While U.S. television viewing rates continue on a rapid downslide, especially for scripted dramas and comedies, live sports programming is holding its own compared with other genres. As a result, sports remains the most sought after programming asset for U.S. television companies. In particular, the National Football League (NFL) has grown even more in importance in the playing field because it's the one sports league that continues to attract viewers nationwide. And while the number of people watching the NFL on TV are still declining, the drop has been modest compared with other sports.
Though we're still a few years away from the NFL TV broadcast contract renewal dates, we're revisiting our views on the importance of televised sports to broadcasting companies, contemplating the potential outcomes of NFL contract renewals, and exploring the potential implications they'll have on our credit ratings on U.S. media companies.
Frequently Asked Questions
How does S&P Global Ratings view the current state of NFL TV broadcast contracts and what might happen when they expire?
The NFL has five principal domestic TV broadcast packages. Three are for games played primarily on Sundays: There are two Sunday afternoon packages, which are divided into the American Football Conference (AFC)-centric package, (broadcast by CBS Corp.) and the National Football Conference (NFC)-centric package (a FOX Corp. telecast). The third is the Sunday night package, hosted by NBCUniversal Media LLC (a subsidiary of Comcast Corp.). All three Sunday packages include rights to broadcast playoff games and, most importantly, the Super Bowl (which remains easily the number one television program in the U.S.) on an alternating basis. The Sunday night package also includes the ability to adjust the schedule to replace less interesting games with ones that are more attractive (known as "flex rights").
ESPN, The Walt Disney Co.'s sports network, currently broadcasts the fourth package, the Monday night package, which has been suffering more severe audience shrinkage for the past several years compared with the other contracts. FOX Corp. currently shares the fifth TV broadcast package, the Thursday night package, with the NFL's own NFL Network (11 FOX games are simulcast on both NFL Network and Amazon.com Inc.'s Amazon Prime Video and two games are exclusive to NFL Network).
|U.S. Television Remains Tied to the NFL|
|NFL package||Expiration date||Average annual price (Mil. $)||Current partner||Avg. viewers (vs. 2017)||Comments|
|Thursday Night||2022-2023||$660||FOX||14.3 (+3%)||Fox broadcasts 11 games. Does Fox make money on this?|
|AFC Sunday||2022-2023||$1,030||CBS||16.5 (+6%)||Super Bowl rights|
|NFC Sunday||2022-2023||$1,100||FOX||18 (+2%)||Super Bowl rights|
|Sunday Ticket||2022-2023||$1,500||DIRECTV||--||NFL has opt-out option after 2019 season. Best opportunity for streaming service to win?|
|Sunday Night||2022-2023||$950||NBC||19.3 (+6%)||No. 1 broadcast show on television. Super Bowl broadcast and flex schedule rights|
|Monday Night||2021-2022||$1,900||ESPN||11.6 (+8%)||Most expensive package but which also includes Pro Bowl, NFL draft, and full year NFL coverage. Does not include Super Bowl broadcast rights|
|Source: SportsBusiness Journal, Nielsen, company reports, S&P Global Ratings estimates|
In addition to the five TV broadcast packages, the NFL has a Sunday afternoon package, which is available exclusively to subscribers of DIRECTV, AT&T Corp.'s satellite video service. This package is a simulcast of all CBS and Fox Sunday afternoon football games. DIRECTV subscribers can only view out-of-town games because in-market games are blacked out and can only be viewed on local broadcast television (either CBS or Fox).
The three Sunday television broadcast contracts and the Thursday night broadcast contract all expire after the 2022-2023 NFL season, while the Monday Night Football contract with ESPN expires a year earlier, after the 2021-2022 season. DIRECTV's contract for the Sunday Ticket package also expires after the 2020-2021 season, though we believe both the NFL and DIRECTV can opt out of the contract before it expires. We also believe the NFL and ESPN will agree to extend the Monday contract by one year so that all broadcast contracts will be co-terminus.
What does S&P Global Ratings think the NFL prioritizes most?
