Whenever investors think about media, telecom and technology assets, changes in the content business are an unavoidable subject, as business models are changing.
Among the changes is the role of sports content as a driver of viewer engagement and therefore revenue potential. By some estimates, while sports programming makes up about 10 percent to 15 percent of channels in a typical cable bundle, it accounts for nearly 50 percent of content costs.
Historically, such premiums have been driven by the belief (and reality) that major league content (NFL, NBA, MLB) offers a unique value proposition: live, unscripted events that attract large, real-time audiences.
The issue is that as the cost of gaining those rights has ballooned, new questions are raised about whether paying for those rights is possibly greater than the revenue generated by having the rights.
For linear subscription TV services, amortizing the cost of sports programming over a shrinking subscriber base seems unsustainable. And declining viewership for major league sports seems to be happening.
The caveat is that some viewing also has shifted to streaming platforms.
The key observation is that all major sports properties have experienced double-digit percentage declines since 2020. Some note that younger viewers are opting for clips, highlight reels and other shorter-form content, rather than watching “whole games or matches.”
Olympic broadcasts show the steepest decline at 50 percent.
NBA and College Football have experienced nearly 30 percent viewership drops.
Traditional sports with older demographics (golf, tennis) have fared somewhat better but still show significant losses.
Many, for example, would have argued that Warner Brothers Discovery losing NBA rights for TNT would be a major blow. Others might argue the avoided costs are greater than the potential revenue would have been.
In other words, at what point will licensees begin to more-seriously question how much they can afford to pay to get broadcast rights to such content. We can assume high sports rights costs have been an issue for decades, using cable operator concern about the cost of ESPN carriage rights as a prime example.
Still, much of the value of sports rights is arguably intangible, as revenues (advertising, subscription revenue contribution) might not directly cover the cost of rights payments. So much of the value comes from higher ability to attract and retain customers, for example, by boosting perceived content value.
There clearly is an argument to be made that direct revenue opportunities do not actually explain why distributors would pay so much for sports rights. Obviously there is perceived value beyond the direct revenue upside.
When Warner Brothers Discovery lost its NBA rights, the avoided costs were about $1.4 billion, against expected revenue of about $600 million, for example.
Looking at various sports rights costs and direct revenues, it might be argued that the value of such rights is to be found only partly in direct revenues, since no sport seems to generate direct distributor revenue in excess of rights cost.
Sports rights have been a seller’s market for decades, but one wonders if that now is potentially changing.
