MediaTalk | Season 3 | Ep. 15 - How Sports Media Rights Are Changing the Game for Fans and Networks

View Full Transcript

Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, wherein the news and research staff explore issues in the ever-evolving media landscape. In this installment, we're going to do something slightly different. S&P Global recently held a sports-oriented webinar titled "Moneyball: The Impact of Sports Media Rights on the US Video Market."

As you all know, the sports media world is growing more complex and remains of great interest to fans, consumers, brands and myriad business interests. I led a discussion with four guys who really know their stuff when it comes to the business of sports: my colleagues from S&P Global Market Intelligence Kagan principal analyst Justin Nielson, principal analyst Scott Robson and research analyst Michael Johnson, as well as William Mao, who is a senior vice president of media rights consulting at sports marketing agency Octagon. We're going to give you a flavor for the webinar and let you know how you can gain access to the full event later on. Here's a taste of this far-reaching discussion:

On today's webinar, "Moneyball: The Impact of Sports Media Rights in the US Video Market," we're going to discuss the importance of sports rights for TV networks and the future of the local sports rights business amidst the declining RSN industry. Scott, it's only become more complex and interesting for fans, teams and leagues, so we appreciate you joining us.

Scott Robson: Yeah, so sports media rights refer to the amount of money that networks and streaming services pay the sports leagues to broadcast games. Sports networks continue to invest in premier live sports programming despite contracting subscriber bases, as they continue to draw large audiences to these sporting events. The timing of major events significantly influences the overall spend on sports media rights. So the even numbers tend to be higher than the odd numbers due to the timing of things like the Olympics and the FIFA World Cup. We estimate that the US TV and streaming media rights payments will total $29.25 billion in 2025, which is just over half of the global total. This amount has risen from about $14 billion in 2015, and we expect it to grow to over $37 billion by 2030. Big business here. A lot of spending on sports media rights.

Reynolds: MJ, there's been a lot of activity this year, a number of deals.

Mike Johnson: Yeah, absolutely. 2024 was a big year in terms of sports rights deals. Just to name a few of the major ones, probably the biggest was the NBA deal, of course. It was a massive 11-year, $77 billion deal with ESPN Inc., NBCUniversal Media LLC and Amazon.com Inc. getting into the mix as well. And with that deal, they also gained rights to the WNBA as well. Totals $2.2 billion. Going back a little bit too, in late 2023, I think, NASCAR, they finalized their media rights agreement that kicked off this year with the Daytona 500. I think that deal was valued at about just over $1 billion per year and a 30% increase compared to their previous agreements that they had. And then there were also a couple of ESPN extensions. You have the College Football Playoff that was extended out six years totaling just under $8 billion for that deal. And then also the tennis US Open that was secured 12-year extension worth over $2 billion there. And then you also had other deals like the WWE and Netflix Inc. deal that kicked off this year, a 10-year deal worth around $5 billion for that. And then Warner Bros. Discovery Inc. had a busy year as well, missing out on the NBA deal. They were in the mix with the French Open, the new league Unrivaled, and then also a little bit of Big East College Basketball with Fox Corp. and NBC.

Reynolds: So yeah, busy year and more to come. William, sports are always in demand. Will we continue to see rising rates in the years to come?

William Mao: I think in the short term, you're definitely seeing that, but I think there's a little bit of nuance to what is continuing to take place. I think when it comes to tier one properties in any given market, here we're talking about the US, I think perhaps us and the audience has a general appreciation for who that might be. Obviously, the NFL in the US market, NBA are prime examples of that. You're going to see more of those economics flow towards the top end of the pyramid. That's what's driving up the overall rise in costs. That's further exacerbated by the fact that a lot of times the new platforms, the new big tech platforms, they too are investing in the tier one properties. You saw Netflix with the NFL Christmas games as an example of that and obviously the recent NBA deal. And so what that means is while the top is increasing in value not only from an economic perspective but from a distribution perspective, that means there's a little less for everybody else. And so there's a greater disparity between the haves and the have-nots in the market that's underlying this overall growth in cost.

