Twitter Inc: TWTR Sidelined After NFL Hail Mary

It’s a major coup d’état that made headlines on Wall Street: Social media company Twitter Inc. (TWTR) has pushed past fierce competition — which included the likes of Alphabet Inc (GOOGGOOGL), Facebook Inc (FB), and CBS Corporation (CBS) — to secure a lucrative deal with the NFL.

Twitter Inc: TWTR Sidelined After NFL Hail Mary

Twitter will have exclusive rights to stream 10 games from the NFL’s popular Thursday Night Football schedule. Due to Twitter’s accessibility, this promotes greater visibility of Thursday night games, a plus for the NFL. But is the deal in the best interest of TWTR shareholders?

On the front of it, the Twitter bid seems like a no-brainer. NFL football is hands down the most popular sport in the U.S., according to a Harris Poll, which has been tracking sports trends since 1985.

In 2014, 35% of sports fans regarded NFL games as their favorite to watch. Major League Baseball trailed in a very distant second-place at 14%. Even seemingly ubiquitous events like college basketball are comparatively well off the mark at 3%.

More importantly, the NFL knows how to make it rain. Revenue for total league activities is estimated to generate over $12 billion. A significant chunk comes from lucrative broadcasting deals, such as the $12 billion contract signed by DirecTV. Although the NFL has more expenses than ever before — thanks to eye-popping star player signings — the gravy train just keeps on chugging. No wonder why companies like Twitter, and even Apple Inc. (AAPL) at one point, were locked in fierce battle!

What This Means for Twitter Stock

The deal itself is a good one for Twitter — stupid good, in fact. According to an insider source reported to Bloomberg, the 10-game streaming rights cost a ridiculous, bargain-basement price of only $10 million.

To put that into perspective, Yahoo! Inc. (YHOO) paid $17 million to stream a single game in London last season. And the TWTR bid represents slightly more than 1% of its $911 million in cash. Assuming the contract cost isn’t the result of miscommunication, the Twitter deal with the NFL pays multiple times for itself.

Twitter, TWTR stock
Source: Source: JYE Financial, unless otherwise indicated

The only participant not feeling the love is TWTR stock. Twitter shareholders only saw a modest lift on Tuesday when the deal was publicly disclosed, only to close down four cents below the prior day’s session.

Worse yet, nobody can seem to solve the volatile slide in the markets. Last year was a particularly bad period for TWTR stock, which ended up losing 37%. But this year isn’t exactly a whole lot better, with shares down 26%.

Proponents will claim that, fundamentally, Twitter can’t lose on the NFL deal. That’s more than true, especially at a rate of only $1 million per game. But the real issue is can Twitter win on the deal? That’s a far more tricky question.

While the NFL is big business, mere association with the league is not enough for a partnered entity to generate its own profits. A clear example of this dichotomy is the Super Bowl. When Phoenix hosted the championship game in 2015, the city brought in a lot of hype and consumer dollars, but the broad effect was disappointing. Yes, obvious sectors like bars and restaurants benefitted noticeably from tourism traffic, but other areas of Phoenix’s economy sputtered.

It’s not so much the brand name of the NFL, but what Twitter can do with it that will be the core issue. The company’s efforts into integrating itself into the 2012 Summer Olympics was considered a misstep. During those Olympic games, several companies demonstrated a lack of awareness of social media platforms.

Bottom Line on TWTR Stock

Yes, it’s 2016, and more companies than ever are tuning into social media’s potential. Yet, Twitter’s user growth is disappointing and regular Twitter users has been virtually flat over the past three quarters of 2015.

This puts management in a quandary. Sure, they’re making money now, but without a healthy base of eyeballs, the advertisers will leave, ala MySpace. Needless to say, that wouldn’t bode well for TWTR stock.

It’s clear that Twitter needs to do something to arrest its free fall in the markets. The NFL deal is very much a step in the right direction — and what a deal it is!

This puts Twitter in a prime position to leverage America’s most popular sport. But the NFL isn’t a turnkey opportunity. The league has failed in the past to deliver on its economic hype, and Twitter’s ability to hold on to its audience remains questionable. The direction of TWTR stock largely depends on what management can do after this deal, not because of it.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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