What We All Pay for Sports

Maryland TerrapinsI read an article this week in the LA Times that talked about how sports have jacked up the cost of cable TV everywhere. They cited the fact that the Pac-12 Network alone is going to get over a billion dollars per year in revenue, all gathered from people’s monthly cable rates.

There is no question that pro and college sports are driven by television revenues. Everywhere you look the numbers are huge. For example, the NFL gets over $4 billion per year in television rights. That’s $1 billion from ESPN, $1 billion from DirecTV, over $700 million from Fox, and over $600 million each from NBC and CBS. To put that in perspective, there are 100 million cable households in the country and that works out to each one of them paying $3.33 per month to get the NFL.

Now I will grant that the NFL is the most popular sport in the country and perhaps most households would not be upset by that number. But it’s only the beginning. There are also lucrative deals with television for college football and basketball and for major league sports like baseball, basketball and hockey. Additionally the cable bundles that people buy force them to buy more sports programming for other sports like golf, tennis, horseracing and even bass fishing.

When you add this all up the average consumer in a major metropolitan market that has all of the pro teams is probably paying around $15 per month to get all of this sports programming. That’s $180 per year. In more rural markets where there are not direct channels for baseball and basketball the bill is probably closer to $11 per month or $130 dollars per year. This is a heck of a deal for sports fans. Let’s face it, paying $180 to get a huge array of the sports is a great deal when you figure it would cost that much for two people to go to one pro football game.

But the problem is that not everybody is a sports fan. It’s been estimated through polls that maybe 40% of households are serious sports fans. If you do the math and if only the 40% of households that really want sports had to foot the bill that works out to $37.50 per month, or $450 per year, and that monthly number is climbing a few dollars every year. That’s where the rubber hits the road, because polls also say that a majority of those households would not pay that bill on an unbundled basis if they were asked to pay their fair share.

What nobody wants to talk about is that the wheels are slowly starting to come off the cable industry. A recent nationwide poll said that 21% of households were thinking of dropping their cable TV subscription. They won’t all do that, of course, but it is a very bad sign for the industry when that many people say they are thinking about it. We can certainly expect millions of households per year to ditch cable. The average cable bill nationwide is now over $90 per month and many households are deciding that they just can’t afford it.

And if the wheels come off the whole sports industry will have a major crisis. My beloved Maryland Terrapins have gone so far as to change their conference in order to make more money from television. They are getting a lot more money from TV rights to become part of the Big 10 network. That extra money more than covers the extra cost from having to fly to places like Minnesota and Iowa for all of its sports teams.

But what happens to Maryland and to all of the other major universities if in a decade those TV revenues are greatly decreased? It’s bound to happen, but nobody can really say when. But do the math. Cable rates have been increased about 7% per year for a decade, largely driven by programmers like the sports networks. If this goes on for another decade (and the current long terms contracts for programming suggests that it will), then the average cable bill is going to grow from $90 to $165 per month. Along the way to that kind of price a whole lot of households are going to drop out of the system. And when they do, pro and college sports are going to lose a lot of the revenues that have been making them so flush.

I think we can look out a few decades from now and foresee a very different sports world. It’s probably likely that major sports will go to a pay-per-view basis so that you are going to have to pay directly to watch the games that you want. This means that the teams with big popularity, like Michigan, Notre Dame or Penn State football, or teams like Duke or Syracuse basketball are going to probably do okay while teams with smaller followings will not. I think this breaks the sports model and that means that a lot of colleges will be dropping out of major sports altogether and that major league salaries are going to take a big downward hit. These are maybe not bad things in the big picture of life, but I know that if Maryland can’t afford to play football a few decades from now it will leave a big hole in my heart.

Google and the NFL

The new NFL logo went into use at the 2008 draft.

The new NFL logo went into use at the 2008 draft. (Photo credit: Wikipedia)

Google has announced that it is interested in buying the Sunday package from the NFL to stream over the web. For those of you who are not sports fans, this means every regular Sunday football game (just not the Sunday or Monday night games or the mid-week game).

The Sunday package today is available today only on DirectTV. A sports fan must buy a DirectTV regular programming package in order to buy what DirectTV markets as the Sunday ticket. DirectTV simulcasts all Sunday games, so there are a number of games playing at one time.  DirectTV owns the rights through the end of the 2014 season and the package comes up for bid again.

The football programming currently costs DirectTV $1 billion per year, and one has to imagine the price is going to go up in a bidding war. But obviously Google can afford this.

I would think that losing football would be devastating to DirectTV. As a serious sports fan, I know of a lot of sports fans who subscribe to DirectTV just for the right to buy the football package. If that goes away, DirectTV is going to see a number of subscribers melt away over the first year.

The whole idea of Google buying the NFL package raises all sorts of different issues:

  • This would give major legitimacy to OTT programming and could form the core of a Google on-line TV offering with some teeth. One has to think that Google is going to bundle this with other programming to get enough revenue to pay for the package. This could turn Google into a serious player in the content provider war.
  • One has to wonder if Google understands the lack of bandwidth in much of the country. DirectTV delivers football in high definition, and most fans routinely watch multiple games at the same time or want to quickly flip between games. This country is divided into a lot of broadband haves and have-nots. Certainly customers on fiber like Verizon FiOS will love football on the web. But there are still a significant number of rural households who can’t get real broadband. And even more importantly, there are a whole lot of towns that don’t get enough broadband to watch multiple football games in HD.
  • Interestingly, the FCC has been tracking the availability of broadband by letting the service providers tell the FCC what they offer where. And everybody knows this process is highly flawed and that a lot of the reporting is very far from reality. Moving football to the web is going to more effective than any broadband map at showing who has and does not have adequate broadband. All we need to do to track where broadband is inadequate is to follow the complaints about Google football.
  • On the other hand, Google would be opening up the Sunday football package to a lot of new households. There are a lot of people today that can’t get DirectTV, either due to a clear look at the right part of the sky or else from living in a place, like a high-rise that doesn’t allow satellite TV.
  • And Google football is really perfect for somebody like me who is not always in the same place every Sunday. I would assume that if I am a subscriber that I am going to be able to watch as long as I can find a good broadband connection. I think there will quickly be web boards that track which hotels have good or poor internet and business travelers will be going to the good ones and avoiding the poor ones.

Sports programming is the one wild card in the programming world for which there is no substitute. To any sports fan there is the NFL and then there is everything else.

It has also been reported that ESPN is considering a web-package that they would only sell to web-providers who bundle it with a larger programming line-up. And one has to think that if ESPN works out this kind of deal that the college football networks will follow suit. If NFL football, college football and ESPN become available on the web, then landline cable TV is going to have lost its grip on a lot of households. This has to be a concern for the big cable companies.