The toughest challenge for media stocks like Comcast (NASDAQ:CMCSA), Twenty-First Century Fox (NASDAQ:FOXA), CBS (NYSE:CBS) and Disney (NYSE:DIS) over the next few years will be retaining the broadcast rights to the National Football League.
The first “big game” for the NFL will come in 2021 when Disney’s nine-year, $15 billion deal to broadcast “Monday Night Football” is due to end. A year later, the League’s marquee $38 billion deal with CMCSA, Fox and CBS for the Sunday games is set to expire. Investors need to start worrying about the NFL given the size of the contract and the companies’ free-spending ways.
Broadcasters are paying roughly $3.2 billion a year for the Sunday games, roughly 63% higher than the old deal. Disney’s ESPN “Monday Night Football” contract works out to about $1.9 billion a year. The network’s previous deal was worth $1.1 billion annually. Even though Disney reportedly loses money on the broadcast, the company won’t give it up without a fight.
A hint of the looming gridiron battle came with the recent announcement that Fox signed a five-year, $3.3 billion deal for the NFL’s Thursday Night games, widely considered by fans to be the League’s worst. No matter. New York-based FOXA paid roughly $45 million per game, topping the rate incumbents NBC and CBS paid by more than 33%. Imagine the money that will be spent on good games.
How the NFL Influences Media Stocks
Typically, these deals are worked out well in advance of their expiration dates, so it’s possible that talks between the NFL and the broadcasters may be underway now. Plenty is at stake for media stocks since professional football continues to be the country’s most popular sport and it continues to dominate the TV ratings, even with the recent viewership declines. Newer entrants to the media stock space, including Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) may join the bidding for the NFL, driving up the already high fees that companies behind media stocks and ultimately fans pay to cheer on their favorite team.
For legacy media stocks, the NFL is a Catch-22: They can’t afford not to have NFL games in their programming, even as it becomes increasingly unaffordable because of the massive audiences they draw. Of all the legacy broadcasters, CMCSA is in the best position to absorb the higher NFL costs. That’s one of the reasons why I recently took a position in the cable giant. CMCSA stock is also too cheap to ignore, plunging nearly 10% this year over fears of cord-cutters that I believe are overblown. The company also pays a decent dividend yielding 2%.
As for FOXA, CBS, DIS and other media stocks, investors should probably stay on the sidelines.
As of this writing, Jonathan Berr had a position in Comcast.