Short #3 | ESPN retains 🏈 College Football Playoff, cementing 🔒 US sports rights landscape for this decade?

Editor's Note: This short-form article was first published as part of Unofficial Partner's The Bundle Bulletin (👉🏼 Edition #1), where Richard Gillis started to publish my and co-host Murray Barnett's notes including possible topics, random thoughts, and potential storylines that make up the latest podcast episode from The Bundle. The Bundle goes out monthly, so that will be the cadence of this new newsletter, too: sign up 👉🏼 here. On a select basis, I will publish notes around one of the main storylines in the form of an "OFFTHEFIELDBUSINESS - Shorts": a sub-five-minute read, instead of the in-depth, super-long blog articles that have become the standard on OFFTHEFIELDBUSINESS.de over the past years.

📰 Storyline: ESPN retains College Football Playoff TV Rights ahead of Expansion (via Axios)

🔢 Count: 956 words ... 3.5 minutes.

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The compressed schedule of college football’s post-season format benefitted ESPN, and the incumbent could apply some media rights wizardry on its own to further optimize the company’s bottom line. The Worldwide Leader in Sports has now secured major rights renewals (at steep cost increases) and is also the odds-on favorite to remain a principal domestic rights holder of the NBA beyond the current rights cycle which is expiring in 2025. Zero-sum logic dictates that content savings must be realized at some point: Will the middle of the rights pyramid be squeezed next?

Initially reported more than weeks ago, the agreement’s official closure and announcement hinged on the College Football Playoff being expanded from a four- to twelve-team competition. Increasing game inventory has become a go-to strategy for rights owners to boost, or at least sustain, media rights revenues as of late. (see: also English Premier League, UEFA Champions League)

The new expanded structure put incumbent ESPN in prime position from the beginning and presented an inherent competitive advantage for the legacy multi-channel video programming bundle (when compared to its new media competitors): A low-volume, high-profile, but compressed tournament schedule is still best leveraged by linear pay-TV's (B2B) dual-stream, wholesale revenue model:

• 🛰️ Subscription fees: Whether in the form of retransmission (ABC) or carriage (ESPN) fees, top-of-the-pyramide, must-carry programming is what multi-channel video distributors remain willing to pay (to play) for. Such bargaining leverage continues to translate into escalating per-subscriber rates for video programmers, payable on a monthly basis and for years to come. The ESPN channel family, anchored by its flagship high-priced sports channel ($9.42 per subscriber), wholesales for more than $10 per month — each month, regardless of the sports calendar, and without any direct-to-consumer marketing or management spend.
  

• 💰 Advertising budgets: Tentpole (marketing) events aggregating a 20M+ live audience have become increasingly rare in today’s fragmented video entertainment marketplace, an opportunity to simultaneously reach mass audiences for which the advertising industry is paying ever-increasing TV advertising rates (CPMs). The CFP Semifinals and National Championship Game averaged a multi-year high 23.8M viewers in 2024, with 30-second advertising slots going for more than $1.0M each.

The incremental monetization potential of the additional game inventory (concentrated in a short amount of time) was far less punctuated for other contenders vying for the CFP, especially for OTT-first/only players with monthly subscriptions and less mature advertising sales revenue models: legacy trumped emerging business model in this particular case. 

💣 Industry under pressure: All of that should not mascaraed the enormous pressure on the terminally-shrinking legacy pay-TV bundle in the digital era of content distribution and consumption, but contextualize the intricacies of the College Football Playoff as a media product. 

To marginally relieve pressure from the company’s bottom-line, though, ESPN might engage in some media rights wizardry on its own: Annual carve-outs for sublicensing purposes, in the form of tailor-made packages for interested parties (e.g. singular games to drive subscriber acquisition for streaming services) would inevitably result in higher average per-game values than ESPN’s per-game ‘bundle’ value. The NFL might have established a blueprint with its annual media rights auction for one exclusive NFL Playoff Wildcard Game (see: Peacock in 2024, Prime Video in 2025) for how to extract maximum value from thirsty, well-funded market participants left out of the initial playoff rotation.

🏀 What’s next: While ESPN exclusively locking up the CFP through 2032 puts some brakes on the shift of marquee sporting events towards streaming-only platforms, the NBA is expected to welcome one or two digital players among its domestic broadcasting partners once its 2025 season tips off:

• “Hulu of Sports” table stakes: The NBA (and its advertiser-friendly, digital-native audience) is arguably the most important property that Warner Bros. Discovery brings to the three-headed table (where subscription and advertising revenues will be split). Any revenue distribution mechanism based purely on content acquisition costs and with no consideration for any subscriber acquisition or engagement metric would oversimplify the venture’s streaming economics. A failure to retain a sliver of NBA rights would have a significant impact on the company’s standing within the joint venture though, with WBD’s remaining live sports programming being spearheaded by the MLB Playoffs and NCAA Men’s Basketball Championship.

• New and old guard broadcasters: The NBA will put its eggs in multiple (distribution) baskets, even though a majority migration of game inventory from linear to streaming-only remains unlikely. A bifurcated distribution and consumer market requires some slicing and dicing between old and new guards to maximize total reach and revenue. Nonetheless, the NBA would be ill-advised to chase digital dollars at all costs, leaving behind its linear broadcasting partners and, thus, its most profitable customers. The traditional pay-TV subscription is still the best fit for many. It’s just not one-size-fits-all anymore.

The one elephant in the room for the NBA, seeking a three-fold increase: Even the most sophisticated rights packaging strategy would not overcome a potential lack of competition, which remains the single-most important determinant for market prices for sports rights. 

🤔 What else? With the top of the US sports rights market being near-cemented and long-term cost certainty established once the NBA finalized its new domestic rights agreement, the focus (and news flow) will inevitably shift even more to the revenue side of the market equation: the (sports) programming and distribution market. 

A second-order effect in the sports rights market to keep an eye on: With significant budgets (re-)allocated to fund big increases for top-of-the-pyramid properties such as NFL, CFP, and NBA, second-tier rights owners might be worried as there is not an unlimited pot of money. Zero-sum logic and bottom-line pressure dictate that second-tier properties up for renewal (e.g. German Bundesliga, Formula 1) might be on the chopping block of the “worldwide leader in sports.”