The AT&T-DirecTV Merger Could Be Doomed Unless the NFL Signs This Deal

With the exclusive negotiation period between the NFL and DirecTV now over, the NFL has the power to shut down a $49 billion deal.

AT&T (NYSE: T) and DirecTV CEOs Randall Stephenson and Mike White recently met with NFL Commissioner Roger Goodell to discuss why the proposed $49 billion deal is a win-win-win.

The NFL's veto power

According to AT&T's 8-K filing, which explains the proposed deal:

The parties also have agreed that in the event that DIRECTV's agreement for the "NFL Sunday Ticket" service is not renewed substantially on the terms discussed between the parties, the Company may elect not to consummate the Merger, but the Company will not have a damages claim arising out of such failure so long as DIRECTV used its reasonable best efforts to obtain such renewal.

The problem is that DirecTV's exclusive contract with the league for NFL Sunday Ticket expires after the 2014 season, meaning that the contract must be renegotiated. That could spell trouble for DirecTV (and AT&T), because the asking price is likely to increase substantially.

According to Fortune's Dan Primack, the numbers tossed around for this season are nearing $1.4 billion, as much as 40% higher than last year's $1 billion contract.

DirecTV has held the distribution rights for out-of-market games since 1994. However, a competitor could substantially bid up the price and win the rights to NFL Sunday Ticket in order to stall AT&T's acquisition.

AT&T deepens ties to the NFL

AT&T is no stranger to the NFL. In 2013 AT&T acquired the naming rights to the Dallas Cowboys' stadium and renamed it AT&T Stadium. Now AT&T has the potential to deepen its ties to the NFL via its DirecTV acquisition.

NFL Sunday Ticket has a number of advantages for DirecTV. First, it deeply increases the content and brand recognition of DirecTV versus other pay TV offerings. For example, DirecTV has the rights to broadcast every out-of-market game on every Sunday afternoon via TV, laptop, and mobile.

Second, it significantly increases revenue. Roughly 10% of DirecTV's 20 million U.S. subscribers purchase the NFL Sunday Ticket package for $240 per year, plus more if they want to stream via mobile.

Toss in bundling other packages to DirecTV subscribers, any ad revenue, and the potential for bundling and cross-selling to AT&T subscribers. That's when the potential revenue amount becomes almost staggering. And it shows: DirecTV's average monthly revenue per subscriber was about $100 per customer in early 2014, compared to the low $80s for rival Dish (NASDAQ: DISH).

AT&T taking share from Verizon

In an era of watch-when-you-want TV, sports has become the all-important property because in the eyes of many fans, if you're not going to watch live, then why watch?

Verizon understands the importance of live content. Last year Verizon (NYSE: VZ)signed a $1 billion, four-year deal with the NFL. The deal gives Verizon a deeper inventory of content, leading to enhanced revenue opportunities. Verizon, for example, now has access to Sunday night, Monday night, and Thursday night games as well as home-market Sunday afternoon games.

In addition to content, the deal gives Verizon a more robust revenue stream, because Verizon charges its subscribers $5 per month plus data charges in order to access the games.

AT&T is making a similar and even better play by snapping up DirecTV. While Verizon has the ability to broadcast select games during evenings, the new AT&T would have the ability to provide its subscribers with all out-of-market NFL games during Sunday afternoons.


Typically the major decision-makers in an acquisition like this are shareholders, the FCC, the Department of Justice, and local governments. Investors' eyes are not usually fixated on a pro sports league.

But, if history is any indication, then the NFL-DirecTV combo is likely to keep its partnership since 1994 intact. Such action would be consistent with what the Wall Street Journal reported: "there isn't another serious contender."  

Perhaps, then, AT&T, DirecTV, and the NFL will indeed see the win-win-win.

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