The Big Reason ESPN Will Pay The NBA $1.4 Billion Every Year To Broadcast Games
According to John Ourand and John Lombardo of Sports Business Daily, ESPN will pay "about $1.4 billion" each year for the right to broadcast 100 regular season games and up to 44 postseason games.
The biggest reasons the NBA will see it's national television revenue nearly triple from $930 million to $2.7 billion annually starting in the 2016-17 season is the surging value of live sports for cable providers and the need for ESPN to deal another blow to their upstart rival, Fox Sports 1.
ESPN's revenue is driven by live sports.
ESPN's total revenue is expected to reach $11.2 billion this year according to Forbes.com. Of that, nearly two-thirds (65.2%) is expected to come from subscription fees ($7.3 billion) paid by cable providers for the right to air ESPN's family of networks.
In 2013, cable providers paid ESPN $5.54 per subscriber per month. For comparison, the average network was paid just $0.24 per subscriber per month in 2011. The big difference is live sports. It is the one form of programming that people still watch live and ESPN is one network that subscribers demand the most to be included in their cable package.
So it is imperative that ESPN continue to hoard as much live sports programming as possible.
ESPN's competition has changed.
In the past, when ESPN negotiated deals with the major sports leagues, there was almost no serious competition.
The biggest competitors were the broadcast networks, Fox, CBS, and NBC. However, because of the importance of prime time programming, there were only so many hours those networks could offer to the leagues and only so many games they could broadcast.
Meanwhile, ESPN's model is built around live sports so they could offer to put more games on air, they could air more commercials, generate more revenue, and in turn, offer more money to broadcast the games.
The leagues loved this because they generated more television revenue and at the same time increased their own exposure.
But now there are other 24-hour sports networks, including NBC Sports Network and Fox Sports 1. These networks saw the money being made by ESPN and wanted a piece of the pie. But to get that piece, they need live sports.
When asked about partnering with other networks, NBA commissioner Adam Silver said this was discussed.
"We had discussions but not negotiations with [Fox and Comcast]," said Silver. "While I don't think we left any money on the table, we hope [our partners] will be very successful and we're confident that we maximized what our opportunity was in the marketplace."
ESPN's demands have changed.
Because of ESPN's need for live sports and the NBA's desire to keep the exposure ESPN provides (something the NHL lost when it moved to NBC) there was little doubt that the NBA and ESPN would work out a deal.
But the NBA still had leverage.
In addition to giving a package of games to ESPN and another package to Turner (a network that is not a threat to ESPN's sports dominance) the NBA could have also sold a package of games to ESPN's one big rival, Fox Sports 1. This would have been a big boost to the legitimacy of the young network.
But according to Ourand and Lombardo, ESPN was "adamant" during negotiations that the NBA not sell a third package to another network.
Spokespersons for ESPN and NBA refused to comment on the negotiations beyond the comments made commissioner Silver.
In the end, ESPN almost certainly had to pay a premium for the exclusivity of keeping games off of FS1. This would explain why Silver seems so confident that the league maximized its deal even though they never opened the packages up to bidding or sold a third package.
So ESPN wins another battle with their new rival, Fox Sports 1. But the battles are starting to get expensive.