Expected NBA-Amazon Deal Spawns Peak Inventory Concerns

Expected NBA-Amazon Deal Spawns Peak Inventory Concerns

The National Basketball Association is reportedly closing in on a long-term deal with Amazon that will give Prime Video the rights to regular season and playoff games. 

The Athletic’s Andrew Marchand, who broke the news, touted the tie-up as a “landmark move in sports media history.” 

While it might turn out that way (the original report did not reference Amazon gaining exclusivity to a night of the week), it won’t for the reason(s) he cited.

The bulk of the NBA’s rights will remain on established platforms (see: ESPN/ABC and Warner Bros Discovery or NBC), and Amazon, the ‘C partner’ in the three-partner arrangement, is taking a package of games the others were prepared to go forward into the new contract without.

The NBA was fortunate that Amazon showed up at the negotiating table and is helping to keep the total value of its national rights package growing. However, the league and other volume sports properties, should be thinking about how they will adapt if/when there isn’t an outlet prepared to pay guaranteed rights for the overflow. 

“How a league manages what inventory is on TV and what’s not, and how long their season is, are questions nobody has had to ask for more than a quarter century,” Patrick Crakes (principal, Crakes Media) said. “Now, rights owners have to ask again, and industry observers may [end up] finding some surprising answers.”

At least within some leagues.

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It’s hard to classify the NBA’s pending package as a landmark moment when it reflects how the league still values the reach and general market audience of the established pay TV ecosystem over the promise of a data-driven digital future.

However, it does show, once again, “that we’ve either reached or are close to reaching peak inventory,” Crakes said.

Historically speaking, sports properties were able to command rights fee increases by delivering more games to their partners. That is no longer the case. The established networks did not want all the games the NBA had to offer this time around. 

“They, and the distributors, can now make the pay TV bundle’s economics work with fewer matchups,” Crakes said.

So, the linear networks will keep what they need (see: most of the league’s national package) and pay more on a per game basis. But by not taking all the inventory, they spend less than planned; which provides optionally for other rights investments or improved margins.

A significant amount of the incremental value in the deal for the league comes from the remaining games and its newest partner(s).

The problem is “if this extra shelf space hadn’t emerged, some of that inventory would be jammed up,” Crakes said.

While it worked out for the NBA this time around, as it did for the NFL (see: Sunday Ticket or TNF), it’s logical to wonder what happens if/when none of the digital outlets show up? 

It’s not as if any of the new entrants have won a rights auction or strategically taken a desired package away from the established channels to date. So, that’s not exactly a far-fetched scenario.

MLB’s ‘early Sunday’ package, which NBCUniversal’s Peacock elected not to renew at the completion of last season, is currently without a home. Though, the league is reportedly in discussions with Roku.

“That’s a solid example of too much inventory in the marketplace for a national window,” Crakes said.

Volume sports properties are increasingly likely to find in the years ahead that they have more games than any one property can properly monetize in a shrinking pay TV landscape. Their solutions to navigate the challenge will vary.

Leagues unable to find a cable distributor or streaming service willing to pay a guaranteed rights fee at least on par with what it currently commands per game may choose to place the excess inventory on a DTC platform.

Look for those properties to “put a big price on the service, target the ‘ultra fan’, and say whatever we’re getting is better than zero,” Crakes said.

A panel curated by JohnWallStreet and Betting Hero recently confirmed that sports fans, even those still inside the pay TV bundle, will subscribe to multiple streaming services to following their favorite teams and/or leagues (more on this in the weeks ahead).

Another option will be to roll back the clock and to have some games go dark.

Properties could “return to pre-2000s when everything was not on TV,” Crakes said. “A lot of game inventory we take for granted today just wasn’t on [before RSNs enabled rights owners to monetize all their content over the last quarter century].”

Others may choose to cut down on the number of games played during the season. Doing so would, in theory, make those that remain more of a ‘must-see’ and could result in other revenue streams rising. 

Scarcity can create value.

“That could be the solution for some leagues,” Crakes said.

But don’t count on it happening across the board. There’s simply too much risk.

“The biggest problem [many of] these properties have is that they’ve got big promises to the players,” Crakes said. 

The recent influx of new investors counting on profitable exits, and the economics that would presumably disappear in the short-term, is another high hurdle to get over.   

And plenty of value remains in high-quality sports leagues playing games on weeknights.

“The [established] platforms with the most or best reach still want them,” Crakes said. 

The question is how much do they need, and will there be digital partners willing to pay guaranteed fees for what’s remains. 

Right now, there are. That may not be the case in the future.

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