No End In Sight To Escalating Sports Rights: Financial Analysts

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In this economic ecosystem, competition means higher prices.

That's the world of sports rights, which financial analysts -- David Bank, managing director, Globe Media and Internet Research at RBC Capital Markets, David Joyce, media industry analyst, Miller Tabak and Craig Moffett, senior vice president and senior Analyst, US Telecommunications, Cable and Satellite Broadcasting, Sanford Bernstein -- expatiated upon during a panel at the Sports Business Journal-Sports Business Daily's Sports Media & Technology 2011 conference here Wednesday.

Argentina tops Mexico at 2010 FIFA World Cup

During "A View from Wall Street, The State of Media Rights," the trio discussed some of the dynamics surrounding how the nation's economic doldrums are compromising consumers' ability to pay their bills, including their monthly video fees, yet the price for the games/sports some love to watch continues to spiral upward.

To that end, one of the key takeaways emanated from what Bank called deltas between the national economy, the advertising economy and TV economy. "National television is still the healthiest part of the advertising economy, and sports is even more healthy. You don't get fired for buying that," Bank said. Broadcasters gaining retransmission-consent and reverse-affiliation revenue streams will help them in secure sports rights, he noted.

Moffett, however, believes the upticks can't be sustained for much longer. "Basic economics don't work in the media business. The only analogy is the health care system, where there is no clear signal between consumers and providers about pricing. Competition causes prices to rise," he said. "We're waiting for the straw that will break the camel's back."

Bank disagreed: "Most of the major distributors are public companies with statements we can examine. The margins are almost unheard of in any other industry."

Joyce noted: "They have had to have those high margins to fund the infrastructure. Investors are reeling right now, and you can't count on any further margin expansion with programming costs going up 7% a year."

Consumers ultimately provide much of the underpinning for these rights deals with their monthly payments to distributors. Moffett, though, said 40% of the U.S. population is in a negative disposal income situation, month to month, before sports or entertainment programming are even entered into the equation.

With the higher costs of sports eating into providers' video margins, Joyce said the financial community is taking a closer look at distributors. "Cable companies used to trade at 10 time multiples. Now, they're at five times," he said.

Asked by moderator Terry Lefton, SBJ's editor-at-large, which sport would fashion the biggest rights hikes, Joyce pointed to sports' gold standard, the NFL, which he said has a higher benchmark from which to work: ESPN's new contract that represents a more than 70% jump over its current pact. [From 2014 through 2021, the worldwide leader will spend some $15.2 billion, $1.9 billion annually, versus $1.1 billion on its current deal that expires after the 2013 campaign.]

Joyce called NFL fare "a necessary evil" for programmers, with rights escalating as a result.

Bank, too, has no doubt that sports rights costs will continue to surge for some time to come because enough margin still remains: "The leagues have room to gouge the networks. And the programmers have room to gouge the MSOs. I don't see any relief."

Bank and Joyce disagreed, however, over the impact of Telemundo's recent acquisition of the Spanish-language rights in the U.S. to the 2018 and 2022 World Cups, plus other FIFA properties, kicking off in 2015.

Bank called the deal, which was reportedly worth some $600 million, "a game-changer for Telemundo, which came out of nowhere in a space that Univision has dominated for so long."

Joyce countered by saying: "If you look at Telemundo, they have 20% of the market, with Univision and [sister broadcast network] TeleFutura having about 80% I think it could move the dial a bit, but I don't think it will ratchet it up to 50%. Univision markets to Mexicans and Mexican-Americans, which is still 60% of Hispanics."

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