Labor dispute could chop-block TV's most popular sport
For the television network partners of the National Football League, celebration of the league’s latest high-flying season is running smack into storm clouds threatening the upcoming 2011 campaign.On March 3, the current labor agreement between the NFL and its players expires, potentially leaving next season in jeopardy and TV broadcasters holding the bag — and paying for the privilege to boot. The league’s television network partners and their broadcast rights agreements play a large part in the labor battle. Rights fees from CBS ($620 million), NBC ($603 million), ESPN ($1.1 billion) and Fox ($720 million) total more than $3 billion annually. DirecTV also is part of the television equation with its rights fees for NFL Sunday Ticket, the out-of-market subscription package, totaling approximately an additional $1 billion this year. However, it’s a key provision with all the NFL’s network partners that is garnering the most interest. Within each of the lucrative contracts is wording that would have the television partners continue to pay rights fees for games not played in the event the lockout becomes a reality. The league would eventually have to rebate the networks, with interest, with the exception of DirecTV. The NFL made the case, in reaching its agreement with the satellite provider, that by simply having the NFL on DirecTV’s channel listing, the company would gain subscribers, and therefore, the league does not have to reimburse DTV for any lost games due to a work stoppage. The NFL Players Assn. has filed a collusion charge, claiming that in reaching the “pay for no play” provisions with the networks, the league is not working toward growing revenues for the players. A decision is still pending on the case. The labor dispute comes at a time when the NFL and its network partners are seeing record viewership numbers. According to Nielsen, the 2010 regular season reached 207.7 million unique viewers, the most in history. All of the NFL’s television partners shared in the viewership increase. Fox, NBC and ESPN each had their most-watched NFL regular seasons ever, while CBS had its best season in two decades. CBS’ broadcast of the American Football Conference championship game between the Pittsburgh Steelers and New York Jets drew 54.9 million viewers, a record for that event, setting the stage for a Super Bowl that could surpass last year’s 106 million and become the most-watched television broadcast ever. In terms of overall ratings for the calendar year, the NFL had 27 of the 50 highest-rated programs, with eight in the top 10. Network partners are looking to continue that trend, and hoping nothing comes of the uncertainty that swirls around the league due to its labor dispute. “It is something we are closely monitoring,” says one television executive. “There’s concern on a number of fronts. The NFL is premium programming that we will lose, which is very hard to fill. Our ad partners are in limbo until a new labor agreement is reached, and paying our rights fees — even if games are not played — is, of course, something we’d like to see avoided at all costs.” The source of the dispute between the NFL and its players is, not surprisingly, also cost-related. The league’s 32 owners are claiming that over the life of the current collective bargaining agreement reached in 2006, player costs have outpaced revenue growth, and owners’ cash flow has declined by $200 million. With that, the NFL is seeking concessions from the players in the form of an 18% cut in revenues to the players, or approximately $1 billion; a proposed longer, 18-game season, though, would help the players recoup most of that money. The league has pointed to exorbitant salaries for untested rookie players as one place that cuts could be made. The players have asked for an extension of the current collective bargaining agreement, which the owners have rebuked. In the wake of the NFL’s claims that cash flow has declined, the players union has asked repeatedly for transparency from the league in the form of owners opening their financial books to prove need. The NFLPA has said their request has been met with, “They’re none of your business.” The players have said they will not strike after March 3, setting up a lockout of the players by the owners. The matter has gotten so contentious that the NFLPA topper DeMaurice Smith has said the labor situation is “war.” And yet, even in the midst of the near Cold War atmosphere that surrounds the NFL and its players, the league’s incredible popularity is still allowing for network deals to be reached. According to the SportsBusiness Journal, ESPN and the NFL are on the verge of a new media rights deal for Monday Night Football that would increase its annual rights fee by 65% to 70%, or in the neighborhood of $1.9 billion annually. The NFL has seen gross revenues increase from $6.5 billion in 2005, the year before the current labor agreement with the players was reached, to $9.3 billion in 2009, an increase of 43%. Television rights fees for the league comprised 43% of those total revenues for 2009. Come Feb. 6, all eyes will be focused on the Super Bowl, but for the television network partners of the NFL, the real game gets started on March 4, the day after the current labor agreement expires. From then, it’s only five months until the start of the 2011 preseason. Fans of the game — particularly network execs — might never have watched the NFL’s offseason more closely than the one that on which the clock is about to start.