ESPN-NBA Deal
Media companies play a crucial role in the multibillion dollar sports industry. They help sports clubs and leagues broadcast their events to tens or hundreds of millions of viewers locally and internationally. ESPN is one of the major broadcasters of sports events. The company broadcasts diverse sports events including basketball, football, soccer, baseball, and cricket. It has particularly been a major broadcaster of National Basket Association (NBA) events since the early 2000s. NBA is the top and most popular men’s professional basketball association not only in North America, but also worldwide. In 2014, NBA and ESPN renewed their deal to the tune of $24 billion to broadcast the league’s events up to 2025 (Riccobono, 2014). Focusing on the ESPN-NBA deal, this paper discusses why media companies acquire the rights to broadcast sports events.
Basketball is one of the most popular sports in the U.S., with NBA events attracting 16,000-19,000 attendees on average (Experian Data Quality, 2016). NBA events are also viewed by tens of millions of fans across the country and globally. Statistics indicate that 5% of American adults regard basketball as their favorite sport (The Harris Poll, 2016). The huge popularity and fan base of NBA events explain why media companies constantly fight for broadcasting rights. The current deal between ESPN and NBA is valued at $2.6 billion annually for nine years starting from the 2016-2017 season. By the end of agreement, ESPN will have paid NBA a total of $24 billion, which is the largest deal in the history of the league. With the deal, player salaries are expected to increase, making Lebron James the topmost paid basketball player ever (Riccobono, 2014). More importantly, the deal will significantly boost the exposure of NBA events domestically and internationally.
The deal means even a lot more for ESPN, which has a viewership of more than 90 million households across the U.S. under paid subscription model. The present deal has some aspects that make it more beneficial for ESPN. Unlike under the previous deal where ESPN nationally televised 90 regular season games, ESPN now broadcasts 10 extra games (ESPN, 2016). This certainly implies more revenue for the company. In addition, consumers are now able to stream nationally televised games via the internet and their mobile devices without paying for cable. A win for the consumer means a broader stream of revenue for the company. Even so, with ESPN paying NBA more under the current deal, cable charges are expected to increase in the long-term as cable providers may have to pay more to carry ESPN. This additional cost is ordinarily passed down to the consumer.
ESPN will also make more money under the present deal via franchises. The network is viewed not only in the U.S., but also worldwide. Through franchise agreements, the network is visible in more than 100 countries around the world, including Europe, Latin America, and Asia Pacific. With more coverage of NBA events, coupled with increased access of the network’s programming via digital platforms, ESPN’s competitive advantage in the long run will be boosted. For instance, the company may be better placed to charge more for franchise agreements as the deal is likely to increase revenue potential. This is a particularly important point of consideration as the business of franchising is heavily dependent on a proven business model — a model with immense and established potential for revenue. Due to increased revenue potential, new firms may be interested in acquiring franchise rights, which would ultimately increase ESPN’s exposure across the globe.
More fundamentally, the enormous value of the current deal between ESPN and NBA clearly demonstrates how sports broadcast rights have increasingly become a major issue for media companies. As mentioned earlier, the current deal is valued at $2.6 billion annually, which represents a 180% increase from the previous deal ($930 million per year) (Riccobono, 2014). The phenomenal growth of value means that sports broadcast rights play an instrumental role in the growth of sports television networks. As explained by Schaub (2002), the acquisition of broadcast rights has historically been a key driver of television markets. With the present deal, ESPN is likely to experience more remarkable growth in the next one decade or so. The network will be better placed to attract more paid subscribers as well as franchisees all over the world, which would typically translate to increased financial power. Greater financial strength on the part of a sports broadcast network would enable the network to leverage its position and boost its dominance in the market (Cave & Randall, 2000). It may also open possibilities for acquiring sports teams and leagues to the advantage of the network (Cave & Randall, 2000).
Overall, as demonstrated by the ESPN-NBA deal, the acquisition of broadcasting rights for sports events is a major business for media companies. Media companies are able to grow their viewer base as well as franchisees, which ultimately improve revenue performance. Without major sports events on its programming such as NBA events, ESPN would perhaps not be where it is today. Acquiring broadcasting rights is, therefore, crucial for the growth of media companies.
References
Riccobono, A. (2014, October 6). NBA TV deal 2014: what the $24 billion new agreement means for the league. International Business Times. Retrieved 15 October 2016 from: http://www.ibtimes.com/nba-tv-deal-2014-what-24-billion-new-agreement-means- league-1699971
Experian Data Quality (2016). North America’s most popular sports. Retrieved 15 October 2016 from: https://www.edq.com/data-quality-infographics/north-america-popular- sports/
The Harris Poll (2016). Pro-football is still America’s favorite sport. Retrieved 15 October 2016 from: http://www.theharrispoll.com/sports/Americas_Fav_Sport_2016.html
ESPN (2016). NBA extends television deals. Retrieved 15 October 2016 from: http://www.espn.com/nba/story/_/id/11652297/nba-extends-television-deals-espn-tnt
Schaub, A. (2002). Sports and competition: broadcasting rights of sports events. Retrieved 15 October 2016 from: http://ec.europa.eu/competition/speeches/text/sp2002_008_en.pdf
Cave, M., & Randall, R. (2000). Sports rights and the broadcast industry. Retrieved 15 October 2016 from: http://dspace.brunel.ac.uk/bitstream/2438/850/1/00-18.pdf
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