaming service and a traditional TV distributor (or distributors) or between several streamers. That could lessen the cost of Sunday Ticket, which AT&T has signaled both publicly and privately is too expensive to profitably renew at $1.5 billion per year. DAZN, the subscription sports streaming service run by former ESPN president John Skipper, would be interested in Sunday Ticket if the league were to sell non-exclusive streaming rights separately, one of the people said. Apple TV+ and YouTube TV could take a look at Sunday Ticket as well.
It's also possible the NFL will carve out non-exclusive streaming rights to Sunday packages, though this seems less likely given the enormous increase traditional media players intend to spend on broadcast rights.
Overall, the NFL could double its annual revenue from NFL media rights from about $7.5 billion to $15 billion, said people familiar with the matter. Most of this is likely to occur with the tech giants largely sitting on the sidelines. That means traditional media can hold on to positions of power for the rest of the decade. But it also means the NFL knows it has all the leverage in these discussions, and will likely wring every drop of money it can from desperate media companies who simply can't afford to lose the most popular thing on television.
Disclosure: Comcast owns NBCUniversal, which is the parent company of CNBC.