The NFL is positioning itself to negotiate new media rights deals several years earlier than anticipated, and those negotiations are likely to put the squeeze on legacy broadcasters.
Analysts at Bank of America issued a research note on Wednesday outlining how the NFL is the “linchpin” holding the cable bundle together. That suggestion is far from breaking news; NFL rights are the very thing that has driven the value of retransmission fees for legacy broadcast networks like CBS, Fox, NBC, and ABC for years. But what is concerning for this cohort is the prospect of paying significantly more for the NFL at a time when the linear television business is in terminal decline.
Most at risk entering renewal talks with the NFL, Bank of America suggests, is Fox.
Fox, unlike the other three major broadcasters, has been all-in on live content, especially news and sports, ever since offloading its movie studio and other entertainment assets to Disney in 2019. That has left the company particularly exposed to the economics of the pay TV bundle, as most of the broadcaster’s value is derived from the retransmission and carriage fees it can charge distributors for its live content.
The decision to hone in on live has been generally well received by investors. Fox didn’t get caught up in the streaming wars, saving itself billions of dollars not competing with Peacock, Paramount+, Disney+, or anyone else for market share. Instead, it doubled down on the declining, yet still highly lucrative bundle. As such, its stock price has increased by about 65% since the Disney transaction.
However, it has taken a major dip in the past month as investors realize how the looming cost of NFL rights will impact Fox’s business. As such, Bank of America has downgraded Fox from a “buy” rating to “underperform.”
“It is our view that an accelerated NFL media rights negotiation would immediately place financial and strategic pressure on Fox,” the analysts wrote, per Front Office Sports.
Wall Street analysts predict that the NFL will seek to earn between 1.8-2.0x its current annual broadcast revenue when it reworks its deals. Simply put, that’s not a price most networks will be able to afford without putting themselves at major financial risk.
As such, the conventional wisdom is that legacy broadcasters like Fox will increase their annual NFL spend at a lower multiple (i.e. 1.5x) for fewer games than are currently included in their package. That will open up inventory for the NFL to sell to streamers at a premium.
Puck sports correspondent John Ourand has already floated that Netflix, Prime Video, and YouTube are all expected to get five-game packages once the NFL reworks its broadcast deals. That math would require taking inventory currently allocated to the broadcast networks.
Fox CEO Lachlan Murdoch has also alluded to a “rebalancing” of the network’s sports rights portfolio to make room for the increased cost of NFL rights. That could put other properties like MLB on the chopping block. Fox has aired every World Series since 2000 and currently pays an average of $728 million per year to the league. Dropping MLB after its deal expires in 2028 would free up a significant amount of money to help pay for the NFL.
Some leagues have responded to the NFL’s impending rights renewals by attempting to take their own rights to market early, before the NFL can take all of the money out of the market.
It all goes to show just how wide-reaching the NFL’s impact is on both sports, but also the media business writ large.