When Does The Bubble Burst On Skyrocketing Sports Rights?

As the NCAA men’s and women’s basketball tournaments kick off this week, running on, seemingly, a hundred different cable, broadcast and streaming networks (welcome back to your annual moment of relevance, TruTV), it’s a good time to remember March Madness largely remains a throwback to a simpler time for sports programming amid the sector’s rapidly evolving economics.

Prices for new sports TV rights deals have been leaping upward over the past few years, led by the $110 billion or so that broadcast, cable and streaming organizations will pay for a decade’s worth of NFL games, which remain overwhelmingly the most popular programming on TV.

The Big 10 college sports conference just signed a huge bump in its deals, seven years for $7 billion, spread across Fox,CBS and NBC. The big jump in contract value was part driven by the audacious addition of two premier schools in Los Angeles, USC and UCLA beginning in 2024. Adding the nation’s No. 2 market made the Midwest-centered conference a truly national entity, stretching from New Jersey’s Rutgers and Washington D.C.’s University of Maryland all the way across the continent.

The price inflation has been driven partly by an influx of streaming deals, like Amazon with Thursday Night Football ($1 billion a year for 11 years) and Apple TV+, which recently kicked off its transformative $2.5 deal for all rights to Major League Soccer.

Globally, Ampere Analysis said in a new report, streaming services will spend a whopping $8.5 billion this year on sports rights. That’s in turn forced the legacy broadcast and cable operators to up their bids, to retain some of the last programming that can make somebody subscribe to a cable bundle. As a share of global sports rights investment, streaming outlets are projected to comprise 21% of sports programming this year, up a whopping 10 percentage points from 2022’s 13% share.

Next up in negotiations is the NBA, whose contracts expire after next season. It’s entirely possible that the NBA will see another big payday too, when those rights are finally sold sometime in the next several months.

Certainly the league, its teams and players are anticipating another influx of cash from the next round of negotions. But it’s also possible that the next round may not be as big as expected. Are we about to see, if not a bursting bubble, then a slowly deflating one in sports rights after a golden age of eternally rising prices?

The Pac-12 college sports conference has its own challenges, beginning with that USC/UCLA departure, but more generally with an existing TV rights deal that helped usher the schools’ exit. But as the conference looks for a new deal, it’s found no takers. And that could lead to the collapse of a league that has been around in some form for more than a century, as more schools leave for another conference.

The most pressing issue is the bankruptcy, finally filed this week, of Diamond Sports Group. The collection of 19 regional sports networks is majority owned by Sinclair Broadcasting, and has been struggling since the pandemic’s initial lockdown shut down most of its live programming. The 42 NBA, MLB, and NHL teams affected by the bankruptcy are scrambling for permanent solutions should Diamond turn to zircon, and cut off their biggest fans from everyday access to their games.

In fact, the entire sector has been challenged by the secular decline in the cable bundle. As MVPD operators looked for places to save money, they quickly decided to eliminate sports networks that are both expensive in terms of fees and watched mostly by only an ardent but small fan base.

It’s not just Diamond’s networks that are troubled. Debt-laden Warner Bros. Discovery recently announced it’s basically handing back the keys to the landlord at three RSNs that it owns, hoping someone – the affected leagues, private equity, somebody – to take over.

And it’s hard to see the economics looking any better for other RSNs, with the possible short-term exception of operations such as Spectrum SportsNet, which carries the two biggest franchises in Los Angeles, the NBA’s Lakers and MLB’s Dodgers.

But there are problems in the rest of the non-streaming foundations of the current sports rights infrastructure. Broadcast continues to promote the benefits of digital over-the-air, with high-quality video and audio, scalable economics, and wide reach. But people aren’t, largely, climbing up on their roof to install a digital antenna to get the NFL and whatever’s left of the tattered entertainment lineup for most networks.

Worse for the leagues, the move to streaming isn’t necessarily an answer, unless they can continue to persuade the Amazons and Apples of the universe to keep spending big bucks so they can, in turn, spend more on players.

But it’s going to take a fundamental shift in the thinking of leagues like the NBA, which have optimized for the in-person fan experience as well as for cable schedule-filling with more games and pricey new arenas.

As one high-end example, the Los Angeles Clippers owner, former Microsoft CEO Steve Ballmer, is spending $2 billion on the Intuit Dome. For fans who journey to suburban Inglewood for games, it will be a plush experience, but also saddle a franchise that has never won an NBA championship with another big capex entry on its books.

Meanwhile, the Clippers RSN is among those facing existential challenges. The real problem is that carving sports programming away from a bundle, any bundle, means that only its most hard-core fans will see the games.

Stand-alone services appeal to those hard-core fans, but that ends up being a very expensive thing. Casual fans, who might tune in for a particular game, but are unlikely to spend much or anything specifically for the experience, end up losing access, and eventually interest. That has big impacts on the ad-supported broadcast and cable networks still out there, still paying huge fees for existing rights and pondering how much they can afford to spend on the next round.

And that’s the crux of the challenge facing all the sports leagues, from the NBA and MLB on down, as they try to find their place in the sports TV firmament. Is the gravy train running dry? And what does that mean for those leagues, their teams, players and fans? Over the next couple of years, we’ll find out.