Television Rights Deals Are Changing The On Field Product In Sports
Professional sports, as they stand, are meant for one purpose – to generate revenue. They do this in a variety of ways, with ticket sales, merchandise, and countless other capitalist endeavours. But rarely do these revenue avenues change and evolve season by season, and when they do, the way the game is played or how the league as a whole functions is affected in the long run. That is just the case with the recent influx of incredible media rights and television deals into the world of sports, those of which have changed the entire structure of their respective leagues and organizations. These changes have thwarted both league-wide problems and league-wide benefits, but the revenue created from these massive new deals are changing the way the sports industry operates forever.
Whether it be college football, college basketball, the NBA, or the NFL, there are serious new cash flows affecting the way the sport is run, and how the sport is delivered to the everyday fan.
The NFL, long known as the king of the major four professional sport leagues when it comes to revenue earning, is blowing the top off of it’s already massive revenue earnings. With its emerging viewership and recently concluded television contract, Thursday Night Football just raked in a massive broadcasting rights deal, worth approximately $900 million over the next two seasons.
This deal, which gives CBS and NBC broadcasting rights to the Thursday Night Football series, is much larger than the current deals for Sunday day, Sunday Night, and Monday Night games, of which their deals are still in place. This deal pushed the NFL’s television broadcast rights revenue to greater than $7 billion. Just ten years ago, the television networks carrying the NFL were paying just $2.6 billion. That is a massive difference in revenue the NFL’s product is reeling in. This $7 billion in revenue is then split evenly between all 32 NFL clubs, which is then added to the team’s individual revenue. Each team received $226.4 million from the 2014-2015 season from the NFL, which is then added to the club’s local revenue to get a total revenue outcome.
The Green Bay Packers, who are the only publicly owned NFL team, are forced to release their financials due to their publicness. They are the only team who has to, and does, release said financials, so their numbers are the only source we have to base off our approximations of other teams. The Packers total revenue last season, minus their cumulative costs, saw them net a clean $29.2 million in income, which is 15% greater than their previous season. That extra 15% bump in cash is no small change – $4 million more than their previous season. While that money goes back into the operations of the teams for the Packers since it is publicly owned, the assumed new income money for other teams lines the owner’s pockets.
The purpose of owning these teams, quite obviously, is to run them as the business they are and produce a profit. With these profits, NFL teams are able to spend more on players, renovate stadiums, and even relocate cities to enter larger markets, such as the Los Angeles Rams did from their previous home in St. Louis. With owners getting richer, they are more likely to use that money back on the team.
There is no better example of owners pumping their profits back into on field production than in the NBA. This past summer, the NBA salary cap, the mechanism that limits spending on player contracts, spiked from $70 million to $94 million. Why did this happen?
You can thank television deals. TNT agreed to pay the NBA $24 billion over the next nine years for broadcasting rights, which represented a 169% in average annual value of the NBA’s television deal. The NBA is unique in it’s method of distributing profits. Each team is mandated, by the league’s Collective Bargaining Agreement, to pay 51% of the basketball related income of the league, to players.
The NBA does not split their revenue evenly like the NFL, as it has a specially-tailored plan that provides allocative revenue to small market teams that cannot match the big market teams, such as the Los Angeles Lakers and New York Knicks. While $94 million is not exactly 51% of each team’s revenue, it is equal to 51% of the league’s basketball revenue divided amongst the 30 teams. But that number is subject to change based off the league’s ever growing revenue numbers.
For many teams, this salary cap increase freed up at least $20 million in cap space, which translated to some open season hunting on free agents this summer. Over $3 billion was handed out in free agent contracts this summer, many of which felt like above market value for the players being signed, and every contract handed out in the NBA, aside from training camp and second round pick deals, are guaranteed. This extra money has undoubtedly changed the oncourt product sold by the NBA and its teams.
Perhaps the greatest ‘superteam’ ever assembled in the NBA (on paper), that of the current Golden State Warriors, whose starting lineup consists of four All NBA players from last season and the last three MVPs, would not have been made possible were the salary cap not increased. The Warriors signed Kevin Durant to a two year, $52 million deal on July 4th, 2016. Even with the salary cap increase, the Warriors had to make trades to free up cap space to bring in the All Star forward, saying goodbye to longtime mainstays Andrew Bogut and Harrison Barnes.
Is this product showcased by the NBA different from last season? Yes. And will it change the league, the outcome of games, and perhaps history? Absolutely.
The massive amounts of new cash readily available at the hands of owners and executives, who in the NBA are required to spend that key 51% of, is shaping the NBA like it never has been molded before. None of this would be possible without the incursion of billions of dollars from the TNT deal, and that doesn’t even account for other revenue avenues, including streaming rights, such as NBA League Pass, the league’s all access streaming and television package that features every game.
The league is a different place thanks to the new money at hand. Teams can take more risks with contracts and explore new routes of obtaining fans and customers, such as social media projects, higher profile advertising, and fan outreach programs. The guaranteed money from the TNT deal provides an assurance to NBA ownership that the money will be there, and that using that money from the league to spread out and maximize the team’s own profits will be the best way to create a successful business model.
One thing many don’t realize is that the increased salary cap is going to eliminate tanking in the NBA.
