Video: Forecast the Money

Quantifying the Trajectory of Sports Rights in the U.S. and the Video Ecosystem’s Ability to Absorb Them

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In a recent post (Video: Follow the Money), I took holistic look back at the U.S. video value chain.

With the U.S. video business under duress and continued increases in sports rights (punctuated by the massive NBA deal, which appears close to consummation), lately a debate has emerged whether we are in a sports rights “bubble.” One of my conclusions in that post was that we aren’t, especially for premier sports.

In this follow up, I look forward at the trajectory of sports rights in the U.S. and the video ecosystem’s ability to absorb them.

The primary conclusions are: 1) the ecosystem has more than enough headroom to absorb higher rights fees, even under pessimistic scenarios; 2) rights fees could be significantly higher than my “normal course” forecasts, especially if the video business proceeds along the bull case; and 3) rising sports rights are likely to squeeze out entertainment spend, maybe a lot.

Tl;dr:

• Below, I forecast sports rights amortization in the U.S. through 2030 (based on ongoing contracts and “normal course” assumptions about increases on expiring contracts) and assess the video ecosystem’s capacity to absorb those increases under base-, bear- and bull-case scenarios.
• The transition from pay TV to streaming is deflationary, because pay TV monetizes dramatically higher than streaming per household (3X for subscription fees and 7X for advertising). The differences between the base, bear and bull cases largely hinge on the pace of this transition and the degree to which streamers can close the monetization gap (through price increases, crackdowns on password sharing, bundling and a near-universal push into advertising).
• The scenarios show that even under the bear case, the video business has plenty of overhead to accommodate higher sports rights costs.
• I project that, under normal course, sports rights amortization will rise from about $24 billion in 2023 to about $40 billion in 2024. In the bear case, that means sports would represent more than 40% of total industry content spend by 2030, double the 20% it represented last year.
• Should the bull case for the video business play out, sports rights would likely be even higher as some of this increased spending power would probably be allocated to sports (in the form of higher step ups, new packages and new leagues or sports).
• Share of content spend will almost certainly shift to sports from entertainment under any scenario and, in the most pessimistic scenarios, will exert downward pressure on entertainment content budgets. In the base case, I calculate that entertainment content spend would decline at least 2% per year through 2030; in the bear case, it would decline 8%.
• The ecosystem’s ability to accommodate higher sports spending is good news for the leagues, teams and players, but the growing relative importance of sports is another looming problem for an already-struggling Hollywood.

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