Consolidation among some of the biggest players in sports rights in the U.S. is shrinking the pool of eligible bidders on future rights deals to a handful of large companies with extensive resources.
With few new major sports rights properties surfacing, rights deals for major-league baseball, hockey, football and soccer games that are expiring within the next several years are expected to draw keen interest, including from the newly merged AT&T Inc. and Time Warner Inc.
AT&T plans to close its acquisition of Time Warner by June 20 following a favorable court ruling in which U.S. District Court Judge Richard Leon rejected the Justice Department's argument that the $85.4 billion deal would harm competition. The deal brings together AT&T's regional sports networks and interest in the MLB Network (US) with sports rights held by Turner Broadcasting System Inc., including Turner's news and video website Bleacher Report, which recently launched a direct-to-consumer service.
Turner holds multiyear, multimedia deals with the NBA, MLB, the NCAA "March Madness" college basketball tournament, and the PGA Championship. Additionally, under an eight-year, $12 billion rights pact that expires in 2022, AT&T holds the rights to NFL Sunday Ticket, the NFL's out-of-market package exclusively proffered by DIRECTV to satellite and select digital customers.
Following the AT&T/Time Warner deal closure, "You're going to see more sports content across traditional pay TV, virtual platforms like DIRECTV NOW, mobile and digital content on Bleacher Report," said Lee Berke, president and CEO of consultancy LHB Sports Entertainment and Media.
As the Bleacher Report's fledgling streaming service B/R Live gets off the ground, its focus is on the U.S., but it "could expand internationally under AT&T over time," said Marc Ganis, president and managing director of consultancy Sportscorp.
The first content manifestation of the merger will likely be the launch of AT&T Watch, a proposed skinny over-the-top package that will lack local programming and sports-only channels. AT&T Chairman, CEO and President Randall Stephenson at a May investor conference said the $15-per-month bundle would launch "as soon as Time Warner is closed." The service could include sports content from Turner networks TNT (US) and TBS (US) and to a lesser extent, truTV (US).
"TBS and TNT are like USA Network used to be, general-entertainment networks with sports components," said Berke. "AT&T Watch could be an offering that consumers may look to pair with streaming packages from Philo, ESPN+ or fuboTV. It's all experimental at this stage."
The bundle offered by Philo does not include any sports programming, while the sport-centric fuboTV virtual service does not have an affiliate deal with Turner.
Ganis said he expects many differentiated offerings from AT&T after the Time Warner deal closes, "if not necessarily such skinny bundles," alluding to a more robust OTT offering from DIRECTV that is expected to launch later this year.
With AT&T's regional sports networks and Turner's sports rights under one roof, Ganis said AT&T will benefit from cost-saving sports synergies from production, administrative and ad sales perspectives, while collaborative programming and content development efforts could produce additional revenues.
Another potential game-changing M&A move impacting sports rights is the sale of 22 regional sports networks owned by 21st Century Fox Inc. Both Walt Disney Co. and Comcast Corp. are pursuing most of Fox's entertainment assets. Disney struck a $52.4 billion all-stock deal for the Fox properties in December 2017, which Comcast recently challenged with a cash offer announced June 13. Whereas Disney's ESPN is not in the regional sports game, Comcast owns/operates nine RSNs through its NBCUniversal Media LLC subsidiary.
A Comcast victory in the battle for Fox's assets would give control over three-quarters of RSNs in the U.S. and perhaps invite regulatory scrutiny. However, Jefferies analyst John Janedis in a research note wrote that Comcast matched Disney’s commitment to potentially divest the FOX RSNs and up to an additional $500 million of EBITDA, depending on the fate of those channels.
If some of the RSNs are divested, "AT&T would be a logical buyer," Berke said.
Ganis disagreed. "I don’t think you would necessarily want to sell to your biggest competitor," he said. Instead, he said private equity investors might get in the game if FOX RSNs were sold by Disney or Comcast.
The competition for a future rights deal will not only come from incumbents and traditional media players but also tech firms like Facebook Inc. and Amazon.com Inc., the latter of which has already jumped into the streaming sports mix.
"Amazon may not know how to monetize around sports just yet, but it knows how to monetize," Ganis said.
The winners for sports rights going forward will have to be well-heeled financially and versatile, according to Berke.
"Very large companies with substantial resources and various assets and platforms will engage over a finite number of properties," he said. "AT&T with Turner Sports will be among them."