Sports lawyers break down the fight over fees for TV channels like ESPN and YES and what would have to happen for their contracts to blow up
- A debate is brewing over the high cost of US sports channels when no sports are airing on TV, but the widespread pause on global sports probably won't have serious consequences for TV networks unless games don't return for many more months, experts in sports law told Business Insider.
- The sports-media industry is built on a byzantine system of expensive, multi-year affiliate and sports-rights contracts.
- For many deals, it would take 12 months without live sports to topple those agreements, or force the networks to take the actions specified during unforeseen circumstances.
- Doing so would have ripple effects throughout professional sports and media.
- "A lot of it depends on how long this lasts," said Richard Brand, a managing partner who specializes in sports law at the law firm, Arent Fox. "If we go through a year without sporting events on TV ... That's going to have significant consequences all the way down the food chain."
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Since mid-March, most major sports including the NBA, NHL, and MLB have been suspended or delayed. Others, like the NCAA's annual college-basketball championships, have been canceled.
With no marquee sporting events being played, pay-TV providers like Dish Network and Verizon have reportedly tried to reduce the fees they pay to sports networks. The New York Post reported that Dish was trying to get out of paying its April broadcast fees. Verizon told The Wall Street Journal it was trying to negotiate credits from networks and pass the savings onto customers. And New York Attorney General Leticia James has urged cable companies to cut sports-related fees from customers' monthly bills until live sports return.
The global shutdown of live sports has exposed the byzantine systems of expensive, multi-year affiliate and sports-rights contracts that drive up the cost of your average cable bill. But it would take nearly a year without live sports to topple those agreements, or force the networks to take the actions specified during unforeseen circumstances, legal experts told Business Insider. And doing so would have ripple effects throughout professional sports and media.
"A lot of it depends on how long this lasts," said Richard Brand, a managing partner who specializes in sports law at the law firm, Arent Fox. "If we go through a year without sporting events on TV, there's going to be significant payments of dollars back ... That's going to have significant consequences all the way down the food chain."
Most affiliate deals span years, and it's doubtful ESPN and other networks would be in danger of breaching them after two months without live sports
Like TV contracts, most affiliate deals aren't month-to-month. Sports networks commit to providing a certain number of live games or programming hours over a longer period of time, such as 12 months.As an example, ESPN's deals generally call for a specific number of "marquee" live-event programming hours over a 12-month period, John Ourand at Sports Business Journal reported, citing multiple sources.
The terms would differ for every deal. But if ESPN failed to meet its minimum guarantees at the end of the period, the contract could call for a reduction in fees the distributor has to pay, or "make goods," such as extra live events, in the next year of the deal, Brand said.
Under that structure, ESPN would likely have until the end of the year before distributors could try to use "force majeure," a contractual provision that protects the parties from unforeseen circumstances, usually including "acts of God," to try to get fee reductions.
"It doesn't automatically mean you're going to get money back," Brand said. "All the agreements have different thresholds to hit. And it's usually over the longer term. Right now, the only snapshot we have is for a two-month period."
ESPN isn't sleeping on its obligations either. It's managed to air some live events in the last month, including the NFL Draft. It also released the Michael Jordan documentary, "The Last Dance," and inked a deal for Korean baseball.
ESPN is the fifth most-watched cable network year to date, even though its viewership for the week ended May 3 was roughly half of what it was that time a year ago, Nielsen data showed.
"ESPN is still on, providing programming," Brand said. "It's not closed down. It may not be as compelling but you can't say, 'I'm not getting anything.'"
Other national networks like Fox Sports 1 and NBC Sports Network have similarly turned to alternative programming, like electronic or virtual sports, to fill airtime.
Affiliate deals for regional-sports networks, or RSNs, like the YES Network in the Tri-state area or Fox Sports Detroit, are a little different. Those deals usually call for a set number of games from specific leagues, which make up a portion of the league's season. The NBA and NHL seasons were nearly over before the pause, and RSNs may have already have reached their commitments to affiliates.
The MLB season, however, has yet to begin, and could become a bigger issue for RSNs if it's canceled or significantly pared down.
There are other dynamics at play, like the relationships between sports networks and leagues
Just as the cable companies are still on the hook for paying the sports networks, the networks still have to pay the sports leagues, even though they're not playing games. And those leagues use the media revenue to pay their teams, who pay their players and employees, and so on down the line."A lot of sports depend on media revenue to make their economics work," said Steve Smith, a managing partner practicing sports law at the firm, Bryan Cave Leighton Paisner. "The league pays that money to the teams ... A lot of clubs are very dependent on media revenue to keep the lights on."
Media-rights deals between networks and sports leagues are sprawling agreements that span years, too. And the networks would have to look at the portions of the seasons that have been canceled or postponed to fight for fee reductions or contract terminations.
But sports rights are also getting more valuable, given that live sports bring in the largest and steadiest audiences on TV. As cash-rich digital players like Amazon enter the bidding for rights, traditional sports networks like ESPN and CBS have leaned partly on their longstanding relationships with the leagues to win.
The networks may worry about pushing the leagues too hard during a delicate time and damaging their relationships.
"I don't know if the networks have the leverage," said Betsy Goff, an attorney and professor of sports law at Southern Connecticut State University, who worked at ABC Sports in the 1970s, IMG Media in the '80s, and ESPN until 2000. "I think the leagues, at this point, have much more leverage and can say to the networks, 'we have options'."
ESPN, for one, said it has continued to pay for certain sports rights. That's despite cancellations and deferrals that helped shrink the network's advertising revenue down 8% year over year during its quarter ended in March.
"We are working very, very closely with the leagues and the conference partners and we are looking forward to the return of live events," Christine McCarthy, chief financial officer at ESPN parent Disney, said during the company's earnings call on Wednesday. "We are in active discussions with them now."
The biggest impact from the current live sports shutdown could show up in the next round of negotiations
While discounts on cable bills are a nice sentiment that could make a good marketing ploy for a deep-pocketed pay-TV provider, most customers are unlikely to see sports-related breaks anytime soon.The biggest changes to come out of this moment will likely show up in future affiliate or sports-rights deals.
Two of the lawyers Business Insider spoke with said the pandemic was already driving negotiators to weave pandemics and other once-thought-unlikely scenarios into deals.
It may also embolden affiliates, like Dish, to push back on rate increases for sports channels in the next round of negotiations, especially if sports fans cancel their pay-TV subscriptions and don't return when live sports do.
Sports channels are by far the most expensive in the cable bundle. Carriage fees for sports programming cost about $20.82 per subscriber per month, Kagan, a media research group within S&P Global Market Intelligence, estimated. The carriage fees for ESPN are the highest, at around $7.89, followed by the YES Network, at $6.75 per month.
Sports networks are bundled with basic cable, in part to lower overall price sports fans have to pay. If ESPN were offered as an add on, like HBO, instead of packaged for all of the US's 120 million TV homes, it'd likely cost even more.
For people who don't watch sports, it stings to tally the sports-programming charges on your cable bill. It hurts more when sports aren't even airing on TV.
Experts are skeptical this moment will lead to a reckoning that pushes US sports networks out of the basic bundle. But the longer sports remain off the air, the more of a possibility it becomes.
The modern-TV industry never had to consider the widespread cancellation of live sports before. The closest comparison is the 1989 World Series, when an earthquake struck the stadium during game 3 and postponed the remainder of the championship season.
"Nothing like this has ever happened," said Goff, the professor of sports law. "Everyone is trying to figure it out."
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* This article was originally published here
https://www.businessinsider.com/sports-lawyers-explain-tv-carriage-fee-fights-contracts-espn-yes-2020-5
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