NBA Commissioner Adam Silver speaks to the media during a press conference as part of the 2022 All-Star Weekend at Rocket Mortgage Fieldhouse on February 19, 2022 in Cleveland, Ohio.
Jason Miller | Getty Images
Regardless of whether it is a marriage between two people or a company and a sports club: it is not easy to dissolve a 40-year partnership.
The NBA and Warner Bros. DiscoveryTurner Sports has been in business together for nearly four decades. The relationship is now in danger, how ComcastNBCUniversal is trying to steal its gaming package with an offer of $2.5 billion a year, CNBC previously reported.
The league ended its exclusive contract renewal window with its two current media partners, Disney and Warner Bros. Discovery, on April 22. The league has since set a framework for renewing with Disney and bringing in Amazon as a new third partner and selling the other package to either Warner Bros. Discovery or NBCUniversal, people familiar with the matter say. The league is expected to triple the total value of a new deal from about $24 billion to $76 billion or more.
Warner Bros. Discovery continues to have discussions with the NBA about obtaining the rights, according to people familiar with the matter. The league could still opt for an extension with its current partner, but that is unlikely, said two of the people, who asked not to be identified because the discussions are private.
The more likely path would be for the league to sign papers with NBCUniversal, officially securing its offer. This would trigger a contractual option for Warner Bros. Discovery to match the offer.
Things could get tricky here.
Both the NBA and Warner Bros. Discovery have begun grappling with legal issues to determine whether the league can reject a potential game, the people said. The language of the deal is vague and it is unclear whether the NBA would be completely free to leave Warner Bros. Discovery if it matches the offer, the people said.
If Warner Bros. Discovery decides to join in and the NBA chooses NBCUniversal’s bid, the two parties could face litigation. One of the respondents said Warner Bros. Discovery believes it is fairly well protected by the contract language.
However, this remains hypothetical at this point. It’s possible that Warner Bros. Discovery won’t be able to compete with NBCUniversal’s offering, which would avoid potential conflicts.
Some league officials worry that Warner Bros. Discovery’s balance sheet is insufficient to spend $2.5 billion annually on the NBA, people familiar with the matter say. Warner Bros. Discovery has a market valuation of about $20 billion and an enterprise value of about $60 billion, including gross debt of $43.2 billion, at the end of the company’s first fiscal quarter. The company had a leverage ratio (net debt to adjusted earnings before interest, taxes, depreciation and amortization) of 4.1.
David Zaslav, CEO of Warner Bros. Discovery, has preached both publicly and privately the importance of financial discipline for the company.
NBCUniversal’s parent company, Comcast, has a market cap of around $154 billion and an enterprise value of $244 billion. Comcast’s debt-to-equity ratio is around 2.5.
NBA officials believe Comcast can pay more than double the previous price for the package, according to people familiar with the matter.
Warner Bros. Discovery paid $1.2 billion a year to broadcast NBA games. The new package also includes fewer games than the current one, as the NBA will likely introduce a third partner – most likely Amazon.
Spokespeople for Warner Bros. Discovery and the NBA declined to comment.
The fate of Venu
Warner Bros. Discovery, Disney And Fox announced on Thursday that they plan to call their new sports streaming platform Venu, taking inspiration from the places where live sports are played. The new joint venture, in which each media company has a one-third stake, will offer a bundle of sports channels and ESPN+ at a yet-to-be-determined price that is cheaper than traditional cable television. CNBC reported earlier this year that the price could be around $45 to $50 per month. The service will be introduced in the fall, the companies said.
The three companies have not yet officially signed the documents regarding the project as they are awaiting regulatory approval. If Warner Bros. Discovery loses the NBA, it will reduce the value of the service to consumers since NBCUniversal and Amazon are not partners in the product.
Warner Bros. Discovery licenses the rights to other sports leagues and groups, including MLB, the NHL and the National Collegiate Athletic Association’s March Madness. The company will definitely have the NBA next year as well, as the new rights deal doesn’t take effect until the end of the 2024-25 season.
There was no discussion about shutting down the company before launch if Warner Bros. Discovery loses the NBA, according to a person familiar with the matter. Still, without the NBA, Disney and Fox would contribute the lion’s share of sports content to the service. Disney’s ESPN and Fox own both college football and NFL packages, unlike Warner Bros. Discovery. The three companies plan to split revenue according to affiliate fees associated with their linear networks.
Warner Bros. Discovery could use the money it saves by forgoing NBA rights to pursue other sports, such as more MLB games or bidding for UFC, which is likely to have contract extension talks with media companies in early 2025 will record.
ESPN plans to launch its own “flagship” streaming service in fall 2025.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
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2024-05-16 23:14:28
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