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?In a span of less than five years, industry giant ESPN has seen its narrative transformed from that of a mighty colossus into the hard-luck tale of a ragtag warrior.
As it struggles to regain heretofore heroic heights — levels of growth that are probably no longer attainable — ESPN has had to endure a slew of significant workforce layoffs (with more reportedly on the way) and a once-doting Wall Street that has turned a skeptically cold shoulder. Astonishing increases in earnings, previously viewed as faits accomplis, now seem like fantasies from another world, thanks to the now-familiar combo of cord-cutting and burgeoning rights fees.
?With so much of ESPN’s universe asunder, it’s not outlandish now to entertain a previously unthinkable prospect: Might ESPN elect to go without rights to NFL games after the expiration of its eight-year deal for Monday Night Football in 2021?!
?“Impossible”? Yeah, we know — NFL games have been the backbone of ESPN’s existence since 1987, and the biggest, most critical element of its financial dominance ever since. The network basically can’t exist without an NFL rights package.
?Well, think again — like some execs at the network have started to do — and consider the following:
First, quietly, ESPN has been able to pull off a dramatic judo move in recent agreements with its affiliates, one whose importance cannot be overstated: There is no longer specific contract language that requires the cable giant to have NFL games in order to earn its lofty (and industry-envied) subscriber fees, currently more than $7 per household. This means the network would not face automatic decreases in that vital artery of its dual revenue stream. Sure, distributors would be aghast, demanding to negotiate lower fees probably immediately, but the point is, there would be negotiations, enabling ESPN to do everything it could to keep those numbers as high as possible.
?Second, when ESPN agreed to pay $15.2 billion for its current Monday Night Football deal, some of its key executives believed they were buying the schedule of the previous MNF package, i.e., more often than not, the best game or at least one of the top games of the week. But Sunday Night Football got that pedigree, and Fox and CBS games since then have also generally been more desirable than ESPN’s matchups. With the advent of Thursday Night Football several years ago, ESPN’s Monday night schedule has been further diluted of quality matchups, and the network hasn’t been shy about voicing dissatisfaction.
?NFL scheduling guru Howard Katz can keep more plates spinning in the air than anyone else in sports, and he’s done the Lord’s work trying to please everyone, but math is math, and there just aren’t enough good games to go around. Yes, Monday Night Football ratings are up about 5 percent this year over last year, but it’s still far behind 2015’s viewership, for example. ESPN is averaging roughly 11 million viewers for its games; given myriad challenges the network is facing, will parent Disney believe that an audience of that size for only 17 weeks a year is worth billions?
?Third, ESPN pays a disproportionally steeper rights fee for NFL games than CBS, Fox and NBC, because ESPN’s deals give it access to NFL footage outside the games — NFL films and other NFL-related opportunities. So, when ESPN’s Pardon the Interruption, for instance, wants to run a highlight, or SportsCenter and all the network’s NFL shoulder programming want to dissect games and plays till the cows wander home, ESPN producers can use all the NFL footage they want. At the time of ESPN’s last deal, industry experts estimated that 15 percent to 20 percent of its total cost could be attributed to those additional rights and privileges, and ESPN had no choice but to pay up. How could the network survive without those? The answer is they might not have to because of NFL Capitalism 101: Cash Equals Truth. Can anyone imagine the NFL turning down an offer from ESPN of $300 or $400 million for just those rights, even if ESPN didn’t have game rights? It’s doubtful.
Which brings us to a fourth consideration: Timing for the next round of NFL rights — beginning in a couple years — is turning out to be rather propitious for the NFL. By then, digital players like Twitter, Google and Facebook will have had time to decide if they want to make what will be a huge leap from limited deals they’ve done with the league, like Amazon’s $50 million deal for streaming Thursday nights to the multiple billion-dollar price tags for actual games. If they do, that increased competition could drive prices even higher and further push ESPN out of the game. The league could set aside Monday night as an experimental night for a digital player that would be thrilled to be in the arena and wouldn’t be as demanding, scheduling-wise.
?Disney CEO Bob Iger was a key participant back in 2005 when ABC declined to keep its NFL package because it was losing money, and if Iger is going to fulfill the dreams of many in Hollywood and run for president in 2020, he’ll want to walk in the cornfields of Iowa with a track record as a financially responsible executive.
Finally, the NFL seems to be cuddling up closer and closer to a land that was once thought to be on the verge of extinction: broadcast networks. The league is worried about those cord-cutting numbers in the cable universe and turned on by news like CBS getting more than $2/household now for retransmission fees (Leslie Moonves, one of broadcast’s more tireless and formidable champions, recently estimated CBS might bring in as much as $2.5 billion a year by 2020; that will certainly get the NFL’s attention). With the league’s bromance with broadcast showing no signs of waning, ESPN’s chances of getting Sunday night or one of the other Sunday games will be difficult at best.
?What might be the repercussions for ESPN if it decided not to seriously chase down another NFL rights package? There would be both bad and good news. Bad: it would be forced to come up with provocative and meaningful alternatives to replace 17 weeks of lost NFL games. But the good news is the network would have some serious spending money it hasn’t had in years. Take the $2 billion that it is now giving the NFL, subtract say $350 million for rights to highlights as described above, and another $250 million to send back to Burbank the way Henry Hill gave Paulie that “tribute” money after a big haul, and that still leaves a billion and a half dollars for ESPN to play the media rights version of Wheel of Fortune. While it’s true that nothing drives a sub fee like the NFL, ESPN could go on a spending spree targeting CBS’ college football deal with the SEC, a Big 12 deal, baseball post-season, rights to NHL hockey, EPL soccer and a whole buffet table of other properties that would prove beneficial in its negotiations with distributors who would want to lower their sub fees.
?Of course, there would be another added bonus of walking away from NFL games, and that is not having to deal with the ramifications of a story like that of the 6’1″ and 14-year-old quarterback who could throw a perfect spiral downfield to a receiver who didn’t have to lose a step. As he was going through progressions later in the game, his coach remarked he had never seen anything like this kid, and that he would have it all — a big D1 career, shoe deals and even, the coach predicted, a starring role in the NFL. Except that after the game, the quarterback’s parents shared the news that this was their son’s last football game. They had given him the choice of being a starting pitcher or playing basketball, saying a violent game littered with heavily documented brain injuries wasn’t on the list for their son’s future career opportunities.
James Andrew Miller is the author of several New York Times best-selling books, including Those Guys Have All the Fun: Inside the World of ESPN. His podcast Origins will soon feature a chapter on ESPN.
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