Reynolds: Yeah. With all of those things in mind too, to be a sports fan, you need a lot of platforms. Justin, the broadcast networks and the streamers seem to be, at the moment, that's where a lot of the action is coming.

Justin Nielson: Yes, Mike. And just pointing back to the fact that the regional sports networks, in particular Diamond Sports, now Main Street Sports Group LLC, went through a bankruptcy proceeding and had to drop a lot of their rights deals across multiple teams in the MLB and NBA. Broadcasters have come in and taken up some of those deals. And then the teams themselves have created their own regional sports networks in some cases or gone direct to consumer in terms of their streaming outlets. So there's a lot of opportunity there for some of that displacement for broadcasters and streamers to come in and take some of those local rights. But overall, the business of sports, it's, like William said, it's the have and have-nots. So a lot of the national packages are being primarily for the major teams, and those regional sports networks, like in LA and in New York, are doing quite well, but some of the smaller mid-size market teams are having to scramble a bit in terms of pulling these rights deals and these distribution packages together.

Reynolds: Scott, does the sports industry risk alienating fans if they have to go through 10 different places to watch all their favorite teams' games?

Robson: Yeah, so I think that the proliferation of these digital services and some games being placed on one over another, I think it's already caused backlash from fans. And that is... It has taken getting some use to. It's interesting that NFL fans now have to be subscribed to Amazon Prime Video and Netflix and a slew of other services, Peacock, if they want to catch every game. But I think the more and more this happens, the more fans are getting used to it as somewhat of a new normal environment where things are all split up. I do think that this lends the way for a sports aggregator of sorts to come in and ease that process and help usher along everyone looking to watch a specific sport through an easy-to-search homepage or something like that. But I think for now, it seems like it's probably going to grow even a little bit more fragmented before anything like that happens.

Reynolds: There are other rights that are coming up. MJ, can you take us through a couple of the things that may happen this year?

Johnson: Yeah, definitely. Among the major deals, you have the UFC and Formula One coming up this year. And now we also have the notable MLB deal following ESPN's recent opt-out. Just to touch on those quickly, the UFC, that's up this year, current value of $450 million with Walt Disney Co. and ESPN. The exclusive negotiating window, I think, wraps up mid this month. And they're looking to possibly double those media rights in the future. F1 is another one with Disney and ESPN. Current value for that media rights deal is just over $100 million. And they're also aiming to double those media rights with their new deal coming up here. Among those, the potential contenders for those rights, Netflix has been thrown out there, NBC as well, so we'll see what happens there. And then quickly, just on the MLB following ESPN's recent opt-out that took place, you're seeing rumors that Amazon could be potentially involved. Fox is MLB's current largest media partner, paying over, I think, $700 million annually. And who knows? You could see NBC or Netflix get involved as well as a potential wild card for specific events throughout the year.

Reynolds: The RSN, the Regional Sports Network, industry is in a transition period to be kind of a lot going on. Justin, you're up next here.

Nielson: Yeah, thanks Mike. I'll just talk briefly about what's happening in terms of the local rights deals. As we discussed prior, a lot of these regional sports networks have dropped teams and in terms of the bankruptcy restructuring at Diamond, the closure of the SportsNet from AT&T Inc. and Warner Bros. Discovery. And then, looking at what's happened in two leagues in particular, the NBA and then the MLB, they've been reaching out. The broadcasters themselves have been reaching out at opportunities for the local teams to take some of these rights deals. That's happened with small game packages in certain markets, five to ten game packages to test the waters. And then in some cases, like with the Phoenix Suns of Utah Jazz, they went full steam ahead with the broadcast and kind of a streaming model for their local rights. And that's happening now in MLB, the NBA, that's happened over the last few seasons. MLB this year, I think, is taking on that approach in certain markets. Over 100 different rights deals that are happening across broadcast stations and local teams. Based on our analysis this year, that covers NBA, MLB, WNBA, and NHL rights deals. So you see broadcasters like Gray Media Inc., TEGNA Inc., Nexstar Media Group Inc., Sinclair Inc., and others that are signing these rights deals with local teams for over-the-air and linear rights. And in a lot of cases, they're packaging that with a direct-to-consumer type product where they're able to promote within the over-the-air broadcast those additional kind of premium content feeds if you're a subscriber to their direct-to-consumer service. So I would say that is a trend that's building and it will continue to build over time. The other wrinkle in this is the rights deals are primarily on independent or secondary channels for broadcast stations because of the preempt rules for major affiliates like the Big Four — ABC (US), CBS (US), NBC (US), and FOX (US). And there are opportunities for some of these independent or even in some cases, Spanish-language networks to add some of these local rights deals. Now that may change if we get some more ownership cap relaxation from the FCC and the DOJ on the broadcast station front because they have a 39% ownership cap in the US and then also duopoly rules in certain markets. So I think there's a lot of opportunity for local broadcast stations to come in and on the margins take some of these local rights deals. But I think that the big push, especially for the teams themselves, is the direct-to-consumer streaming services. Although we've seen in certain cases that has been a fairly slow uptick just because of the cost. And then also, in a lot of cases, it's team-specific. So you're not getting all the local sports on that direct-to-consumer type product.

