Sports Leagues Are Not a Bubble

Clay Travis wrote about the “bubble” ESPN is in. But his thoughts on the effects on sports leagues doesn’t make sense:

Companies rise and fall with amazing rapidity today and there’s a quiet panic in place at ESPN that most fans haven’t realized yet. Neither have the sports leagues. Where do you think, for instance, most of the money is coming from to pay these sky high new NBA salaries? The NBA’s new television deal. Player salaries in pro sports are directly connected to the potential bubble of television rights. What happens if television rights fees, which may well have been artificially inflated by ESPN’s artificially inflated bubble of rights purchases, stagnate? Player salaries won’t increase much, if at all. What about team revenue for the channels they own? How many teams could survive in pro sports if their television money suddenly declined by 25%?

The sports leagues are not in trouble. ESPN and cable TV as we know it could die and the sports leagues will probably barely feel it. Sure they make a ton of money off rights fees, which also allows them to do basically nothing but create the content, but the demand is high enough that people will buy the product whatever way they are offering it.

Currently the NFL offers Sunday Ticket through DirecTV for $300 a season. MLB offers a similar package through the internet for a little over $100 per season. The price difference is mostly a factor for a higher demand of out of market games in the NFL (mostly due to fantasy football and gambling) than in MLB. These packages both do well enough to make it worth their respective leagues to keep offering them year after year, so clearly there is demand. There are some catches here too. Sunday Ticket is only offered through DirecTV and is an internet-only package that blocks fans from watching their local team(s) through the service. The latter is exclusively because of TV rights deals (and therefore advertising deals) the leagues/teams have made with local channels. In other words, there is no telling what the demand would be for this kind of functionality in the open market.

There are already many NFL fans who would love to have Sunday Ticket but are not (and do now want to be) DirecTV subscribers. But what if the NFL made it the only want to watch games? What if the only way to see your local team play was to go the game, go to a bar or have the NFL package? Sure $300 might seem like a lot, but spread out over just 16 regular season games it’s less than $20 per game. Factor in playoff games, and maybe even the Super Bowl and most “regular” NFL fans probably watch around 30 games a season, which is less than $10 per game. Throw in other content like the NFL draft, on-demand replays of old games, daily fantasy shows and the price doesn’t seem awful. $25 (or so) per month to see every NFL game seems like a much better deal than $10-$20 a month just for some games and the rest of ESPN’s junk.

If MLB.TV were to start offering local games, the demand would increase greatly. As much as I would love to watch other games more frequently, I can’t justify the cost when I can’t watch my own team play through the service. But the same logic applies. If I could (or even had to) play $200 per year, but could watch every MLB game without needing a cable subscription, that changes a lot.

And there are million ways these things could be customized. Making only the local teams available as a cheaper package. Offering other add-ons or features to increase/decreese the price. The possibilities are endless.

And the hardware required is inexpensive. Amazon Fire TV stick is being sold for $35. Roku devices and Chromecasts cost like $50. The hardware is cheap enough to make that the leagues could just give it away as part of the package (or even rent it the way cable providers do it). Sure there would be increased overhead costs, but the income would be coming right to the leagues, AND they could still sell commercials and collect all of that revenue as well. That alone might be enough to offset operating costs.

I don’t know how this would work for college sports. And obviously niche sports like bull riding would have to find another way. But my guess is that the NFL, MLB, NBA, NASCAR and maybe the NHL would have no problem thriving under this model.

ESPN is a bubble. And it’s going to burst. And if the leagues are smart they will plan ahead before it does. Even if they don’t though, this is just a small blip that will probably have them coming out ahead in the end.