When your salary floor is so high that you must be doling out $84.73 million to players each year, the economic prospects of losing 70 games is grim. If you have to spend that money, you might as well spend it on players that will help you win. If guys like Timofey Mozgov get $64 million over four years, there are definitely free agents and players on the trade block that are worth spending your money on.
You can still develop young players and play them a lot of minutes, but gone are the days of the Sixers having nobody with a contract higher than $8 million on their roster.
Not all sports teams have player contracts to pay, however. While the new money coming into college sports won’t be changing the on-field product, it is definitely making the status quo harder to maintain. Despite the recent controversies and debate, the NCAA is still nowhere near paying out contracts or salaries to their players, holding firmly to the sentiment that the athletes in NCAA activities are no more than amateurs. Also unique to the NCAA is that the introduction of new money may be more of a problem than a benefit.
While the claim that NCAA athletes deserve compensation furthermore than their scholarships has some merit, the logistics of doing so are likely too much for any organization like the NCAA to handle. The possibility of paying every single college athlete, all of whom would be compensated equally due to Title XI, is incomprehensible.
A study conducted by Drexel University and the National College Players Association determined that a NCAA D1 football player’s value could range from $178,000 to $315,000, and even more for bigger schools and programs and big time players. There is no feasible way that schools could afford to pay their athletes equally with outliers such as these. The NCAA has 6 sports to be what they consider large revenue earning, or ‘head count sports’ – men and women’s basketball, football, women’s gymnastics, women’s tennis, and women’s volleyball.
But even if women’s basketball produces revenue, it doesn’t come close to the numbers of men’s football and basketball. Paying a D1 football player $178,000 is impossible itself, but doling that out to every athlete, whether they play a revenue earning sport or not, is not even worth listening to. Logistics aside, the influx of television deals is making it harder and harder for the NCAA to justify not compensating their large revenue earning athletes, especially with the athletes unable to profit off of themselves, with things like autographs and jersey sales.
Just recently Ben Simmons spoke out against the current NCAA (VIA ESPN) –
So when the Big Ten signs a deal with Fox and ESPN worth $2.64 billion over the next six years, including $35.5 million yearly to each team in the Big Ten, it is hard for the athletes to not scratch their heads at their meager scholarships. This deal does not even include the Big Ten Network’s rights, of which Fox owns 51%.
While Ohio State’s football team and Wisconsin’s basketball team ponder how they are not given the slightest of chunk of these massive deals, the SEC is working on their own mega-rights deal. The SEC extended their 15 year, $2.25 billion in 2014 with ESPN, and Forbes labeled them the most valuable conference in summer of 2015. The SEC generated $476 million from Bowl Game payouts alone, another $64 million from the College Football Playoff, $17 million from the NCAA tournament, and an estimated $347 million from television rights and SEC network revenue.
That type of inflow of money to these college athletic conferences, whose purpose serves to organize, promote, and execute these ‘amateur’ athletes’ athletic endeavors, is problematic in the eyes of those who support student athlete compensation.
While the addition of such major cash to these conferences is no problem for the schools, it does serve as a clear indicator that they student athletes are not being compensated for what they are truly worth. For example, the NCAA signed an 8 year, $8.8 billion deal with CBS and Turner to broadcast the NCAA March Madness tournament, which placed the yearly value of the NCAA tournament over $1 billion for the first time.
In research conducted by Vice Sports, they concluded that were the NCAA to split the revenue of the tournament 50-50 with the players of the tournament, players would have earned over $397,000 each last year, and were they to split the revenue of the tournament 50-50 with not just the tournament participants but also every D1 basketball player, each player would still make a staggering $76,000 a year.
That is hefty compensation, and infinitely more than the zero they currently make, not accounting for the monetary value of a college education and all that accompanies athletic scholarships.
Were the NCAA to ever allow payment of players, that would of course change the landscape of college athletics irreversibly. Then, of course, the new TV deal money would play a major hand in actually changing what teams put out on the court or field. Obviously, if it was a free market system, the richer conferences and richest teams would obviously have the best players, but that seems unlikely. If it were an equal pay system, only few major conference schools could afford that. I don’t have the answers, but if we ever do see paying college athletes, the money from these massive TV deals won’t be able to hide from it.
Television ratings represent the public perception of a sport in the grandest medium available, and with television deals spiking so starkly, it shows that the sports world is more prevalent and woven into the fabric of society than ever before.
The new money from television deals goes to a variety of things for schools and conferences, but with such rich returns on product, the argument to pay the product’s participants only grows, causing more headaches for NCAA executives and college athletic directors.
The NCAA is a unique case, one that actually sees negatives come from an inflating market for its services. The NBA and NFL both, from a business perspective, have benefitted a ludicrous amount. Television ratings represent the public perception of a sport in the grandest medium available, and with television deals spiking so starkly, it shows that the sports world is more prevalent and woven into the fabric of society than ever before.
These deals, of which are meant to showcase on-court and on-field product, are actually changing those products in ways that was previously unimaginable. The sports industry runs on the next big deal, the next contract, and the next big move. Television rights, for the time being, are the lifeblood of the industry. And until television is taken over by a more digital medium, it will continue to be the king of sports revenue.
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