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Overpriced Sports Rights Bubble About to Pop

Sports Bubble is Over
Cheyne Gateley/VIP

The era of vast increases to the value of most pro-sports TV rights looks to be over.

The coronavirus pandemic already took its toll on sports TV networks, as over 1,100 nationally televised games and events were cancelled in the U.S..

Under pressure due to lower than expected ad revenues, networks are beginning to pull out of deals they see as too expensive to generate money from, with the UEFA Champions League (UCL) and USGA both seeing their existing deals torn up.

The fate of these sports doesn’t bode well for the future. The UCL is yet to announce a new U.S. English language broadcaster, despite only being a month away from a special August tournament to crown 2020’s European champion. 

Golf did manage to find a new broadcaster in NBC. But with Fox reportedly walking away from the USGA deal as ratings were not as expected and thus not worth the money they had paid, NBC played the savvy game and picked up the remainder of the contract for what VIP estimates to be around 59% less than Fox was set to pay.

This arrests a trend seen in recent renewals of eye-watering increases for sports rights. Networks, desperate to maintain access to content that attracts live viewers and high ad revenues, continued to spend big. 

This had a secondary impact, as free-spending sports nets passed these costs along to consumers, via their cable service. Analysts at S&P Kagan estimate that major national sports networks will be charging consumers $17.22 per month in 2022 (in addition to fees from regional sports nets). 

In essence, the consumer has seen their pay-TV bills skyrocket because the pay TV companies are forced to pay the sports networks exorbitant sums for these channels. The sports nets themselves are as expensive as they are because the leagues have them over a barrel due to being the highest valued content on TV.

Should the impact of the pandemic extend beyond 2020, leading to more sports cancellations down the line, it will be difficult for networks to justify these prices to MVPDs, and MVPDs to consumers.

ESPN has been leading the way with excessive spending on renewals to sports rights, in part to boost the appeal of their direct to consumer ESPN+ service. Given that polling firm YouGov found major U.S. sports SVODs across the board see a substantial proportion of their pre-pandemic bases cancelling their subscriptions between March and June (i.e. due to the lack of sports content), these will be hoping they all return once sports get back to normal, or else the spending spree will start to look a lot more like overspend.

It’s likely that not all sports will be impacted. The big four of baseball, basketball, football and hockey, enshrined in Americana, are likely to maintain their allure, with MLB and Turner Sports agreeing a 34% increase on their existing deal this June. This could shift should audiences fizzle once the sizzle of sports’ return sans live crowds wears off. 

In one notable recent example, the German Bundesliga, which is arguably Germany’s equivalent to the NFL, saw their domestic renewal in June come in below the prior level. Food for thought for ESPN, who paid 329% per year more than what current broadcaster Fox was paying out to nab the rights for the 2020-21 season.

What appears to be over, for now at least, is the scrabble for all rights. Arguably ending their UCL contract early appears to spell the end for WarnerMedia’s Bleacher Report Live service, at least as a serious sports SVOD, given the UCL is a key component. With future finances unsteady for networks, committing to spending big for niche sports in an uncertain environment will not be something that media companies look to repeat. The sports bubble is over.