Reynolds: It's been an incredible last two or three years in terms of Diamond, now Main Street Sports. There's been so much back and forth, every day there's a new deal. William, as you look at this transformative period, did you anticipate that the Diamond Sports bankruptcy would, in fact, engender so much of this? And do you expect more of this in the years ahead?

Mao: I think it wasn't just the situation with Diamond. I think there were other markers or signals, right? With Warner Bros. shifting away from the AT&T Root Sports Network strategy and winding down those businesses, I would say was another signal or marker from a couple of years ago. And everything that you guys have been discussing as it relates to local market sports rights is almost what is old is new again, right? It's the idea that maybe prior to the proliferation of cable sports and local cable sports networks, you were getting the majority of your home team's games through a local, free-to-air [broadcast station]. It's just you're combining that old school large funnel in the local market distribution model with the technology that now allows you to geo-restrict as necessary to deliver a local market streaming experience. I will say two other things as backdrop to this whole conversation is one, even as the carriage or the distribution, the reach of some of these cable sports networks on the local market have been declining, which is one of the key drivers underpinning what has been happening in that marketplace, those channels are still the highest-rated networks in these local markets, right, on a 24-hour basis. So I think that's important to keep in mind. There still is a lot of consumption taking place even as the reach was declining. And the second is the value and the importance of this ecosystem, where this subset of rights to these teams can be between 20% to 40% of their revenues, right? And so when you think about it in the context of a sport like Major League Baseball, where there isn't a salary cap and you're spending and you're trying to keep up with the Joneses, having a key impact to 20% to 40% of your revenues is going to also affect ultimately what you can do on the field.

Reynolds: MJ, given what William just said, again, as the business moves in different directions but the RSNs have been such an integral part of the revenues for these teams. But the back and forth, the business is in decline. Everything's working against us. Are the RSNs going to be in business long term?

Johnson: Yeah. Yeah. So the future of RSNs is definitely cloudy. As I think Justin was discussing, nearly 10 RSNs have shut down over the past couple of years here with the total number of partnerships decreasing from, I think it was over 75 to under 70 now across MLB, NHL, and NBA. The Diamond Sports Group transitioned to Main Street Sports after the long bankruptcy that they had illustrates that financial instability within the industry. They restructured their debt now, but they manage only 16 RSNs currently. And, the overall size and influence of these networks have really diminished compared to the previous years. I think they forecasted their declining revenue was projected to drop from $1.85 billion to just over $1 billion over the next few years in terms of linear revenue. That kind of paints a picture for you there. While the RSNs continue to operate in the short term, their long-term future is definitely uncertain due to many different factors.

Reynolds: That concludes this episode of "MediaTalk." Many thanks to Scott, Justin, MJ, and William for sharing their thoughts and insights across these important topics shaping the sports media world today and tomorrow. For those of you who want to check out the webinar in its entirety, go to the "Events" tab on www.spglobal.com/market-intelligence and you can gain access. This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon on our next "MediaTalk" installment.