As Turner Sports and the National Basketball Association open negotiations for a new cable TV deal this week, operators are preparing for yet another round of sports-related license-fee increases for whomever eventually snags those rights.
Turner and The Walt Disney Co.'s ESPN — and possibly its newly acquired Fox Family (to be redubbed ABC Family) — are among the front-runners to land a new NBA deal, which sources predict cost the eventual right winner far more than the $890 million Turner paid in 1998. A win by ESPN would give the total sports network rights to all four major U.S. pro sports.
But Turner — which has an exclusive, one-month negotiating window with the league beginning Sept. 15 — wants to retain the package for Turner Network Television and TBS Superstation. Company executives, though, say the network isn't going to break the bank paying for it. Turner has suffered through yearly declines in NBA ratings, mostly due to lingering resentment from the league's first-ever work stoppage in 1999 and the retirement of superstar Michael Jordan. Turner's current deal expires with the conclusion of the 2001-2002 season.
Sources said Turner would seek changes in the next deal — including the possible implementation of a Turner-exclusive game of the week — to help boost ratings.
Turner Broadcasting System Inc. president of domestic distribution Andy Heller would not comment on whether the network has a maximum price it would pay for an NBA renewal deal. But he did say the company would be aggressive in pursuing a renewal.
"I'm confident that we will have good-faith negotiations with the league as what a fair deal should be for both parties," Heller said. "I think the NBA is strong product and should remain on TNT."
But Heller admitted with or without the NBA, operators will most likely face a TNT rate increase in the near future, as the network looks to recoup what it spent for its multimillion-dollar National Association for Stock Car Racing (NASCAR) package, its Wimbledon tennis tournament deal and its off-network entertainment series acquisitions like Law & Order
and NYPD Blue.
TNT hasn't increased its approximately 50-cent licensing fee recently, despite several high-profile programming acquisitions — a fact Heller hopes the operators will consider once a "reasonable" rate increase does cross their desks.
"I'm hoping to pay a reasonable price [for the NBA] so that I can pass on a reasonable price [to operators], so as not to gouge affiliates," Heller said. "We're not in the business of surcharging people for product, but we can't eat these programming costs forever."
If Turner cannot reach a deal with the NBA, ESPN could be next to step on to the pro hoops court.
The network has acknowledged that it's interested in obtaining the league's cable package. Industry observers said an ESPN-NBA deal, which would give the network a cable stranglehold on all four major professional sports leagues, would significantly boost the network's leverage.
An NBA pact would also provide ESPN with another high-profile property to justify its annual rate increases, which run from 10 percent to 20 percent and routinely raise the ire of operators and invoke regulatory scrutiny.
Some observers believe the NBA might split its cable package between the parties as a gambit to derive more rights revenue. A dual package might also be a means of rewarding ESPN for its expanded coverage of the Women's National Basketball Association, and for picking up the ball on the National Basketball Development League, which tips off its inaugural season this year.
ESPN2 will provide regular season coverage of the eight-team circuit, while ESPN and its spin-off will telecast playoff action.
Further, Disney could conceivably use NBA games as a ratings draw for its recently acquired Fox Family network. Disney last July agreed to pay $3 billion in cash and assume $2.3 billion in debt to purchase Fox Family Worldwide from News Corp. and Saban Entertainment Inc.
That figure was at the high end of analysts' valuations of Fox Family — which ranged between $3 billion and $6 billion — and works out to be about 34 times estimated 2001 cash flow. Needing strong, recognizable marquee product to boost ratings, advertising sales and, ultimately, licensing fees, live NBA games could provide a major boost to the relaunched service, sources said.
"I was expecting a 100 percent increase in [Family] fees before any mention of the NBA," said one operator who wished to remain anonymous. "If that happens, the sky's the limit."
In regard to a potential NBA deal, ESPN programming senior vice president and general manager Mark Shapiro would only say that ESPN would look at "any opportunities across our properties" should it secure an NBA package.
But whether it's Turner or ESPN, operators said they would feel the greatest brunt of the new NBA deal in terms of increased licensing rates.
"No matter who gets it, they're sure to raise the rates," Massillon Cable TV president Bob Gessner said. "Their goal is to gain viewers from other networks and they will spend as much as they can to get those eyeballs."
But one top-five MSO programming executive conceded that operators need sports programming to remain viable in an increasingly competitive TV marketplace. Operators will continue to pay for increasing sports rights fees until consumers decide they no longer want to pay increased cable fees, the executive said.
"Sports programming such as the NBA is important for both DBS and cable to retain their customers," said the operator. "That means that the costs to have and retain those programs continue to rise with the demand."
Heller said he understands operator concerns over rising sports rights and said Turner has been very responsible in holding down its networks' licensing fees. But he said marquee and often-expensive programming like the NBA is a valuable draw for viewers and local advertisers for network and provider alike.
"I think the cost of programming is a big deal industry-wide and the significant increases that some networks have pushed makes it more difficult for everyone else," Heller said. "But I think such product helps retain customers, so it's product that operators need and want.
"The key for us is to keep the [rate] increases as low as we can without impacting our business models," said Heller.
