As the COVID-19 pandemic has forced practically every professional sports league to suspend their seasons, consumers are beginning to clamor for some form of rate relief for the sports channels that continue to charge them but are failing to deliver their most valuable product: live games.
But while other industries like auto insurance are giving rebates to consumers -- GEICO has said it will give about $2.5 billion in credits to customers because they are driving less -- don’t expect that kind of a windfall to cable bills. Instead, some industry pundits said, the lack of games may result in an explosion of streaming opportunities for games when play resumes.
Cable operators across the country are in constant talks with various sports channels, and all say they would return any savings they manage to squeeze out of the networks back to customers. With some channels like ESPN, FS1 and regional sports networks attracting monthly subscriber fees in the $5 to $10 range, that would appear to present a substantial break for customers.
“Any rebates will be determined once the NBA, NHL, and MLB announce the course of action for their seasons, including the number of games that will be played, and of course we will pass those rebates or other adjustments along to our customers,” Comcast said in a statement.
The second largest cable operator in the country, Charter Communications said that while the situation is still premature it is “monitoring the situation closely.”
Cox Communications noted the unprecedented times and said it was “in discussions with sports content providers on how they will handle this situation based on their agreements with the sports leagues. Right now, networks are still charging us full price for this programming. Once we know what the leagues and networks have decided, we’ll put a plan into place that is most beneficial to our customers.”
ESPN also was keeping a close eye on what it called an “unprecedented situation.”
“We have great relationships with our league partners and are confident we can address all issues constructively going forward,” ESPN said in a statement. “Our immediate focus is on everyone’s safety and well-being.”
But for those familiar with sports rights deals, it appears unlikely that any money will be returned. Most sports rights deals hinge on a certain number of games being delivered, and for the most part, the leagues that have played at least a portion of their regular seasons have likely satisfied that. And even if a league fails to meet those obligations, most observers believe that networks and the distributors will pay full freight in a showing of goodwill.
“There are contractual specifics that you have to meet and there are relationships that you want to maintain,” said LHB Sports, Entertainment & Media president and CEO Lee Berke. “Surrounding all of that is that this is just an absolutely horrendous situation and everybody is eager at this stage of the game to try to be supportive of one another.”
At researcher Kagan, a unit of S&P Global Market Intelligence, sports business analyst Adam Gajo agreed.
“It all starts with the contracts and the terms that they have agreed upon,” Gajo said. “At the same time, the networks need to try and work amicably in these tough times with the distributors. The media landscape was getting pretty volatile before COVID-19. Being harsh in this time could only hurt them in the long run.”
Berke added that most rights deals include Force Majeure clauses, which the coronavirus pandemic surely satisfies, and networks and distributors are attempting to find different ways to address the paucity of games. ESPN, for example, will air a H.O.R.S.E. tournament with NBA and WNBA players beginning on April 12. And while financial adjustments also will be on the table, he doesn’t see networks or distributors taking advantage of the situation for a short-term break on rates.
“There is the mathematical formula that says ‘I’m supposed to provide you with X and I actually provided you with Y, so I am going to take the difference and apply it to the financials,’” Berke said. “You’re not going to do that in such a doctrinaire way if your overall goal is to maintain the long-term relationship you really need.”
And sports isn’t the only entertainment sector that has seen a loss of content from COVID-19. Production on practically every TV show and movie has been shut down, leading some pundits to predict that there won’t be a fall premiere season for scripted shows. Sports is an easy way to fill those spots.
“It’s quite possible that in the fall of this year leading into the spring of next year, most broadcast networks may become de facto sports networks,” Berke said. “There’s a lot of goodwill and intention on all sides to address the financial issues and the shortfall [while] at the same time build and grow the relationship and offer a range of services and opportunities to make everybody whole, because the programming is going to be in substantial demand when everything restarts.”
Others said that less watched sports channels could become more important as play resumes and the places to air them becomes scarce.
“You might find that ESPN 2 becomes the meatiest network out there,” said one distribution executive that asked no to be named.
