When it comes to the NFL, DirecTV (DTV) is in a no-win situation.
The satellite provider’s $1 billion contract with the NFL expires in two years, and if it hopes to retain that business, CEO Michael White will have to be prepared to dig deep into his pockets — especially if reports that Google (GOOG) is interested in poaching the contract prove to be true.
21st Century Fox (FOXA), CBS (CBS) and Comcast’s (CMCSA) $28 billion deal with the NFL runs from 2013 to 2022 and was 63% higher than the companies’ previous contract. DirecTV better be prepared to face increased costs of that magnitude, or greater. Without the NFL, however, it could hemorrhage subscribers. Balancing the risks of escalating costs with the potential rewards of increased customers won’t be easy.
In fact, if the company is looking for reason to merge with rival Dish Network (DISH), securing the NFL business is a pretty compelling one. And while White seems receptive to the idea, Dish Chairman Charlie Ergen appears to be less enthused (though the Wall Street Journal recently noted that the billionaire is famously “hard to read”).
Together, the two companies might stand a better chance of keeping The Sunday Ticket. Countering Google, however, won’t be easy. For one thing, the two satellite providers have a combined market capitalization of about $51 billion, which is dwarfed by Google’s $289.5 billion.
According to AllThingsD, Google CEO Larry Page is holding meetings with NFL officials, including Commissioner Roger Goodell. The League is apparently meeting with other Silicon Valley firms, which is not good news for DirecTV. Though the report doesn’t name names, you can bet that Goodell would be interested in hearing from companies that area eager to expand their content holdings such as Amazon (AMZN) and Netflix (NFLX).
White, though, is trying to stay positive.
“Look, we’ve had a very long and very positive and, I think, mutually beneficial relationship with the NFL,” he said during the recent earnings conference call. “We continue to have very constructive discussions with the NFL. I continue to be optimistic that we’re great partners together and that DIRECTV Sunday Ticket will stay with us for the long haul.”
Whether that’s wishful thinking remains to be seen.
A quick glance of the company’s website reveals how integral Sunday Ticket to its marketing at a time when pay TV services are coping with a rise in cord cutting. During the last quarter, 84,000 subscribers quit DirecTV, which was worse than Wall Street expected (just like its earnings). The company has about 20 million customers overall.
It’s difficult to determine just how many people subscribe to DirecTV specifically for Sunday Ticket. But whatever that number is, the company’s going to have a difficult time keeping these customers from bolting if it loses the NFL contract. DTV would have to offer promotions galore.
Perhaps DirecTV could make up the losses from its expansion into overseas markets such as Latin America, but nothing compares to the NFL.
Pro football is by far America’s most popular sport with a demographic appeal across gender and racial lines that advertisers drool over. Though sports fans represent about 4% of U.S. households, they are coveted by advertisers because most fans watch the events live, increasing the odds that a viewer will see a commercial.
These fans are largely male — about 57% — but growing numbers of women are also fans on the sport. My wife, for instance, has played fantasy football for years. Advertisers are likely paying DirecTV premium rates to reach these fans.
Without Sunday Ticket, DirecTV will be adrift in ever-changing media landscape. Keeping the service would create other headaches. This is another reason to avoid the stock (and DISH) altogether.
As of this writing, Jonathan Berr did not own a position in of the aforementioned stocks. Follow him on Twitter at @jdberr.