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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: Warner Brothers Discovery (WBD), parent company of current NBA rights holder TNT, did not reach an agreement during its exclusive negotiation window with the NBA. Now, NBC has come in with an ultra competitive offer that puts WBD in a Catch-22. The showdown is existential for WBD, and it could lead to other ripple effects in the industry.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: Global soccer valuations and how the MLS continues to ascend

• 💪 Weekly Reminders that Sports are Awesome: Candace Parker takes over women’s basketball at Adidas, and the Utah NHL team turns to a familiar technology to help pick its name.

Hey team,

One of the biggest stories in sports business this year has been the negotiations for the NBA’s next media rights contract, set to start with the 2025-26 season.

The new, 11-year deal was estimated to 2-3x the current agreement, which sees ESPN and TNT — owned by Warner Brothers Discovery (WBD) — collectively pay ~$2.7 billion annually ($24B total) for the Association’s rights.

Given the turmoil in the sports media market and the downward pressures on the media companies (refresher on the current industry landscape here), there were questions if that top-end target, which would net the NBA $~76 billion over the life of the new deal, was attainable.

Something that has become apparent during the current NBA’s commissioners run, though: never bet against Silver to bring in the gold.

Incumbent ESPN recently locked in the marquee package for a reported $2.6 billion per year, and Amazon is closing in on a lower tier package at a reported $1.8 billion annually.

This leaves the middle tier group of games, which TNT has owned for nearly four decades and built hallmark programming — i.e., Inside the NBA, Bleacher Report — around.

The exclusive negotiating period for TNT passed without a deal, and a familiar foe has now entered the fray.

NBC (owned by Comcast), which once had the NBA back in the 90’s and early 2000’s, has reportedly offered an eye watering $2.5 billion (120% higher than the current deal) for this package, causing WBD to scramble to put together a competitive counter — well above its initial offer — if it wants to retain the rights.

This sets the stage for a major showdown that creates the ultimate “Catch-22” for WBD and could have far reaching effects on the sports media space regardless of the outcome.

In this week’s SBP, you’ll learn (with the assistance of some memes):

• How the NBA is carving up its new media rights package

• The “tale of the tape” between WBD and NBC

• The outcomes of either scenario

• What I think the NBA will do

• The ramifications this broader deal will have on the industry as a whole

Demand > Supply

As we have discussed in prior editions, the NBA is a marquee entertainment product. It’s not the NFL, but it’s still in the top tier, and it was sure to be coveted by a number of media companies and streaming providers during this media rights cycle.

Knowing this, the NBA split its rights into three tiers instead of two this time around:

• “A” Package (ESPN/ABC): A conference final, playoff games, Wednesday night primetime games, and the NBA Finals (the crown jewel)

• “B” Package (WBD or NBC): A conference final every other year, NBA All-Star Weekend, playoff games, and a primetime, exclusive window once or twice a week.

• “C” Package (Amazon): The In-Season Tournament (to be called the NBA Cup next year), the Play-in Tournament, a conference final every other year, and a primetime, exclusive window once a week.

This introduction of the third package has enabled a third, streaming only partner to enter the mix, and it’s also given the NBA a bidding war on the “B” package even though it’s a scaled down package (the “C” package pulls from both the “A” and “B”).

For context, TNT paid $1.2 billion for this package 10 years ago.

NBC’s $2.5 billion offer effectively doubles that for less of a package, and it now puts WBD in an existential dilemma (more on that later).

Even if WBD does match NBC’s offer, the NBA has a lot to think about here given what NBC brings to the table in addition to the money.

Sportico’s Jacob Feldman had an excellent tweet recently laying out a “tale of the tape” between these two media companies. I’ve copied that into the table below and added a few additional nuggets.

Note: NBC also gets a boost with the sports nerds like me because if it wins the package, it means the return of the greatest sports programming theme song ever.

There’s an argument to be made for both sides, and the NBA is going to have to make a difficult choice. Here’s what either outcome means for the media companies involved plus the broader ecosystem.

What Happens Now?

If WBD Wins

WBD is between a rock and a hard place here.

They will have to pay a fortune for a reduced package to keep the NBA rights now. This adds to an already challenging situation where they are still paying down $43 billion in debt following ATT’s disastrous years of ownership.

But, they may not have a choice.

WBD’s cable division’s performance is primarily tied to its ability to retain these sports rights in order to maintain its carriage fees with the cable providers.

If you remember from our sports media primer, media companies like TNT make their money in two ways:

1. Sell advertising in commercial breaks. A better product on the screen means more coveted advertising spots, which means more revenue.

2. Charge a “carriage fee” to the cable company for the rights to carry the media partner’s channel. Having a suite of premium products means the cable company’s viewers will want the channel, so they’ll be willing to pay more.

TNT has one of the highest carriage fees in the industry at $3 per subscriber, which nets out to roughly $2.56 billion annually and drives nearly 30% of WBD’s total domestic linear TV revenue.

Losing the NBA significantly diminishes the leverage WBD has over the cable companies. Yes, it has the MLB, NHL, and a large portion of March Madness, but it’s highly unlikely it can maintain that high of fees without its flagship product.

As Macquarie analyst Tim Nollen said in a note to clients following the news of NBC’s involvement:

Citi analyst Jason Bazinet drilled into specifics, estimating the loss would mean a $250 million hit to adjusted EBITDA, driven by a $270 million loss in annual ad revenue and a potential 45% decline in TNT's affiliate fees.