Berke added that expanded streaming may become a necessity, depending on when play resumes. Potentially three major sports leagues -- the NBA, NHL and MLB -- will be trying to squeeze in as many games and playoffs as possible in competition with the NFL (preseason starts in August), various college sports, the Kentucky Derby rescheduled to Sept. 5, the French Open beginning on Sept. 20 and the PGA’s Masters Tournament possibly beginning on Nov. 9. There may not be enough channel space to show them all.
“You’re going to have scheduling train wrecks coming up down the road as all of these sports bump into one another,” Berke said. “There’s only so much linear capacity. It’s not just the Masters and the NFL. There are all sorts of midrange events that are on as well. You’re going to find things popping up on the streaming services that are going to be remarkable. As part of the deals that are struck to meet whatever shortfalls are finalized, some of that’s going to be increased digital opportunities for these sports.”
Berke added that he sees the expanded digital offerings as going beyond just this year.
“Part is going to be addressing the short term issue of where does this game go on, but the other part is the longer term issue of accelerating something that is already taking place, which is the move to digital,” he said.
While sports junkies may be climbing the walls without games, it’s been less than a month since the NBA, NHL and MLB said on March 12 they would suspend their seasons because of the COVID-19 pandemic.
At that point, the NBA and NHL were practically done with their regular seasons. The NBA regular season was to officially end on April 15, so it had about 19 game-days remaining, while the NHL, which would have ended its regular season on April 5, had about 14 game-days left to play. According to several people familiar with sports rights contracts, it is fair to assume that both leagues have fulfilled those contractual obligations, and if shelter-in-place orders are lifted in May or June, those leagues could finish out their seasons and begin the playoffs, or just move right into the playoff schedule after a brief period of exhibition games to get players back in the swing of things.
Baseball, at least for the moment, is the outlier. MLB was scheduled to begin its regular season on March 26, but that has been suspended indefinitely. In the meantime, the league has investigated several alternatives -- including holding all games minus spectators in Arizona, which has about 10 ballparks within a 50-mile radius which would help contain any possible viral exposure -- but hasn’t yet come up with a plan. While some players have objected to a virtual quarantine in the desert for four or five months -- and some pundits have called for a compressed 32-game season -- for networks and the league, the key is getting to play as many games as possible.
Baseball has by far the longest season of the major professional sports leagues -- 162 games. And the league has dealt with work stoppages before. The 1994-95 players strike resulted in the season being canceled in August after 144 games, with no playoffs or World Series that year. According to reports at the time, the strike resulted in ABC and NBC losing about $595 million in advertising revenue, and led to the collapse of their partnership with MLB, The Baseball Network.
In 1981, players walked out on May 29, but returned to play on Aug. 9 after a settlement was reached on July 31. The two-month work stoppage resulted in a split season format that had mixed reviews. It was estimated at the time that about $146 million was lost in player salaries, ticket sales, broadcast revenues, and concession revenues.
But those were vastly different times. There were pretty much no regional sports networks in 1981 and broadcast networks still dominated sports rights.
One sports executive who asked not to be named said the volatility of the virus poses a big risk for the league, adding that if play were to resume too soon and then a few weeks down the road a player was diagnosed with COVID-19, they would be back to square one.
“It would be even worse than that -- you’d be back to negative square one,” the executive said, because the league would have to shut down for two or three weeks, deep clean every stadium and then start a mini-spring training again.
Japan is a perfect example of that fear. Japanese baseball officials set an aggressive schedule to return to regular play by April 24, in the meantime holding exhibition games without spectators. But on March 26, three players from the Hanshin Tigers tested positive for COVID-19. Now the league is saying it won’t start the regular season until mid-May at the earliest.
That same executive added that a 100 or 120-game season might serve the purpose of fulfilling contractual obligations and maintaining the integrity of the game. But like everything else in the COVID-19 era, that is left up to change and interpretation. In the meantime, distributors, programmers and players will search for the best ways to keep their businesses humming and their people safe.
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