Formula 1 Deal Indicates Sports Rights Are Being Driven Off a Cliff
F1’s recent huge U.S. media rights hike — from $5 million a year to a reported $75M (+1,500%) to $90M (+1,700%) — has the feel of déjà vu.
While the $75 million a year for F1 rights on ABC, ESPN and ESPN+ is chump change versus what sports like the English Premier League, MLS and professional wrestling are raking in, let alone what bigger sports like the NFL are seeing, the F1 deal points to a trend of rights always on the up.
This has led to sports rights for TV and streaming services being worth $21.5 billion in 2022. With several big college conferences up for renewal over the next few years, as well as the NBA and WWE, VIP+ estimates this will increase to $29.2 billion by the end of 2026.
Compared with the rates that were being paid in 2015, this represents almost double being shelled out by networks and streamers for sports content. Which is all well and good, sports being a key driver for pay TV subscriber retention and attracting audiences for streaming services, but the constant uptick in value belies an obvious truth.
The number of cable and satellite subscribers shrinks every quarter. As VIP+ has previously noted, the cable networks themselves, faced with the eventuality of shrinking revenues from what were the plumpest of cash cows, have increased the monthly fees they charge MVPDs to carry their networks.
This is a desperate effort to stave off reality. Sports networks — and cable networks like TNT and USA, which prominently feature sports — have all seen steep increases in monthly fees over the last five years as they spend increasing amounts on content that is seen as cord-cutter-proof.
Yet simple economics will suggest that even the demand for sports isn’t perfectly inelastic. In order to pay for the steep increases due to be in place from next year onward, prices must rise accordingly.
ESPN soon will be the first cable network to charge all MVPD customers $10 a month, just to cover programming costs. Coupled with a likely recession and less disposable income due to inflation, this will force more to cut the cord, which in turn will see prices increase again in a textbook example of a product cycle of decline.
In terms of overall sports, the NFL is far and away the greatest rights collector, worth $8.8 billion in 2022. Given its audience pull, being the only sport able to draw subscribers back to MVPD and VMPVD services, it is understandable how it commands a premium.
That premium will rise to astonishing heights by 2026, with VIP+ estimating the NFL will account for 44% of the total $29.2 billion spent on sports rights in the U.S. by TV networks and streaming services. College sports, mainly football and basketball, are second with 15%, followed by the NBA at 13%.
Based on existing deals, announced renewals and VIP+ estimates, pro wrestling, UFC and NBA will have seen rights increases triple between 2015 and 2026. Another point of note is how comparatively small the MLB’s increase is, suggesting the league is aware of its growth rate slowing.
But all sports are cashing in on the increase trend, acting as if the gold rush is the new normal. Too little attention is being paid to what will happen if rights deals begin to crumble when their hyperinflation drives up the costs of pay TV and streaming services for consumers. Should that occur, people will look back at rights renewals like F1’s, with quadruple digit increases, and say the crash was inevitable.