That’s before you factor in how much damage it does to the three-way, “Spulu” agreement with Fox and ESPN. Given the joint venture is structured as a proportional revenue share, WBD will be an even bigger little brother to the other two behemoths if it loses the NBA rights.

So, while it creates short term pain, this is an “existential” deal for WBD, as Sportico’s Anthony Crupi notes. I fully believe Zaslav and company will counter with an aggressive offer to keep the NBA package.

If NBC Wins

NBC is objectively overpaying with this bid, and some even think this offer may be a ruse.

The organization has a history of impish behavior where it jumps in with a bid to drive up the price on a deal they may or may not be interested in as a means to further hurt their competitors’ balance sheets.

The most recent example: the 21st Century Fox-Disney deal in 2018 where NBC bid $65 billion after Disney’s $52 billion offer, forcing the Mouse to jump all the way up to the final number of $71 billion.

There very well may be some similar gamesmanship here (and NBC could be looking at TNT/TBS as an M&A target and attempting to weaken them), but the reality is that NBC probably wants this package and will take the hit to own quality content rights.

As with all streaming providers, it is attempting to gain and retain subscribers on its Peacock platform, and it believes sports rights — NFL, Premier League, and Olympics — are a great way to accomplish this. Grabbing the NBA would be another feather in the cap for this strategy.

What’s interesting is that TNT/TBS could be M&A targets for NBC regardless of the outcome.

If NBC wins, it effectively signs WBD’s death warrant in the cable space, and it could snap up the other rights via TNT/TBS at a discount.

If WBD wins, NBC could still come over the top and get the NBA rights by acquiring the cable companies given WBD’s precarious financial position that has just been further exacerbated due to overpaying on this deal.

This has to be a part of the calculus, and it is, as Scott Galloway likes to say, a “gangster move.”

What does the NBA do?

As much as I love Inside the NBA, I think the Association needs to take its talents to NBC/Peacock.

WBD may be able to put together a competitive counteroffer to NBC’s, but it feels too messy at this point. The company is constantly going to be looking over its shoulder while it tries to get out from underneath its debt load, and it will not be able to invest in the next generation of entertainment like the NBA wants.

This is where NBC can thrive.

As the sports consumption world splits further into two camps — over-the-air broadcast and streaming — and leaves behind cable, having a well-capitalized partner firmly entrenched in both camps fortifies the NBA’s future.

I doubt the decision will be made lightly given the longstanding Turner relationship and the company’s contributions in building the league into what it is today, but, ultimately, the league will do what is in its best interests.

And that’s NBC. Queue Roundball Rock one more time!

What else will happen?

More broadly, this will have knock-on effects in the broader industry.

The marquee sports properties are calling the shots at this point.

There is much speculation about what the sports media world looks like the next time the NFL or NBA rights come up for bid in the 2030s and if they will lose some leverage, but in my view, there is still going to be an outsized demand for their rights.

Media companies are beholden to maintaining high affiliate fees and/or driving streaming subscribers, and they will spend whatever it takes on the premium content. Plus, there will always be new competitors looking to wade into the fray, which keeps demand (and, therefore, prices) up.

That being said, there is only so much cash to go around, and the continuous growth of top tier rights means there is less money now for lower tier sports products.

Given almost every league/team counts media dollars as one of its primary revenue streams, this spells trouble for the lesser properties.

There was a reckoning last year with the Pac-12 implosion, and I’d anticipate additional ripples in the industry as the sports business tries to evolve its business model.

🍸️ Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: Warner Brothers Discovery (WBD) — parent company of TNT — could not reach a deal during its exclusive negotiating period with the NBA for its next media rights deal, and NBC has now come in with a $2.5 billion offer that is 120% higher than the amount TNT currently pays.

• Shot: For this new media deal, the NBA chose to carve up its games and playoffs into three packages instead of two. ESPN kept the “A” package, Amazon successfully bid on “C”, and NBC and WBD are now fighting for “B.”

• Shot: There are reasons for the NBA to choose either company. TNT has been an NBA partner for 40 years, it has helped build up much of the technological innovations that have driven the league forward, and its shoulder programming — Inside the NBA and Bleacher Report — are now cornerstones of basketball culture. NBC brings deeper pockets, greater reach via its over-the-air broadcast channel as well as its Peacock streaming service, and it has the capacity to innovate more than WBD given its size and scale.

• Shot: WBD will have to counter on this. Its cable business is too tied up in TNT being able to charge high carriage fees to cable companies, and losing the NBA means they lose a lot of their leverage. If NBC wins, it effectively signals the end of WBD’s viable presence in cable. They could become an M&A target for NBC regardless of the outcome.

• Shot: Ultimately, I think the NBA sides with NBC due to the stability, ability to meet consumers where they are, and opportunity to innovate.

• Chaser: This significant deal will have ramifications for the rest of the industry as well. There is a finite pool of money that these media companies can put towards sports, and more and more of it is going to top tier properties. This creates downstream problems for the lesser entities that rely on that revenue, and as we saw with the Pac-12 implosion, it could even have catastrophic consequences.

Note that you should also skim through the memes above!

🤯 “Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The power of a salary cap and no relegation

💪 Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. WNBA legend Candace Parker moves into the boardroom at Adidas

2. Utah’s NHL team is running a fan survey for their new team name. The process comes full circle, as owner Ryan Smith made his fortune off of Qualtrics, a customer survey platform.

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex