Football Is All About the Hikes
The price of pork rinds is holding steady, but the same can't be said for the value of pigskin.
The NFL is reportedly on the verge of inking an eight-year extension with CBS (NYS: CBS) , News Corp.'s (NYS: NWS) Fox, and Comcast's (NAS: CMCSK) NBC that would keep pro football on the air of the major networks through 2021. The good news for the league -- and bad news for the networks and their investors -- is that the new deal will fetch about $3.2 billion a year, or a dramatic 60% increase over what they will be paying through the end of the 2013 season.
Earlier deals with Disney's (NYS: DIS) ESPN and NFL Sunday Ticket home DIRECTV (NYS: DTV) bring the eventual tally up to $6 billion a year for the league. Oh, and that's not even counting cable deals for the NFL Network and Red Zone. Smaller deals are also in place for radio, including coast-to-coast radio coverage of all NFL games through Sirius XM Radio's (NAS: SIRI) Sirius.
It's easy to see why the major networks want to keep their football coverage at any cost. Ratings remain strong for the sport. Perhaps more important, the live nature of NFL games makes it less likely that folks will simply stream it elsewhere later the way they do with many first-run shows. Good luck if you're counting on DVRing a big game without hearing any spoilers before you finally get to chance to watch it.
This doesn't mean that $3.2 billion between the three networks isn't a whole lot of money. It is. The 60% increase is over the life of the contract, so it's not as if advertisers will be expected to pay 60% more for commercial slots between the 2013 and 2014 seasons. They wouldn't.
The networks have annual increases worked into the current contract, and that will surely continue in the new deal. Nomura Securities analyst Michael Nathanson expects the initial uptick in 2014 to be along the lines of a 20% to 25% increase, so don't be surprised if you see Wall Street scale back its profit projections for the broadcasters.
It's not as if the media giants have much of a choice. Forgoing football largely means giving up on Sunday ratings and any momentum that carries over into Sunday-night and Monday-morning programming.
The NFL is greedy, but it knows that all of the networks want to play ball.
At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of Walt Disney. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Disney. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.