Successes and Messes

With the NBA, TV networks get a jump on a deal

By on / Business Negotiations

In negotiation, as in other areas of life, the early bird often gets the worm. That’s just one of the lessons of a new deal reached between the National Basketball Association (NBA) and television networks ESPN and TNT in October.

A running start
As they considered the end of their eight-year television contracts with the NBA in 2015 and 2016, the two networks, which air most of the league’s regular-season and highly lucrative postseason games, each decided to get a jump on things. Their exclusive negotiating period with the NBA would end in spring 2015, and they assumed that other TV networks, most notably Fox and NBC, were ready to pounce.

Moreover, ESPN and TNT recognized that technology companies such as Google and Apple might eventually begin to bid on sports broadcast rights, the Associated Press reports. Even if such digital deals were unlikely to happen in the near future, the networks saw value in locking in a long-term deal to forestall that possibility.

As for the NBA, it could have waited to open up the bidding to NBC and Fox in the spring. But league commissioner Adam Silver decided to move ahead with renegotiations, his first on behalf of the NBA, apparently confident that he could secure competitive prices without increasing the number of negotiating partners.

Net profit
Silver’s confidence was warranted: On October 6, the NBA reached nine-year deals with ESPN and TNT totaling $24 billion. The deals will increase the NBA’s annual revenue from TV rights nearly threefold, from $930 million to $2.6 billion.

Why the big jump? Fees for broad-casting rights have skyrocketed across professional sports because of their growing popularity with advertisers. And because viewers still tend to watch games live, rather than recording them, they can’t fast-forward through commercials.

The networks also paid for extras aimed at making basketball a year-round sport. Both TNT and ESPN and its broadcast partner ABC added more regular-season games to their schedules. ESPN also gained expanded rights to air highlights and NBA studio shows, as well as broadcast rights to the NBA’s summer and developmental leagues. TNT will air a new postseason NBA awards show.

Interestingly, ESPN also negotiated for the right to stream some NBA games on a new Web service that would not require a pay-television subscription. Even as they signed deals that virtually guaranteed higher cable fees for consumers, the parties seemed to understand that young people increasingly are looking for cheaper ways to view sports.

ESPN’s deal cements its reputation as the powerhouse sports network. It now owns broadcast rights to the NBA, the National Football League, Major League Baseball, college football playoffs, and four of the five major football conferences through at least 2021, according to the Associated Press. Its competitors will remain on the sidelines for years to come.

A tip-off for other partners
“These are extraordinarily healthy deals financially,” NBA commissioner Adam Silver commented on the new agreements.
“There’s never been a better time to be an owner of an NBA franchise or frankly any professional sports team,” Washington Wizards owner Ted Leonsis crowed.

The significance of the deals wasn’t lost on NBA players, who in 2011 were locked out by the team owners in a salary dispute. On the day the TV deals were announced, NBA superstar LeBron James, a leader in the players’ union, noted that during the last bargaining period, the owners had claimed they were losing money. “There is no way they can sit in front of us and tell us that right now,” James said.

3 pointers from talks with the NBA:

1. Be fast off the mark. When facing a renegotiation, try to move ahead of the competition by initiating talks well in advance.

2. Start from scratch. Rather than focusing on your existing agreement during a renegotiation, think about how your industry is changing and look for new sources of value to capture.

3. Curb your enthusiasm. When you gloat about the great deal you just got, you decrease your counterpart’s satisfaction, research shows, and also convey to future partners that you have a lot to give.

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