While the National Football League avoided a protracted labor dispute such as the one that cost the NBA one-quarter of its season, it has wasted no time attempting to further enhance the profitability of the most popular professional athletic league in the United States. The Wall Street Journal reported today that the NFL is nearing a new eight year media rights agreement with Fox, NBC, and CBS that will garner $3.2 billion per year, representing a 60 percent increase. This follows the NFL’s recent agreement with ESPN for “Monday Night Football” which secured $1.9 billion per season through 2021. Accounting for all media deals, the average annual media fees for the league would be around $6 billion through 2021.
The sheer magnitude of the payments involved highlights the strength of the National Football League and the premiums that the networks can command from advertisers coveting a relatively captive audience. With the advent of DVRs and other advertising skipping recording devices, marketers have increasingly focused on sporting events as an avenue to reach attractive demographic segments and achieve greater product exposure due to the propensity to watch sporting events in real time. NBC’s Sunday night games have regularly been garnering around 17 percent of the households in 56 urban TV markets, and the general ratings of the NFL continue to grow. Desperate for valuable media content, the networks are at the mercy of the NFL as it attempts to secure a greater share of the broadcasting revenue.
While the broadcast networks largely fund their NFL media payments through advertising, the league-owned NFL Network and ESPN both generate substantial revenue through cable subscription fees. Buried in that $100 per month basic cable bill is a per-subscriber fee of $4.69 for ESPN and around $0.81 for the 8-year-old NFL Network. The ESPN subscriber fee has increased 42 percent since 2006 and is projected to be raised an additional $0.67 as a result of the $800 million per year increase in the new Monday Night Football contract. The true financial benefit to Disney, which owns ESPN and ABC among other networks, is understated by looking at the ESPN subscriber fees alone. Disney has been able to leverage the high value content of ESPN to extract greater revenue from the cable providers by bundling the ESPN channels with its less popular networks and forcing cable companies to accept a package deal. It is these content package deals that prevent cable networks from offering “a la carte” subscription packages to consumers that may prefer a more limited array of programming options.
While many consumers do value the content that ESPN provides, the profitability of both professional and college sports stems largely from media broadcast rights that are collectively borne by all cable subscribers, regardless of their interest in NFL football. Liberty Media Corp. CEO Greg Maffei, speaking December 5, 2011, at an investor conference sponsored by UBS AG in New York City, asserts that these per-household subscription fees represent “a tax on every American household.” Viacom Inc. CEO Philippe Dauman, whose company owns the popular MTV Networks and Nickelodeon, concurred by pointing out that ESPN is “double the cost of all our networks combined.”
NFL fans may be elated that the season was saved, but the average consumer will be a little light on cash this holiday season as the NFL, its owners, and the players celebrate the windfall garnered from their new media distribution agreements.