Spoil sports: The coming showdown over TV sports

If you have DirecTV, and you live in Los Angeles, New York or any of the other markets in the country with more than one regional sports network (RSN) on the dial, you recently got slapped with a $3 surcharge if you want to keep watching your local teams.

The move ostensibly is meant to offset the rapidly rising costs the pay-TV provider faces for carrying the networks on its basic or basic-plus tiers. But it’s mostly there as an attention-grabber aimed at the networks and at any policymaker or regulator that might be wondering why cable TV prices are so high. For one thing, it doesn’t address the real problem with the rising cost of sports programming, which is that the costs end up getting passed along to subscribers who don’t watch much sports as much as to those who do. For another, $3 a month doesn’t begin to cut it in terms of actual costs involved.

According to an analysis done earlier this year by Sanford Bernstein analyst Craig Moffett, sports programming accounts for more than half the programming costs associated with the average cable or satellite bill. ESPN and ESPN2 alone, which collect an average of $4.69 and $0.62 per subscriber per month, respectively, from operators according to SNL Kagan, account for 20 percent of the cost. The average regional sports network carriage fee, meanwhile, runs to $2.28 per subscriber, and in a market like LA, with four RSNs ( News Corp.’s Prime Ticket and Fox Sports West, and Time Warner Cable’s SportsNet and Deportes) the math quickly gets brutal.

For pay-TV providers, major league and major college sports is must-have content. Much of it isn’t available over-the-top so it keeps people subscribing at least to basic service, and it’s typically watched live making those viewers more valuable to advertisers. Those factors give sports networks leverage with the operators when it comes to setting rates.

Another factor driving up the cost of sports channels, however, is the spiraling rights fees being thrown at sports leagues and franchises by the networks. In just the last three months:

  • Fox and Turner Sports signed an 8-year deal with Major League Baseball worth $7.4 billion;
  • ESPN locked up broadcast rights to the college football playoffs through 2025 for $470 million per year;
  • NBC Sports committed $250 million over three years for U.S. rights to English Premier League soccer, tripling what Fox had paid just three years earlier;
  •  News Corp. paid an estimated $1.47 billion for a 49% stake in the regional sports channel the YES Network. Key to the deal was an agreement granting YES broadcast rights to New York Yankees games for the next 30 years, starting at $85 million per year and escalating to $350 million per year by 2042;
  • Time Warner Cable agreed to pay $3 billion over 10 years for rights to Los Angeles Lakers games.

Over the last 20 months, in fact, national networks have agreed to spend $72 billion over the next decade for TV rights to professional and college sports, the Olympics, and other major sporting events, according to a study published by the Philadelphia Inquirer. Add in the commitments for local broadcast rights made by regional sports networks such as YES in New York and the total probably exceeds $100 billion.

Those fees threaten to push network carriage fees higher still.

A growing number of people in the industry, however, are wondering whether the current trend is sustainable. Sports networks generally have enough leverage with operators to force their channels onto basic or basic-plus tiers, meaning per-subscriber carriage fees are assessed across the operator’s entire subscriber base, even though a significant percentage of that base may not be into sports. Speaking at the Paley Center for Media last month, Time Warner CEO Jeff Bewkes called that a “sports tax” imposed on non-sports fans. “Half of the population that doesn’t want sports is subsidizing the other half that does” Bewkes said.

Others worry the growing sports tax invites action by Congress or the FCC to protect non-sports fans, such as requiring sports networks to be sold ala carte or as part of premium programming tiers.

Appearing on the CSPAN program “The Communicators” last week, National Cable & Telecommunications Assn. CEO and former FCC chairman Michael Powell sounded the alarm. “We all ought to wake up and be careful … so we don’t blow this into smithereens at some point and invite the government to do it for you, which I think nobody would be a winner in,” Powell said. “I can’t control that the NFL has the power to demand a 73% increase for ‘Monday Night Football,’ which I find astonishingly insane…[but] Iwonder if there is a point where distributors say, ‘I can’t handle it anymore.'”

As the head of the distributors’ trade association, Powell is not an unbiased source, but even those directly involved in negotiating sports media rights acknowledge the growing risk of government action.

“Every [sports]  rights deal that gets done these days has language in it saying that if there are regulatory changes, or there’s legislation then the networks have the right to renegotiate the terms,” Rich Brand, a partner in the law firm Arent Fox said at a Gotham Media event in New York last week. “The risk is very real and it’s getting bigger, and everyone knows it.”

If they don’t they will soon.