NFL Can Blindside the AT&T-DirecTV Deal
If there was ever any doubt over just how much power the National Football League wields, it is now put to rest.
The tentative monster merger between DirecTV and AT&T is reportedly contingent on the satellite company successfully renewing its deal with the league for exclusive television rights to NFL Sunday Ticket, which expire at the end of this upcoming season. AT&T can walk away from the acquisition if DirecTV and the NFL don't come to an agreement.
As such, AT&T just gave the NFL $48.5 billion in leverage in its negotiations with DirecTV, which has retained exclusive rights to out-of-market games since 1994, with the most recent four-year, $4 billion deal set to end following the 2014 season. Talks between the two were bumpy long before news of the AT&T deal emerged -- last March, DirecTV chief financial officer Patrick Doyle flirted with the idea of bringing in a third partner or dropping the deal altogether if the NFL's asking price was significantly higher than the $1 billion-a-year current tag. In the fall, the league started shopping Sunday Ticket to other providers, including Google. By December, things seemed to be back on track between the NFL and DirecTV, and the companies were on the verge of a renewal. But they still hadn't struck a deal by February, extending the exclusive negotiating period until after the Super Bowl. That window has since expired, but SportsBusiness Daily's John Ourand seems to think that a deal will eventually get done.
The back-and-forth makes sense, given a number of media initiatives by the NFL itself that have inadvertently limited the value of Sunday Ticket. The increase in Thursday Night Football games makes yet another national broadcast available to fans of out-of-market teams, while the highlight-packed, commercial-free NFL RedZone is a viable alternative for most cable and satellite subscribers.
It's hard to make the case for Sunday Ticket's exclusivity, or its supposed superiority, given the numbers. NFL Network has more than 70 million subscribers, RedZone about 3.5 million, while the exclusive Sunday Ticket claims just 2 million people, roughly 10 percent of DirecTV's 20 million-subscription base. In fact, NFL Network saw a 17 percent increase among subscribers in just a year after reaching agreements with holdout providers including Time Warner Cable and Cablevision. Offering exclusivity to a satellite company in general also hits city dwellers particularly hard, as most of us live in apartment buildings that don't allow dishes. (Never mind the unpredictability or inferiority of satellite quality, especially in inclement weather -- we don't even have the option.) Considering cities are hubs for transplants from around the country, denying their residents a product designed for non-locals seems counter-intuitive.
That is, until now. AT&T's exit clause means the NFL can basically demand DirecTV pay any amount to retain exclusive rights to the package if it wants to complete the blockbuster merger. That price tag could start at as much as $1.5 billion a year -- a number previously thought to be a deal-breaker for DirecTV but is par for the course. In 2011, the NFL renewed its broadcast contracts with CBS, Fox and NBC for nine years, raising its fees by an average of 7 percent per year until they reach $3.1 billion by 2022. The league also extended its Monday Night Football deal with ESPN in an eight-year deal that raised the rights fee from $1.1 billion to $1.9 billion per year.
Whatever the price, Sunday Ticket has now become the centerpiece of the proposed merger, and is likely a pawn in a larger game. The exit clause appears to be a direct play by AT&T to wrangle Verizon's advantage in the football space. Verizon holds exclusive mobile rights to live NFL games, and there's speculation that AT&T wants DirecTV to negotiate Sunday Ticket rights for its own 5 million U-verse subscribers. Who says multibillion-dollar mergers discourage competition?
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