The NFL's new deal with NBC and ESPN has gotten more spin than the teacup ride at Disney World. But while snagging the Sunday night game may have been a smart move for NBC, was it really such a coup for Walt Disney Co.'s (DIS) ESPN to pony up a $1.1 billion a year for the 36-year-old Monday Night Football franchise?
In replacing ABC, the ubiquitous sports network is paying about twice what its sister company had been shelling out for a prime-time show that may be past its prime. And the new deal is nearly twice the $600 million a year ESPN had been paying to carry games on Sunday night.
ESPN, however, points out that it also gets rights to wireless and Spanish-language telecasts. And Merrill Lynch (MER) analyst Jessica Reif Cohen figures that because of the dual revenue streams of ads and subscriber fees, football could generate operating profits of $100 million to $200 million a year for ESPN, vs. a $150 million-a-year loss for ABC.
Still, forking over all that loot for only 17 regular-season games -- even if you do get John Madden and Al Michaels in the broadcast booth -- is enough to give any TV executive agita. But ESPN had little choice. That's because cable giant Comcast Corp. (CMCSA) and Rupert Murdoch's Fox Sports (NWS) -- each interested in using Sunday or Monday night games to launch their own sports channels -- made aggressive overtures to the NFL. Getting the rights to the NFL in prime time, as opposed to the Sunday afternoon games Fox already has, was the key to a new network, Murdoch said recently. Fox even offered the league an equity stake in its proposed enterprise, BusinessWeek has learned.
And there was another reason ESPN could not afford to lose pro football, the most widely watched TV sport and one of the last draws for a mass audience. "ESPN needed to keep the NFL if it was to enhance its position to dictate terms to cable operators," says sports broadcast consultant Marc Ganis, president of Sportscorp Ltd. There is already resistance to the per-subscriber rate of about $2.50 a month ESPN charges its distributors, the highest in the biz (CNN (TWX), by contrast, gets about 40 cents per subscriber).
Even though ESPN secured the NFL as a bargaining chip, Comcast and News Corp. (NWS) may still be looking to launch sports channels of their own. It wouldn't be a from-scratch proposition for either. Both companies run cash-rich regional sports networks and have plenty of local rights deals. With a national service, Comcast and Murdoch's 34%-owned DirecTV Group Inc. (DTV) satellite service could face down ESPN's demands for higher rates, figures Richard Greenfield, an analyst at Fulcrum Global Partners.
The duo may still get another chance. Within weeks, the NFL is expected to auction off a new package of seven games on Thursday and Saturday nights. ESPN's best hope is that the league decides to take the package itself to enhance its two-year old NFL Network cable channel. Otherwise, ESPN may still find itself in a game it doesn't want to play.
By Ronald Grover in Los Angeles and Tom Lowry in New York