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Are Sports Rights Behind Fox's Bid For Time Warner?

Fox made an unsolicited bid for Time Warner.

Joe Murphy

Today news broke that Fox recently made an unsolicted bid to buy Time Warner. According to multiple reports Fox offered in the neighborhood of $80 billion for all of Time Warner. Given all of Time Warner's media properties there are many angles of this proposed deal to consider, but the most interesting one from an Outkick perspective is this -- what would it mean for sports television? And how much of the decision is rooted in the value of sports programming? I think a ton. Let's dive in so I can explain why. First, it's no secret that most major sports rights are tied up for a decade or more. In fact, the only two major sports properties still to be sold are the NBA and the Big Ten, both of which could be decided this year. As ESPN, Fox Sports, NBC, Turner and CBS continue to jockey for sports properties, where do the companies presently sit?

That's pretty easy to answer, it's essentially a five-horse race -- ESPN, Fox, Turner, NBC, and CBS hold the vast majority of the major sports rights. When it comes to cable sports competition: ESPN, Fox, NBC, and Turner are the only companes with substantial programming assets. (While CBS has a sports cable network, its offerings are comparatively spartan.) 

Let's run down the major sports properties of each network going forward for the next decade or so:

ESPN: Monday Night Football, half of the NBA, the ACC, every SEC game except for the CBS national broadcast, the Big Ten, half of the Big 12 and Pac 12, the college football playoff, some Major League baseball, the Australian Open, Wimbledon, the French Open and the U.S. Open, the British Open, and half of the MLS. 

Fox: The NFL's NFC package, Major League baseball, the Big East basketball, the World Cup and FIFA soccer events except the EPL, half of the MLS, the US Open golf, half of the Big 12 and the Pac 12, half of the Big Ten Network, NASCAR and the UFC.  

NBC: The NFL's Sunday Night Football package, the NHL, the Olympics, the Triple Crown horseracing events, French Open finals, English Premier League soccer, seven or eight Notre Dame games, and NASCAR.

CBS: The NFL's AFC package plus the Thursday night NFL game, the SEC game of the week, U.S. Open tennis, the NCAA tournament in conjunction with Turner Sports, final rounds of the PGA Championship and the Masters.

Turner: Half of the NBA package, the NCAA Tournament in conjunction with CBS, some Major League Baseball, most of the PGA Championship.  

As I said earlier, the only major sports properties that haven't been sold for the next decade or more are the NBA and the Big Ten. (The EPL is also up in one more year). Figure that the Big Ten is going to be split in some way between ESPN and Fox and that the NBA rights package will remain with ESPN, Turner, and a new, smaller rights package will be created for Fox. (These are my predictions, I could be wrong. But I'm not wrong about the fact that there are only two more major sports properties on the market for the next decade or so). That would set the sports properties in place for over ten years. So how do you add sports properties if they're already sold? By acquiring the rights-holders. 

Most of the money in sports programming will be made through cable subscriber fees. All of CBS's top events are on broadcast television. So let's take CBS off the table as a cable competitor. That leaves ESPN, Fox, NBC, and Turner competing for cable rights fees and cable sports properties. Each of these companies is owned by a large media company, ESPN is owned by Disney, NBC is owned by Comcast, Turner is owned by Time Warner and 21st Century Fox owns Fox. Right now the best cable sports properties are owned by ESPN. The second best, arguably, are owned by FS1, followed by NBC and Turner. 

So for the next decade how will you be able to compete with ESPN, the unquestioned market leader, if the rights agreements are all locked up? (Remember, the vast majority of people are watching actual games, not ancillary programming. That is, while they may make money, the SportsCenters of the world owe their audience to the live sports lead-in before they start, not to their ability to stand alone and draw huge crowds of people). ESPN, the most expensive channel on cable, is presently making in the neighborhood of seven billion a year off subscriber fees. (That's $6 a month from every cable and satellite subscriber in the country). Everyone else makes much less than ESPN. But what's the best way to drive up your own subscriber fees? By grabbing live sports, the programming that sports fans must watch. The only real way to chase ESPN's programming lead is to add to your own live programming. So what are the most vulnerable cable sports assets on this list? Those owned by Turner's Time Warner. After all, Turner doesn't have -- yet -- a stand alone sports specific channel. Its sports assets live on TNT or TBS, two stations that feature mostly non-sports programming.  

So why would Fox try to buy Time Warner? To a large degree, it would be for the sports rights that Turner already has. If Fox Sports took Turner's half of the NBA, most of the NCAA tournament, more major league baseball and most of the PGA championship, couldn't you argue that FoxSports1 would be every bit the equal of ESPN when it came to rights? Sure, some of Fox Sports's programming would still air on Fox Sports -- just as some of ESPN's top sports programming airs on ABC -- but FoxSports1 would be overloaded with top sports programming. 

Think about the cable sports universe if Fox bought Time Warner:

ESPN would have: Monday Night Football, half of the NBA, the ACC, every SEC game except for the CBS national broadcast, the Big Ten, half of the Big 12 and Pac 12, the college football playoff, some Major League baseball, the Australian Open, Wimbledon, the French Open and the U.S. Open, the British Open, and half of the MLS.   

Fox would have: The NFL's NFC package, most Major League baseball, the Big East basketball, the World Cup and FIFA soccer events except the EPL, half the MLS, the US Open golf, half of the Big 12 and the Pac 12, half of the Big Ten Network, NASCAR and the UFC, half of the NBA package, the NCAA Tournament, and most of the PGA Championship.    

Can you definitely pick a winner between these two companies? The NBA's even, the NFL's a win for Fox, Major League Baseball's a win for Fox, soccer is a win for Fox, college football and tennis are wins for ESPN, Nascar's a win for Fox, NCAA basketball's a win for Fox, and golf is a win for Fox.

Holy hell, if Fox bought Time Warner then it arguably resets the cable sports landscape, snatching the title for most valuable sports properties from ESPN. Given that FS1 only brings in $400 million or so in subscriber fees right now (a number that should increase rapidly regardless), couldn't you argue that the sports rights increases alone from Fox grabbing Time Warner would be worth billions to this deal? I think you could. Especially if you consider the spillover impact that would benefit FS2, forcing substantial increases in rights fees there as well. FS1 could argue that its sports are easily worth $3 a month to cable subscribers. That's $3.6 billion a year.  

Ultimately, Time Warner has a ton of assets, but are any more profitable to the long range future of Fox than its sports assets? I don't think so. Could Disney recognize this threat to ESPN and end up making its own bid for Time Warner? It sure could. Regardless of your perspective, this is going to be fascinating to watch play out. Time Warner's sports assets could hold the key to the sports media kingdom.