Operators Thrown by ESPN’s $15.2 Billion NFL Renewal

Deal’s 73% Price Hike Sparks Talk of Booting Net From Basic Tier

By Mike Reynolds and Mike Farrell -- Multichannel News, 9/12/2011 12:01:00 AM

ESPN will remain immersed in the pro pigskin game into the next decade with an eight-year, $15.2 billion rights renewal with the National Football League.

Under the deal, ESPN retains the rights to Monday Night Football, cable’s top franchise with the Nielsens, during the 2014-21 seasons. It also greatly expands its international, digital and highlights rights, with the latter fueling some 500 additional hours of NFL-related fare annually across an array of platforms.

But those programming benefits will come at a steep cost: At $15.2 billion, the deal is the largest in U.S. sports-media history and its average price of $1.9 billion represents a 73% increase from its $1.1 billion annual outlay under its current eight-year pact that expires with the 2013 season.

While the size of the increase reflects the prowess of the NFL as the pre-eminent sports circuit, it also foreshadows rights hikes for the league’s other TV partners. And though The Walt Disney Co.-owned ESPN has said the contract will not affect affiliate fees, it has rekindled the debate regarding the high costs of sports programming.

TIER PLAY?

Escalating sports programming costs have been a growing concern for cable operators for years, sparking calls for sports networks like ESPN to be placed on special tiers that cost subscribers extra. Cable operators, already facing triple-digit increases in retransmission- consent fees amid one of the worst economic climates in decades, are reluctant to hand over fat increases.

American Cable Association president Matt Polka also saw the deal as a blow to the small operator. “ESPN has struck a bad bargain for consumers,” Polka said in a statement. “The sports network’s financially wanton deal will push the cost of pay TV service into the stratosphere, making the product less and less affordable during a time of severe economic stress and high unemployment. Evidently, ESPN is pleased to be known as the worldwide leader of hyper-inflationary price hikes.”

The cost increase to operators is not insignificant. According to Sanford Bernstein cable and satellite analyst Craig Moffett, the $800 million annual increase in the NFL contract works out to about 67 cents per month per customer. Passing all of that onto distributors would amount to a 14% annual increase, based on the average wholesale charge of $4.69 per subscriber per month for ESPN.

Suddenlink Communications CEO Jerry Kent, a long-time proponent of sports tiering, said that it may be time to revisit that concept. “We’re concerned that the proliferation of sports networks combined with the rising cost and forced bundling of those networks is starting to price the average American household out of the market,” Kent said. “Eventually, there will be a breaking point, if the current trend continues, with programming costs outstripping the rate of inflation. A la carte — especially the a la carte offering of sports networks — may be the answer.”

The average monthly subscriber fee for ESPN is $4.69, according to SNL Kagan estimates — the highest in the industry, this side of premium networks.

George Bodenheimer, president, ESPN and ABC Sports, and co-chairman, Disney Media Networks, during a Sept. 8 media call announcing the pact said, “There’s so much value for us in the this contract, obviously we feel it’s an incredibly good deal for our company. As far as the impact of this deal itself, there will be no NFL surcharge assessed on any distributors as a result of this contract. Our affiliate fees are already well-established in the marketplace. In that regard, we can digest this contract and begin on, and continue to increase, the value to the fans out there subscribing in both cable and satellite.”

Later, when asked how other sports rights that have been added of late might impact its monthly charges, Bodenheimer said: “There is no portion of any of our fee that is associated with any one piece of product. Th e fee we ask of our affi liates is based on the overall value of the ESPN service.”

Among the long-term deals ESPN has concluded over the past few years: a 15-year, $2.25 billion deal with the Southeastern Conference; a 12-year, $1.9 billion pact with the Atlantic Coast Conference; and a shared 12-year, $3 billion rights agreement with Fox Sports for the Pac-12.

ESPN’s multiplatform agreement, which begins in 2014, includes 17 MNF telecasts, which Bodenheimer labeled “a top-10 TV property,” during the 2014-21 campaigns; expanded NFL studio programming, which kicked off last week; highlight rights for TV and ESPN.com; the Pro Bowl; the NFL Draft; 3D rights; continued Spanish-language rights on ESPN Deportes; and enhanced regulars and post-season coverage to international markets.

Bodenheimer said that ESPN was the leader on the authenticated front — qualified subscribers will be able to see MNF on WatchESPN via iPads and tablets for the first time under this new contract — and the pact will “continue to help us lead the way doing that.”

He said that the WatchESPN, which has been downloaded more than 3 million times since its launch earlier this year, “enhances the value of a cable subscription, allowing people to enjoy NFL and Monday Night Football on their iPads and tablets. I think it’s only going to enhance our relationships with affiliates.”

Separately, MNF simulcasts will also migrate to Verizon Wireless, as part of the latter’s four-year, $720 million sponsorship pact with the NFL that kicked off with the 2010 campaign. Verizon also streams NBC’s Sunday Night Football and NFL Network games, plus the ad hoc NFL RedZone scoring/highlights service covering the Sunday afternoon games.

500 STUDIO HOURS

The biggest content uptick for ESPN is tied to the rights to more than 500 new hours of NFL-branded studio programming per year, which began last week. ESPN’s Emmy Award-winning Sunday NFL Countdown pre-game show will expands to three hours, while NFL Live doubles to one hour during its daily telecasts throughout the year. Monday Night Countdown, NFL Primetime and NFL Matchup will continue, and ESPN will create more NFLbranded studio programming, including NFL 32 and NFL Kickoff , both debuting this week.

Bodenheimer, in what he called the new contract’s “most tangible benefi t,” said the new NFL agreement “will touch 35 different shows across all mediums. Additionally, it enhances international rights that we have. ESPN is a global business, and this helps grow our entire footprint around the world.”

One thing the deal doesn’t do is guarantee ESPN any playoff games in the U.S. However, NFL commissioner Roger Goodell said the contract does include “a path” for ESPN to secure a Wild Card playoff game, but would not put a timeframe on when ESPN might enter the postseason. He noted that the league is committed to its current format through the 2013 season and he didn’t “anticipate any changes prior to that.”

Currently, NBC airs a pair of Wild Card contests, while CBS and Fox televise one apiece on the NFL’s opening playoff weekend.