Why the New NBA Deal Is So Weird. Plus, How Sports Rights Actually Work.

In an age of cults, sports are the last gasp of the monoculture—the last remnant of the 20th-century mainstream still standing. Even so, the new NBA media rights deal is astonishing. At a time when basketball ratings are in steady decline, the NBA is on the verge of signing a $70-plus billion sports rights deal that would grow its annual media rights revenue by almost three times. How does that make any sense? (Try asking your boss for a tripled raise when your performance declines 2 percent a year, and tell us how that goes.) And what does this madness tell us about the state of sports and TV economics in the age of cults and cord-cutting? John Ourand, sports correspondent with Puck News, explains.

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In the following excerpt, Derek talks to John Ourand about why the NBA’s media rights deal has ballooned so much.

Derek Thompson: You are here to explain sports media economics to me. And I want to start by confessing my astonishment and confusion. In most businesses and for most individual workers, if your key success metric goes down, your business suffers. But you look at the NBA: TV audiences for the NBA seem to have declined in recent years. Last season, I read the league average of 1.6 million viewers was down about 2 percent from the previous years, and yet the NBA, as I just said in my open, is about to sign a deal that will nearly triple its annual revenue from broadcasters.

This is just on its face a remarkable thing. If you walked into your boss’s office and he was like, “Look, John, your performance is getting worse by about 2 percent a year, and that’s why we’re tripling your salary,” that’d be a very weird conversation to come home and explain to your family. And I do think it is a reflection of the weirdness that is sports media economics, and I wanted your help to understand why it is so weird right now.

So let’s start with some basics. When the NBA signs a new rights deal, what does that actually mean?

John Ourand: So what that actually means is that they’re going to sign a deal with ESPN, almost certainly with Amazon, and it’s looking right now with NBC. And so the only way for you to watch NBA games moving forward is going to be on ABC or ESPN, because they’re both owned by Disney; ESPN+; Amazon Prime; or NBC and Peacock. Peacock, of course, is a streaming service for NBC. So they are buying the rights, so they control all of the NBA games. So you can’t watch it anywhere else but those three areas.

Thompson: And let’s say I’m Disney, I rent the right to broadcast NBA games for the next 11 years on ESPN and ABC and ESPN+. How does Disney make it worthwhile to them? How does a company like Disney make money from sports rights these days?

Ourand: This has changed. In the past, it used to be they would make the money back solely from advertising. So they would buy the rights, they would sell advertising against it, and it was pretty easy to come up with the rights fee for that. It was basically how much revenue you got in selling advertising, and then you’d put a little markup on that. And when ESPN got it about 15, 20 years ago, the calculus changed because ESPN gets paid by the cable operator, and they get paid a hefty amount. ESPN is the most expensive channel on your cable dial, and they’re getting paid $10 per subscriber per month, not just for the NBA programming, but for the NFL programming. And so there’s some portion of that that they allocate to the NBA.

So one of the reasons that cable came in and started destroying the broadcast networks in terms of getting the rights to come over is because they had that dual revenue stream. So they could afford to pay a lot more than broadcasters, who didn’t want to lose money. They were just selling advertising against it.

Thompson: So that basically takes us up from the 1990s into maybe 2010, 2011. But now we don’t just have the cable bundle. We have a structurally declining cable bundle, we have cord-cutting, and we have this explosion of Netflix and Amazon, who are just starting to get into the sports rights games. How does streaming change the economics of making your money back from all this money that you’re putting out to the sports leagues? And let’s stick with Disney, just talking about maybe how a company like Disney, with ESPN+ and Disney+, is thinking about making money from those streamers to pay off what it’s putting out to the NBA.

Ourand: So one of the ways that Disney is able to do that, and you also look at NBC with Peacock or you look at CBS with Paramount+, is that if they get these games and then they start to stream some of them exclusively, they get a lot more subscribers to their subscription services, which is what you want to do. NBC put an NFL playoff game, a wild-card playoff game, exclusively on Peacock. They saw an enormous number—I don’t have the numbers in front of me, but they saw an enormous number of sign-ups. And you would think that people would sign up for Peacock, watch a game, and then try to save, what, $10 a month or whatever Peacock costs, and then ditch the service. What they found is that close to 70 percent of the people that signed up for that game stuck with the service and started watching other things on the service. And then all of a sudden, it’s almost like being a drug dealer, I guess. They tested it, they liked it, and they stuck with it. And so that’s one of the attractions that these media companies, as they try to grow these streaming services, have with sports.

This excerpt was edited for clarity. Listen to the rest of the episode here and follow the Plain English feed on Spotify.

Host: Derek Thompson
Guest: John Ourand
Producer: Devon Baroldi

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