I'm not sure how it can be unless you think ESPN is going to declare bankruptcy (or the league and players somehow violate the terms of the deal)? All this windfall is the direct result of ESPN (and TNT) raising their offer by almost double what was anticipated, so the money is there. The league and even the players may hate the problems that have come and are coming from this TV deal but not enough to not want that money. Too many teams were losing money under the old CBA and yesterday's TV dollars. And now, even the small market teams can enjoy the big bucks and even the scrub players can live like kings.
It's possible. Right now ESPN is a premium channel being included in basic cable. Lots of stuff is in flux that can dramatically impact ESPN and already is.
We also have to remember these cable networks tend to bid first, find a way to pay for it later, and usually that is... raising fees. They are so used to being able to do it, I don't think it's correct to say that the money is there.
It's that the cable companies are assuming the money will be there. But what if the rate increases reach a limit? What if ad revenues DECLINE?
We have to remember the networks feel they NEED these deals. If they lose them, viewership tanks. For ESPN and it's high price, it needs deals to seemingly justify the high prices. They can't charge what they do and not have the content.
ESPN has lived on the fact that it is so popular, they can keep raising their fees, and cable companies buckle because pretty much everyone who has cable wants ESPN. At least the vocal ones. (What's that mean? 50 percent of people, 70 percent? Who knows.) For decades they have done this, but nothing goes up forever. Merely stabilizing for a few years would hit them hard because it's not something they've experienced in a very long time, if ever.
I found this a few weeks ago and found it very informative. A few years ago I remember hearing $5.XX a month for ESPN, not anymore. Don't we wish.
http://www.reviewjournal.com/business/cox-communications-raises-cable-tv-internet-rates
Still, local programming doesn't make up a big share of your cable bill: Industry averages show local network affiliates average less than $1 per household per month in retransmission fees, Howfield said.
At the high end, national sports network ESPN gets about $8 per household each month.
How far can this go?
They are basically charging HBO fees for ESPN and having it be included in BASIC cable. (Currently right now if you have multiple premium channels with Cox here, the third one costs about $7.99 a month thus ESPN IS premium channel pricing disguised as a basic channel)
This is the epitome of a bubble situation for cable. What the breaking/popping point is, I don't know. But they're on the ledge right now. They are charging that much and they have a special deal to be included in basic cable, which is unheard of. So the situation is not just a little past sanity, it's far past it.
Cable companies need ESPN, but ESPN NEEDS to be part of basic cable.
There has been talk of ESPN cutting costs.
http://www.businessinsider.com/cost-cutting-is-coming-to-espn-2015-7
ESPN, though ubiquitous in most US homes, is actually an extremely expensive channel for your cable provider to bring to you. According to a
Wall Street Journal report from August 2014, ESPN costs about $6.04 per person for a cable provider.
By comparison, channels like
TNT, Fox News, TBS, and NFL Network all cost less than $1.50. And so while channels like HBO and Showtime are considered "premium channels," ESPN is head and shoulders more costly than other channels it is often bundled with.
So they've already been upping the fee since that $6.04 from the 2013-2014 timeframe.
...and here's something scary
Per The Journal, ESPN would need to charge $30 a month for an "over-the-top" offering to make the same amount of money it does from traditional cable companies that include the network's channels as part of a bundle. HBO Now, in contrast, charges $15 a month for its new bundle. Netflix costs $8 a month.
But the existential questions ESPN faces are most pressing not just for the cable industry, but also the advertising industry, the content industry, and the sports leagues themselves.
https://www.washingtonpost.com/life...3faa94-0c8d-11e6-bfa1-4efa856caf2a_story.html
The most obvious disruption is cord-cutting, the movement of TV viewers away from cable subscriptions, most notably to Internet streaming services such as Netflix and Hulu. ESPN, founded in 1979, has been disproportionately affected by the trend; last fall, it surprised the TV industry by revealing that it has lost 7 million subscribers over the past two years, a sizable chunk of its base of nearly 100 million.
A second whammy is coming from within the cable industry itself. Cable operators have long fumed that ESPN and its multiple clone channels are the most expensive for them to license, a cost that is passed along to subscribers in the form of ever-rising monthly cable bills. They have responded by offering lower-priced tiers of channels — known as “skinny bundles” — that usually don’t include the ESPN suite of networks. This has become an attractive option for some viewers, who don’t want to pay for channels they don’t watch.
and
It has responded by cutting costs. In October, it
announced the layoffs of about 300 employees, or about 4 percent of its staff. A few days later,
it shuttered Grantland, a literary sports and pop culture website founded by Simmons.
