Over the weekend, the NBA struck a massive deal with ESPN and TNT worth $24 billion between 2016 and the 2024-25 season. On its face, it's a good and obvious move—good for the NBA, good for fans, and obvious for the networks. Live sports is the lifeblood of the cable bundle, and if the NBA isn't quite the king of professional sports in the U.S., it is the beloved crown prince.
Thanks in part to the decisive leadership of commissioner Adam Silver, the NBA is the anti-NFL, a sport that fans can watch and respect at the same time. It's also the anti-MLB. As baseball ratings stumble, America's nominal pastime is bereft of national stars (Jeter is gone, and how many East Coasters would recognize Mike Trout or Clayton Kershaw on a bar stool?). Meanwhile, LeBron James, Kevin Durant, Blake Griffin, and Chris Paul are all international superstars and national spokesmen for apparel, telecom, car, and insurance companies, and the league's ratings have grown in most of the last ten years.
The economics of sports rights and television are complicated. In the current deal, ESPN and TNT pay the league an average $930 million per year for the rights to air live games and highlights. In the new deal, the networks will pay about $2.6 billion each year. The growth in rights won't be sudden, but it will be steep—around 10 percent annually, rather than an immediate 3X jump, as the average figures imply.
The NBA deal comes at a time when the cost of live sports rights on TV, radio, and digital devices is growing 19 percent a year, as media companies line up to take home even the thinnest slices of the live-sports pie. The rising cost of live sports makes ESPN more expensive. (In fact, the price of carrying ESPN on cable is growing by 6-8 percent each year.) The rising cost of ESPN and other networks with sports rights is one of the major reasons that cable TV keeps getting more expensive. (In fact, the price of expanded basic cable has grown 6 percent annually since 1995.)
As I wrote last year, television is a basically sports bundle:
Television economics are sports economics, and sports economics are television economics. Sports accounts for half of the programming costs of TV, and TV accounts for more than half the revenue of many professional sports leagues. Without television, professional sports could scarcely exist. Without sports, the TV cable bundle—and the golden age of television that it's ushered into existence—might unravel entirely.
What's wrong with this picture? Nothing at all, you might say. The economics of bundling means that sports fans get a great deal with cable. On a price-per-hour basis, pay-TV is still cheaper than many forms of entertainment, like movies and most video games.
The problem with inexorably rising costs is that you need somebody to pay for them, and it's not clear how much longer the typical family can afford the luxury of pay-TV, particularly with so many cheaper options available. Expanded basic cable is 188 percent more expensive than it was in 1995, but the typical U.S. family is about 5 percent richer. In fact, the median income of an American family, even after you adjust for household size, is no greater than it was in the late 1990s. ESPN's core audience, young men, might be having the worst time of any age-gender demographic in the post-recession economy. They might not have full-time jobs, but they do have smartphones and Internet, which can provide access to hours of entertainment that doesn't require cable.
The cable bundle is not at risk of collapsing this year, or next year, and ESPN is probably powerful enough to survive any threat to pay-TV's business by directly charging its core fans. But the story behind today's headline is that the cable bundle as it currently exists can only get more expensive, and the U.S. isn't giving its customers any more money to spend.
Without live sports, the bundle becomes worthless for tens of millions of families. With live sports, the bundle risks becoming unaffordable for tens of millions of families.
We want to hear what you think about this article. Submit a letter to the editor or write to firstname.lastname@example.org.