Where’s My Refund?

Today’s blog is a little tongue-in-cheek, but not entirely so. The blog was prompted by seeing that auto insurance companies are sending refunds to customers since they are no longer driving their cars much during the COVID-19 pandemic. This is pretty obvious when the web is full of pictures of major urban highways with practically no traffic at rush hour.

My question is why my cable company doesn’t reimburse me for sports channels that no longer carry sports. On the flip side, why would the cable company pay the sports networks since they aren’t delivering what was promised? This is not an inconsequential amount of money. In 2018 Kagan, a media research group within S&P Global Markets Intelligence reported that the average cost of sports programming in the US was $18.55 per subscriber per month. Since then, that cost will have climbed and is likely at least $20 per cable subscriber per month – even higher in metropolitan markets with local sports networks that carry baseball or basketball.

That’s a substantial amount of customer billing that ought to be refunded. With over 83 million traditional cable customers at the end of 2019, that’s over $1.6 billion per month in subscriber fees. The customers of Sling TV, YouTube TV, and other online programmers pay similar monthly fees. There are additional customers subscribing to extra programming such as ESPN+ and BIG 10 TV. Altogether it’s likely that the public is paying at least $2 billion per month for sports content that currently isn’t being delivered.

Sports networks are currently sad for any sports fans. The NCAA basketball tournament would have just concluded. It’s almost time for the NBA and NHL playoffs. This would be the early weeks of a new professional baseball season. College baseball would be well underway marching towards the college world series. There would also be plenty of coverage for soccer and NASCAR. Sports networks would be covering other college sports like lacrosse, gymnastics, and track and field. There would be boxing, wrestling, and the UFC and MMA.

Instead, the sports networks sit empty of sports. These networks are filling the day by playing older sporting events or showing talking heads talking about sports – but there are no sports on the air. I watched a couple of old Maryland basketball games at the start of the COVID-19 shutdown as a substitute for the NCAA tournament, but I suspect most sports fans have stopped watching the sports networks.

The money streams for sports programming is complex. Consider ESPN, the flagship sports network as an example of how this industry segment operates. The monthly fee charged to cable operators to carry the ESPN channels is around $9 per customer. Disney doesn’t report ESPN numbers separately, but industry analysts estimated that those fees account for about 60% of ESPN’s revenues. Most of the rest of the revenue stream comes from the advertising shown on ESPN. The most expensive advertising rates are charged during sporting events.

ESPN’s biggest costs are fees paid to sports leagues for rights to carry the sporting events. The latest figures I could find for these fees was from a 2017 study done by the Sports Business Journal. The annual payments made by ESPN in that study included payments such as $608 million per year for the college playoffs, $700 million for major league baseball, $38 million for major league soccer, $1.4 billion per year for the NBA, $1.9 billion per year for the NFL, $75 million per year for US Open Tennis, $40 million per year for Wimbledon, $240 million per year to the Atlantic Coast Conference, $100 million for the Big 12, $100 million for the Big 10, $125 million for the Pac-12, $300 million for the Southeastern Conference, plus a number of smaller payments for other sports. These payments have likely climbed since 2017.

The dollar impact of sports advertising gets complicated during the COVID-19 crisis because of the contractual relationships among the parties. Many of the above payments to sports leagues are guaranteed even if there are no sports being played. However, these same contracts likely require the leagues to compensate networks like ESPN for lost advertising revenue. That makes it hard to estimate the net impact of sports coming to a grinding halt. Ultimately the advertising money should roughly be a wash. If there are no sports, there are no big advertising dollars and leagues and networks both suffer losses.

But the payments from customers continue. I’ve canceled my subscription to YouTube TV since I only purchased it to watch sports – and I suspect many other households are cutting the cord right now. But the $2 billion monthly payments to networks like ESPN continue. If my car insurance company is going to send me a check for not driving, then I don’t know why cable providers shouldn’t return my money for sports channels that carry no sports. This sounds to me like a ripe opportunity for a class action lawsuit.

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