The NFL Will Stream Games Once It’s Good and Ready, Just Not Yet

(Bloomberg Businessweek) -- Earlier this summer, John Skipper, the former president of ESPN who’s now the executive chairman of DAZN Group, a subscription streaming service for sports, approached the NFL to see if he might be able to acquire the streaming rights for DirecTV’s Sunday Ticket. DirecTV, which AT&T Inc. bought in 2014, pays the NFL $1.5 billion a year for Sunday Ticket, giving it the exclusive rights to air numerous NFL games each week until 2021. But the agreement had a July opt-out date.

Skipper’s hope was that the NFL would take the early opt-out and split the rights between an online company and a broadcast or satellite company. And of course, he wanted that online company to be his startup, pronounced “Da Zone,” which so far has focused on boxing and mixed martial arts. The company has no intention of remaining a niche player. As Ira Boudway wrote in Bloomberg Businessweek earlier this year, “Skipper won’t call DAZN a ‘Netflix for sports,’ at least not publicly, but it’s useful shorthand” for the company’s ambitions. And if there’s one sure-fire way to make that goal a reality in the U.S., it’s by landing the rights to some National Football League games. “Many media businesses have been built on the strength of the NFL’s content, and OTT will be no different,” Skipper wrote me in an email. (OTT, or over-the-top, is industry lingo for streaming TV untethered to a cable subscription.)

As it turns out, the July deadline came and went, with the NFL choosing to stick with DirecTV. On one level, that’s perfectly understandable. Who turns their back on $1.5 billion a year? But it also means the NFL remains years behind the other professional major leagues in offering the millions of people who have abandoned cable TV the means to watch its games. By continuing its DirecTV deal, the NFL effectively opted to punt on fourth-and-one. We probably won’t see that conservative play-calling again.

When DirecTV was founded in June 1994—it was originally a division of the satellite maker, Hughes Communications Inc.—the big networks were recovering from a major shock. Seven months earlier, the NFL had taken away the rights to its Sunday National Football Conference games from CBS, which had been airing pro football since 1956, and awarded them to fledgling Fox Broadcasting. Rupert Murdoch, who had started the Fox network eight years earlier, understood the power of sports to legitimize a network and offered the NFL $1.58 billion for a four-year deal, which was $400 million more than CBS had.

Until the Fox incursion, all three of the major networks aired NFL games: NBC had the Sunday American Football Conference games (most of the teams came from the old AFL, which NBC had televised), and ABC had Monday Night Football. The NFL also created a package of Sunday night games in 1987, which ESPN aired. The Sunday and Monday night games were aired nationally, but the Sunday afternoon ones were regional, televised only in areas the NFL considered home territory for the various teams. Fans who had grown up in, say, Pittsburgh but now lived in Los Angeles had no way to watch the Steelers when they played on Sunday afternoons.

Unless, that is, they went to a sports bar. A few years earlier, a restaurant consultant named Jon Taffer (who now hosts a show called Bar Rescue) had worked with a satellite company to come up with a plan to offer “out of market” games to sports bars. When the NFL learned about it, the league brought Taffer in-house and soon rolled out Sunday Ticket—at first only for bars and restaurants; eventually, DirecTV acquired the Sunday Ticket rights in 1994 for a mere $25 million per year.

Since then, every time the contract has come up for renewal, the cost to DirecTV has risen significantly: That $25 million a year became $50 million in 1998, then $200 million, $700 million, $1 billion, and finally the current $1.5 billion. Of DirecTV’s 22 million customers, an estimated 2 million subscribe to Sunday Ticket, paying an average of $300. The math is pretty ugly: DirecTV barely recoups half its Sunday Ticket costs. The broadcast networks and ESPN are losing money on their NFL deals, too. Not that they have much choice: The NFL is basically the single thing still capable of holding the pay-TV bundle together, or so most network executives seem to believe—and in the meantime, they still get to wallow in the gravy of football advertising dollars and have a platform to promote other shows on their network. As for DirecTV, it knows full well that if it were to ever lose Sunday Ticket, it would likely lose somewhere around 10% of its subscribers.

Which brings me back to streaming. I was unable to get anyone from the NFL to talk to me about the league’s online strategy, but the sources I did speak with told me that one reason the league has been so reluctant to dive into streaming is that it understands its importance to the legacy networks and wants to protect them. Even the NFL’s deal with DirecTV is, in part, an effort to ensure that the networks’ football telecasts are protected. You can’t get your local game on Sunday Ticket; for that, you have to watch CBS or Fox. And the fact that only 2 million people watch via Sunday Ticket means that the rest of the country still has to rely on old-fashioned broadcast TV.

“If you’re a football fan, you’re a bundled customer,” says Michael Nathanson, who follows the television industry for MoffettNathanson LLC. “That’s how the NFL makes its money. As much as the league wants to move outside that ecosystem, it also doesn’t want to disrupt its main source of revenue. It’s a difficult dance.”

The chances of the NFL “disrupting” CBS or Fox by making the Sunday afternoon games widely available via streaming is slim to none. There’s just too much money at stake. Sunday and Monday Night Football will also likely remain on broadcast and cable television for the foreseeable future. Which leaves, well, Sunday Ticket.

Everyone I spoke with is convinced that Sunday Ticket will be the vehicle the NFL will use to join the streaming revolution. The question remains what that will eventually look like. One possibility is that it could start its own streaming service, the way Major League Baseball did way back when. (That service, BAMTech, was so good that Disney acquired it in 2017 and plans to use it as the backbone for its ambitious upcoming online effort, Disney+. It is now known as Disney Streaming Services.) But this requires an enormous amount of expertise that the NFL doesn’t currently have, as well as time and money. (Just ask Disney.)

A second possibility is that the NFL will stick with DirecTV and make OTT streaming part of the deal, allowing fans to watch without needing a DirecTV subscription. (Currently, fans can stream NFL games if they have a DirecTV subscription, or live in a building where satellite TV is not allowed.) NFL commissioner Roger Goodell recently told Sports Business Daily that the league is conducting talks with AT&T about extending the Sunday Ticket deal. “Obviously AT&T-DirecTV is a different company than when we struck the deal,” Goodell said. “The deal we have structured is a satellite-only deal, and so we'll continue to talk to them about whether that’s made available to a broader audience through other platforms—either through AT&T or otherwise, but those are things that we’ll continue to have discussions about. But I expect to be partners with them for the next several years at least.” Not exactly a ringing endorsement.

What’s more, industry experts question how committed AT&T still is to DirecTV, especially now that it owns Time-Warner (now called WarnerMedia), which it bought last year for $85 billion. “It doesn’t seem to be a cornerstone of their business,” says Matthew Ball, an analyst of the evolving entertainment business who previously worked as the head of strategy for Amazon Studios. For AT&T, the new cornerstone is HBO, around which it is building its own streaming service. As for DirecTV, even with Sunday Ticket, it has been bleeding subscribers—544,000 just in the first quarter of this year. If that trend continues, it’s hard to imagine that AT&T can afford to keep throwing billions at the NFL.

Which leaves Option 3: Find a dedicated streaming service to pay an exorbitant amount of money to carry Sunday Ticket and force whoever has the TV rights to accept a streaming competitor as part of the deal. I used to believe it was unlikely that any of the big Silicon Valley companies would be willing to pay the kind of money the legacy networks have long paid. My reasoning was that digital companies don’t need football the way the television networks do. Netflix, for example, has long said it is uninterested in live sports.

But after talking to Skipper and others, I’ve revised my thinking. “If you are trying to launch something,” says Ball, “nothing has the predictability, as well as the volume of content, as the NFL.”

It’s obvious what landing Sunday Ticket could do for DAZN—it would instantly transform it from a niche service into a major player in sports. DAZN already offers Sunday Ticket in Canada, as well as NFL games in Germany. If it could offer Sunday Ticket in the U.S., it would bestow instant credibility, just as the NFL did for Fox in 1994. And it would bring in millions of new subscribers willing to pay a premium price.

But Disney has also started an OTT service for ESPN, called ESPN+. Right now, it airs only events that are not on ESPN or ESPN 2, such as forgettable college football games (Coastal Carolina v. Kansas) and tennis matches on the outer courts at the U.S. Open. Sunday Ticket would make ESPN+ a “must-have” for football fans.

I suppose Google, Apple, or maybe even Facebook could make a play for NFL rights, but I’m more inclined to believe that Amazon.com Inc. wants the football. In 2017, Amazon signed a deal with the NFL allowing its Amazon Prime subscribers to stream a package of Thursday night games. Sunday Ticket would drive new Prime subscriptions like nothing else, while also drawing people to its fledgling original content. Amazon has plenty of money to pay the NFL. And, this being Amazon, it would likely use the data it gained from its new customers to put products in front of them that linked to their favorite team. Given the way the NFL operates—extracting maximum dollars from companies eager for its content—Option 3 strikes me as the most likely scenario.

There is one other issue, though. For football fans who don’t get DirecTV, Sunday Ticket has long been a sore spot. In New York, for instance, marquee games are often unavailable because the region has two not-very-good teams that take up both Sunday slots at 1 p.m. and 4 p.m. It grates on them that they can stream every Major League Baseball game, but they can’t stream an out-of-market pro football game. (At least not legally; if you do a Google search, you’ll find a fair number of tips on how to get the games illegally.) There’s even a website, 506sports.com, that posts a map each week showing which area of the country can watch which NFL games. Fans go to the map every Sunday just to grit their teeth over the games they’re going to miss because they don’t have Sunday Ticket.

In most industries, the company that is late to the internet usually gets punished for its lack of foresight. But that does not appear to be true in this case. Even though the NFL is miles behind other leagues in streaming its games, this is going to work to the league’s advantage. The pent-up demand is likely to cause a stampede of fans rushing to subscribe to whichever service ultimately lands Sunday Ticket. In which case, the NFL will win again. As usual.

To contact the editor responsible for this story: Joel Weber at jweber66@bloomberg.net, Felix Gillette

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