We believe national reach is the key priority for the NFL, especially for its two Sunday afternoon packages. The league wants its games to reach the broadest possible audience across the U.S. and the national television networks are currently the best (and only) way to achieve that. Penetration of TV sets in the U.S. is almost nearly universal at 95.9% (according to Nielsen) while penetration of broadband (to assess the potential for the new media companies) is about 80%. Until this changes dramatically, we believe TV broadcast networks have an advantage in winning the key Sunday afternoon broadcast packages. We believe that in the last round of contract renewals, the new media companies (e.g., Amazon, Apple Inc., Google LLC, and Facebook Inc.) put in bids that were higher than the national broadcasters; yet the NFL has chosen to go with traditional broadcasters because of their broader reach.
What does S&P Global Ratings think are the biggest points of contention between the NFL and its broadcast TV partners?
The most contentious disagreements between the NFL and its broadcast TV partners, in our view, will be over digital and mobile broadcast rights. The NFL prefers carving up its broadcasting rights because doing so allows the league to better monetize them, rather than bundling the rights and selling them at a discount to each individual broadcaster. It also brings nontraditional media players (e.g., Amazon, Twitter Inc., and Verizon Communications Inc.) into the rights mix, which could help the NFL better connect with younger fans.
The broadcast networks don't have broad mobile and digital rights under their current contracts (though they do have authenticated streaming rights and some like CBS have paid extra for the right to include its NFL broadcasts in its CBS AllAccess service). However, they want to offer television viewers the ability to watch the games on all distribution platforms, in and out of the house, as well as offer advertisers a safe way to reach digital and mobile viewers. We expect the broadcast TV networks will try to persuade the NFL to include digital and mobile rights in the broader broadcast contracts (to justify paying a higher price), but we don't expect the NFL to give in.
Does S&P Global Ratings believe the new media companies can win TV broadcast rights in this upcoming renewal cycle?
We believe the new media companies (i.e., Amazon, Apple, Google, and Facebook) want to broadcast NFL games and will, if given the opportunity, bid aggressively for the TV broadcast rights. However, we believe the NFL will keep its key contracts with the TV broadcast networks.
Despite improvements in their competencies, we still believe the new media companies lack three key capabilities necessary to broadcast live sporting events:
- National reach, which the sports leagues value most, and only national broadcast television networks can offer at this time.
- Sports-quality television production expertise. At the moment, the new media companies don't have their own production capabilities but instead simulcast television feeds from the national TV broadcasters. Still, the new media companies could eventually overcome this limitation by hiring experienced production teams.
- Robust platforms that can stream high-quality, live video to tens of millions of viewers simultaneously. None of the digital platforms today can meet this requirement. Leading live-streaming platforms, like Disney's BAMTech and Sky Ltd.'s SkyNow, work but only for limited audiences while Netflix's platform doesn't host live-streaming. Netflix caches its content locally, which wouldn't work for a live-streaming service.
While the NFL may not seriously consider awarding a broadcast contract to new media companies (despite submitting higher bids), we believe the NFL will continue experimenting with these companies. For example, the NFL could allow the simulcasting of selected nontraditional games (Amazon currently simulcasts Fox's 11 Thursday night games. Yahoo! Inc.'s Yahoo Sports has also simulcast two Sunday morning games in 2015 and 2017 that were played in London).
What does S&P Global think is the most likely scenario for the next round of contract renewals?
We believe the five principal television contracts will remain within the traditional linear television ecosystem and that the two Sunday afternoon packages will remain with the national TV broadcasters. However, we wouldn't be surprised if there was movement among the various TV broadcast partners, especially if press speculation is correct and Disney were to pursue (and win) one of the three Sunday broadcast packages. We expect price increases for the various broadcast packages to be more modest than in the past given the declining audience ratings. However, this could change if heated competition for the various broadcast packages were to materialize.
The Monday night rights package is the highest-priced package at an average of $1.9 billion per year. Besides Monday night games, ESPN has the right to broadcast the Pro Bowl (NFL's all-star game) and the NFL draft. The NFL may find it difficult to generate strong interest from the TV networks at this elevated price and may alter the terms (e.g., adding flex and Super Bowl rights) to make the package more attractive, though in doing so, it could affect the prices of other package deals.
Another complication could occur if any cable television networks were to pursue either of the two weekday packages (Monday or Thursday nights). AT&T has made no secret that it would like to add sports programming to its TNT/TBS cable networks. TNT and TBS currently broadcast portions of the NCAA men's basketball tournament (it splits the Final Four and Championship games with CBS every other year), Major League Baseball, the National Basketball Assn., and PGA golf. For those old enough to remember, back in the 1990s, TNT also split the original Sunday evening package with ESPN.
We believe the NFL Sunday Ticket package is the best opportunity of the six broadcast contracts for one of the new media companies to win in this renewal cycle. Since Sunday Ticket rebroadcasts games produced by CBS and Fox, it doesn't require any production capabilities.
Given its oversized exposure to the NFL, what does S&P Global Ratings see as the credit implications if Fox were to lose the contracts?
Sports is a critical component of FOX's programming strategy for FOX Network and allows it to charge premium prices to both advertisers and pay-TV distributors. Our stable rating outlook on FOX explicitly assumes that the network won't lose the NFL Sunday afternoon TV broadcast rights when the current contract expire after the 2022-2023 season. This dependence on sports programming is a double-edged sword. Greater competition for key sports rights, especially for the NFL, from other TV networks and, eventually the new media companies, could raise the cost of sports rights faster than our base case expectations. This could prove to be a negative credit factor for FOX if the terms of the new contracts were uneconomical and harmed credit measures. Conversely, if Fox lost the Sunday afternoon contract, we would evaluate the impact of that loss on Fox's business model, which could trigger a negative rating action.
Does S&P Global Ratings think the ever-increasing sports programming rights are sustainable?
In general, we believe U.S. networks that televise news and premier sports leagues and events are better positioned to withstand secular industry pressures. Both news and sports programming are mostly watched live, so viewers largely don't skip commercials, and audience ratings for key sports events and important news cycles are typically more resilient than other TV genres. TV networks that televise these sports leagues command both premium affiliate fees from pay-TV distributors and premium ad prices from advertisers.
Because the TV networks have been able to command this premium pricing, they have been willing to pay an ever-increasing premium for sports broadcast rights. We have historically viewed this trend as unsustainable, especially because media companies have stretched their cash flows and balance sheets for mergers and acquisitions (M&A), aggressive share repurchases, and increasing investments in original programming for their existing and future direct-to-consumer (DTC) services. We have always believed that premier sports leagues, such as Major League Baseball, National Basketball Assn., NCAA men's basketball and football, the Olympics, and of course, the National Football League, will continue to command premium pricing. On the other hand, second-tier sports, such as NASCAR and the National Hockey League, would be hard pressed to raise fees, and could be the first to migrate to online platforms such as Amazon or Google. Today, we are less sure about this--the overdependence of the broadcast networks, all-sports networks, and a few cable networks' (e.g., Warner Media's two general entertainment networks) audience ratings for sports show no signs of weakening and could mean that even second-tier sports will continue to command strong price increases. The rights fees for recent broadcast contracts for World Wrestling Entertainment Inc. (with Fox) and Ultimate Fighting Championships (with ESPN) have both been above our expectations and media companies continue to stress the importance of sports for their programming lineups. Upcoming renewals for the National Hockey League (2020) and Major Soccer League (2022) will give us a chance to test our revised hypothesis.
Longer term, we believe it's unreasonable to expect that sports programming will save the U.S. television industry. Internet companies will eventually develop or buy the expertise and technology they currently lack to offer television-quality products. And sports leagues can only discount the internet companies for so long, given the amount of money, the global audiences, and the younger demographics these companies can offer the leagues.
The impact this evolution could have on our ratings on U.S. media companies will depend on how and when they occur. We don't view winning or losing a key sports broadcast agreement by itself as a positive or negative credit factor, but instead consider the overall impact to credit quality. For example, we would view a company losing an uneconomical contract with the NFL positively, but take a negative view if the rights were retained at an uneconomical price. We would also note the middle ground--where TV networks retain the sports rights without harming their balance sheets. As such, we'll closely monitor all sport programming negotiations, especially those for the NFL.
- Credit FAQ: Sinclair's Regional Sports Play Nets 21, July 26, 2019
- Research Update: Fox Corp. Assigned 'BBB' Rating On Strong Television Assets In The Face Of Industry Pressures; Outlook Stable, Jan. 10, 2019
- Credit FAQ: Why Internet Companies Could Challenge U.S. TV And Cable Networks For Future Sports Programming Contracts, Oct. 12, 2017
This report does not constitute a rating action.
|Primary Credit Analyst:||Naveen Sarma, New York (1) 212-438-7833;|
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