Pilson: NCAA Deal ‘Outstanding for Everybody Concerned’
Neal H. Pilson, president of Pilson Communications, has witnessed — and taken part in — many rights negotiations through his decades in the sports-television business, and he describes the latest NCAA Men’s Basketball Tournament deal as outstanding. As he explains, the $10.8 billion contract signed among CBS Sports, Turner cable networks, and the NCAA to keep the tournament shared among those properties through 2024 cements the importance of cable networks to all major sports-property negotiations moving forward and perhaps serves as a red flag for ESPN.
What was your initial reaction to the deal?
This is an outstanding deal for just about everybody concerned. It’s a win for the NCAA. Their revenue from television is now assured for quite a few years. They can plan for their future, their revenue stream that they return to the colleges is now guaranteed, and they’ll get increasing exposure over two networks, with all of their games carried around the country.
For CBS, it allows them to continue the tradition that this event plays in their corporate structure. It’s part of their DNA, and I think they’re all very pleased that they were able to stay with the tournament. It looks like they’ll continue to produce it, at least for the immediate future, and keep everyone who has worked on the tournament for up to 30 years fully engaged. They’ve negotiated a deal where the losses that they were incurring apparently are going to go away, and they now foresee a positive revenue stream for it.
For Turner, it gives them access to a huge American sports event. Down the road, they will actually carry the Final Four, and I’m sure they see it as a vehicle to increase their subscriber fees for the channels that will be carrying the NCAA games. I see they’re going to put games on truTV, which does not generate a significant sub fee at this point, and I expect that they perhaps will be able to increase sub fees for their premier channels, TBS and TNT, when they have the Final Four on a rotating basis. I think Turner’s very excited about it.
Who is the big loser here?
The only loser, unfortunately, is ESPN. I think the significant thing about that is, this is probably the first time that ESPN has not been able to acquire an event that they wanted to acquire. I think what we’re seeing with ESPN is, they’re becoming a mature network. Their growth opportunities aren’t as apparent as Turner’s. The sub fee for ESPN is over $4, and I don’t think a big new event like the tournament would have been able to increase their sub fees, unlike Turner’s, which is around $1. There is plenty of upside for Turner but not much upside for ESPN on the sub fees and not much upside in terms of penetration, since they are already in all of cable and satellite’s homes. For ESPN, getting a big event isn’t really going to make a difference in terms of getting additional subscribers, nor can they increase their sub fees.
What you’re seeing here is ESPN being somewhat limited by the fact that their huge profits, that tremendous amount of revenue that they generate from 100 million subs at over $4 each times 12, is really pledged to Disney. I think ESPN is at a point now where, if they want to take on a major cost obligation like a big new sports event, they’re going to have to generate cost savings in other areas, because I don’t think Disney’s prepared to absorb a reduction in the profits that ESPN is generating.
I think that they found their limit was $800 million a year. If they chase another big event — conceivably, the Olympics — they are going to have to generate some cost savings somewhere in order to justify the added rights fees.
Why was CBS College left out of this deal?
I don’t think they currently have the distribution. I’m not sure that they are totally left out of the deal, as there may be other places where they can pick up coverage of one type or another. But, because they don’t currently have the distribution, they are not the equivalent of ESPN or Turner channels. Turner is pushing to grow the distribution of truTV, and, because Turner is putting up, as I understand it, over half the cost of the rights, Turner gets the opportunity to grow distribution for its channel.
How different might the media landscape look when this deal ends in 2024?
I don’t think anything’s going to substitute for over-the-air broadcast and cable broadcast. I think you’re going to see a lot of other platforms, but I think the NCAA is very happy with the fact that its event is going to be on two different networks with well over 100 million homes now. Obviously, for CBS, every new home will be added to their broadcast circulation, and I think every new home will be added to Turner as well. I think they have the assurance that there’s a significant revenue stream flowing to them for the next 14 years.
What impact might this deal have on other major sports-property negotiations?
I think any future negotiation for a major sports property is going to have to have a cable component to it, because that’s where the money is. Looking ahead to the Olympics, you’re going to need a major cable component to drive rights fees, and I think NBC/Comcast is going to be in a position to do that. If I had to place a wager right now on who I thought would renew or end up with the next Olympic package, I think it’s going to be NBC.