NBA Should Cooperate with Linear Broadcast Partners to Protect Golden Goose

NBA Should Cooperate with Linear Broadcast Partners to Protect Golden Goose

The National Basketball Association recently opened its exclusive media rights negotiating window with The Walt Disney Company (NYSE: DIS) and Warner Bros. Discovery (NASDAQ: WBD). The league’s current deals with broadcast partners ESPN/ABC and TNT expire at the conclusion of next season. 

The NBA is known to be seeking a large increase on the $2.6 billion/year it currently gets for the national package. League executives reportedly believe the rights could command as much as $72 billion over the course of the next agreement.

Getting a deal worth 3x more than the expiring one would be a remarkable achievement for the NBA and its teams, particularly when one considers the rate at which the pay TV bundle continues to dwindle. 

But it’s fair to wonder if the league is putting its golden goose at risk by maximizing the financial burden on its long-time television partners at a time when so much uncertainty remains in the nascent streaming space.

The NBA has “an amazing business model, one that is predicated on having healthy linear partners,” one former high-ranking ESPN executive said. “If it takes every last dollar out of the old system and breaks it, where does the next deal come from and what will it look like?”

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The NBA is going to get a large increase over its expiring pact. 

“When ad rates across linear live sports are up 4x in 20 years, when live sports, more than any other genre, drive multi-million audience deliveries on cable and free to air, and when SVOD consumers tend to skew young and affluent, it sets the stage for a rewarding outcome for the league in this media rights negotiation,” Dan Cohen (EVP, global media rights consulting, Octagon) said.

But a lift of 200% (or more) sounds rich for a league that lacks leverage. It’s not as if the NBA has a collective of linear networks, which it desires for the reach they deliver, lined up waiting to pounce if DIS or WBD were to balk at the asking price.

“There’s no auction here,” media consultant Patrick Crakes said. No other established broadcaster “wants to take the inventory that ESPN and Turner have held the rights to in full. At present, it seems NBC only wants a sliver, Amazon wants [just one] game per week, and [that] Apple’s not looking to acquire any NBA games.”

That does not mean the cable networks are in control of these negotiations. Live sports remain capable of drawing viewers en masse (some of the only programming that still does), and the NBA is one of the few premium properties coming to market over the next half decade.

Both sides are in a less than ideal negotiating spot.

The NBA has historically benefitted from participating in a strong television ecosystem. 

“Rights have gone up forever because ESPN has been a very healthy second bidder,” the former cable network executive said. “And in the case of the NBA, Turner [too].”

So, it doesn’t seem sensible for the league to force ESPN/ABC and TNT to pick up the entirety of its desired price hike. Those businesses are already under pressure, or at least more so than they were in the past. 

WBD reported a net loss of $400 million in Q4 of last year.

If the league’s rights fee increase were to eventually force one or both into bankruptcy, the presumption is there might not be enough bidders to ensure further growth during the next round of negotiations.

Of course, it is nearly impossible to predict who will be buying sports rights a decade from now. There’s bound to be dramatic consolidation across the media landscape, and new distribution channels are likely to emerge too. 

So, it’s illogical to suggest the NBA (or any other rights owner) should take any less money than the most it can command.

It’s also not the leagues’ responsibility to save another business.

“Welcome to the free market,” Chris Bevilacqua (co-founder, Bevilacqua Helfant Ventures) said. “That’s how it works.”

Ironically, it was the sports-specific networks, ESPN in particular, that helped spur the cord-cutting trend on in the first place (because of the exorbitant fees levied on basic cable customers). 

However, tier-one sports properties extracting all the value from the old system will eventually cripple the linear networks. So, the savviest ones will work to figure out how they can become better partners, and ultimately navigate this new broadcast paradigm together.

“If a league cooperates, their rights fees can keep going up without breaking the system,” Crakes said.

That does not necessarily mean taking equity in a network partner (as was discussed with respect to ESPN). A rights owner can negotiate a flexible distribution system that is designed to maximize revenues and profits (think: Charter-Disney).

“They can figure out a way to remove a lot of the friction in the ecosystem, all the exclusivity around MVPDs versus direct to consumer and non-traditional media rights, like social, sports betting, AR, VR, and [put together] a structure where it can all coexist more seamlessly for the end user,” Bevilacqua said. 

If they do, the linear partners will pay handsomely for it.

In fact, “the more the NBA gives the networks what they think they need [to appease pay TV distributors], the higher the price of the rights can go,” Crakes said.

Flexibility is the key to maximizing broadcast revenues without killing the golden goose.

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