Holding down costs is also why ESPN has drawn the line in bidding to keep its personalities.
ESPN loses disproportionately from subscriber losses because it gained disproportionately from subscriber gains for decades. They have the most to lose. They're the leveraged Lehman Bros of cable.
On the flip side ESPN also has the revenue they get from commercials. If Deutsche Bank (and it's
~70 trillion in derivatives that
don't bilaterally net out) goes under or Credit Suisse, or the Italian Banking system implodes, Japan, or a bunch of other troubles that are on the horizon come to fruition, I hope ESPN and the rest of the networks that signed deals for NBA, NFL, MLB, etc... sure had some protection to lower what they are paying due to times of economic distress.
Such an economic situation won't be conducive to huge advertising increases that were projected to pay those deals. Advertising revenues can drop like a rock. If this happens ESPN and/or others could eventually declare bankruptcy.
Things won't be going up forever, and
the world's central banks have been printing non-stop for ~8 years now... a little long in the tooth for any market rally, no matter how fake it always was. But, at least on the surface with these tv deals, they've
basically took a ruler and drew it out in future years expecting all will be well through these deals.
That's risky.
Who knows exactly when ESPN or other networks will face the crunch, but it's coming. T
hen remember the NBA and the various leagues, their labor stability, and the viability of small market clubs all hinge on everything going up forever as per the direction of those TV contracts. But reality might interject and force a different path.
With Phoenix being a mid-market locale with a notoriously cost cutting owner (who also spends, but it wishy washy) who is just now getting out of that mode, it could definitely impact us. What would be really crazy is if this stuff comes to pass, what happens regarding the team cap floor?
It's not just players that might go on strikes, we could see the NBA lockout players because the owners might decided the cap floor is too high. If we were to get Westbrook, this might be the situation that breaks that up.
As it is now,
the current biggest worldwide bubble ever created needs to continue and be blown larger until these deals expire for them to actually pay out as written, and that's during the next decade.
That's asking alot for 'the central bank bubble reflation recovery' when it was never real to begin with, and then even if it somehow manages to pull through, they are going to want ANOTHER increase on top of that. The whole time ESPN is going to be trying to charge MORE and MORE, and if cord cutting accelerates, everyone else will be asked to pick up the tab and partially offset that by taking on even larger increases aside of all of that. It's unsustainable.
Will people be
willing to pay $12-15 a month in 2022 for ESPN?
More? Will Cable companies continue their special relationship of having premium channel ESPN in basic cable and suckering whatever percentage don't care for it into automatically paying for it?
If the big cable companies forces ESPN out of basic cable and has people pay for it separately as in a tier, ESPN would lose a ton of revenue. If not all, what if Cox does, or Comcast? We don't know the future, but
we can see the risks ahead of ourselves and take note. The risks are definitely there.
Lower subscription revenue and lower ad revenue and that possibly happening as they keep raising prices. With raising subscription prices impacting subscribers reaching feedback loop proportions.
It does make me think this might be one of the catalysts for the NFL to do what it said is inevitable and deliver content straight to people. Maybe a few of these networks imploding might hasten that process.
Everything seems like champagne and parties for the leagues with these gargantuan tv deals, but that's how bubbles are, until the precarious situation they are actually in comes to a head. The more people look at what is going on underneath, the more rotten it all looks. All right in front of us, passing us by unnoticed by most.
Sports as a business has gotten ahead of itself, expecting... even demanding more and delivering less. One need only look at the disaster the Rio Olympics is surely going to be, and the state it has left communities in the past, like Greece. All the leverage for publicly funded stadiums by NFL owners raking in 9 digit profits a year. Mark Davis playing hardball for $750 million in public money on top of the ~500 million he said he would fund, plus whatever casino wants to get on board for a stadium in the desert. Does he want to build the Taj Mahal? Why not, Jerry Jones did it. Kroenke is doing it. Now more and more owners want their own super Roman Coliseum. It's like a Jerry Maguire situation, but the entire industry from top to bottom, not just agents. At some point we as a society have to remember these are just games.
Oh and overall that's an interesting connection between Westbrook and Watson.
