DirecTV’s eight-year extension of Sunday Ticket with the NFL, guaranteeing the relationship begun in 1994 continues through the 2022 season, has widely been hailed as another win for the league with an average increase of 50% per year in rights fees from a current average of $1B per year to $1.5B. The value of the deal is undeniable. However, studying the history of the relationship, this new deal highlights the continued trend of a deceleration of domestic rights fees and the need for global expansion for the NFL to meet its projected revenue goals.
According to past Sports Business Journal reports, NFL-DirecTV contracts have escalated from $650 million (M) for 1998-2002, to $2 billion (B) for 2003-2007 (with the last two years later rolled into the 2006-2010 deal), to $3.5B for 2006-2010, to $4B for 2011-2014, to the current $12B for 2015-2022. Meanwhile, DirecTV has indicated that the current deal increases approximately 6% year over year. Assuming similar in-contract year-over-year rate hikes, the 1998-2002 contract increased in term from $115M to $146M; 2003-2005, $355M to $399M; 2006-2010, $621M to $784M; 2011-2014, $914M to $1.089B; and 2015-2022, $1.212B to $1.823B. Compared to the last year of the previous deal, the starting point for the 2003 deal jumped 137% ($200M); 2006, 50% ($198M); 2010, 11% ($83M); and 2015, 5% ($58M) above the assumed 6% year-over-year in-contract increase. Aggregating the leagues packages with ESPN, NBC, FOX, and CBS since the 1990s also shows a similar deceleration.
Also important to consider, the DirectTV deal came about with Goodell having extra leveraging power due to the widespread knowledge that AT&T could back out of its proposed $49B acquisition of DirectTV if the company failed to retain Sunday Ticket rights. Not ironically, the new package will benefit AT&T by cutting into Verizon’s exclusive mobile streaming package, allowing everywhere access to DirecTV subscribers on mobile and tablet devices.
In 2010 Goodell, of course, gave the benchmark of $25B in annual revenue that the league could reach by 2027. In 2022, the year when most of the current media contracts will be ending, assuming a similar contract backloading and that the Thursday Night package will by then have a value similar to NBC’s Sunday Night lineup, the NFL will already be nearing $10B annually in media rights between ESPN, CBS, FOX, DirecTV, NBC, and Verizon. However, even with a 5% bump above the in-contract year-over-year rate hike, the league would only realize $14B in total revenue in 2027, short of the $15-17B that Brent Schrotenboer of USA TODAY Sports previously estimated as necessary from media rights for the league to hit the overall $25B total.
Though the $1-3B seems like something the NFL could find elsewhere, the full landscape must be explored. Importantly, ESPN has already received pushback for its burgeoning subscription fees, currently over $6 according to SNL Kagan and estimated to be in the mid-$8 range by 2018. If more consumers continue to cut cable or satellite services, or the regularly threatened a la carte cable legislation passes within Congress, those consumer fees will increase even more substantially. Regardless of such speculation, the FCC’s recent lift of its local blackout rules, which have long supported the league in filling stadiums, will certainly come into play. Current media contracts allow the NFL to continue to enforce blackout rules. Yet, the FCC ruling will provide a bargaining chip to networks who would ostensibly benefit from not having to blackout games. On the other hand, Google, YouTube, or other online players might provide a wildcard play for the NFL by the next round of negotiations, again shifting the landscape of how the NFL is consumed.
Regardless, the deceleration of US media rights suggests that much of the domestic opportunity has been capitalized and some of the greatest opportunities for growth exist internationally. Obviously, as the NFL continues to progressively develop its international presence through playing an increased slate of regular season games in London and marketing the NFL brand internationally, these steps will eventually result in greater international fandom and the opportunity to begin significantly increasing global media rights. It may not be through the ideal scenario of placing a team in London by 2018 as Jerry Jones has predicted. Perhaps it will be through finding the right formula for permanently establishing a development league and then adding international teams. No matter the mechanism of international expansion, studying the deceleration trend in gargantuan domestic media rights indicates one of several reasons why the NFL does and should continue to have a strong international commitment.