Report: Pandemic Could Upend Sports Media Business

In the wake of the coronavirus outbreak, the American television industry may soon be forced to reckon with the possibility that its entire business model could collapse due to the indefinite suspension of live sports, reports the media newsletter Byers Market at NBC News.

According to Dylan Byers this seemingly far-fetched scenario will only become more likely the longer the outbreak lasts.

The big picture: Television's stranglehold on sports rights is one of the last things keeping it alive as consumers cut the cord and flock to digital services. A long-term absence of live sports, especially the NFL, could lead to a breakdown in the agreements between sports leagues, broadcasters and distributors and shake the industry to its foundation.

First, a primer: The sports media business relies on a simple economic model. Leagues and associations like the NFL, NBA and MLB sell broadcasting rights to networks like NBC, CBS, Fox and ESPN. The broadcasters then try to recoup that money and turn a profit by charging fees to distributors like AT&T, Comcast and Charter while also selling advertising revenue. (Comcast owns NBCUniversal, the parent company of NBC and NBC News.)

This arrangement is the bedrock on which the television industry exists. Last year, 41 of the 50 most-watched TV broadcasts were NFL games. The College Football Playoffs and the MLB World Series accounted for another three. When you pay your cable bill, if you still have a cable bill, ESPN gets more of that money than any other network.

Without sports, and especially without football, fewer consumers would pay for television. Distributors would pay significantly less for networks like CBS and ESPN (why should they pay hundreds of millions of dollars every month just for SportsCenter?). The entire television business could, over time, collapse.

Enter coronavirus: The broadcasters now find themselves on the hook for sporting events they'll never get to air. Meanwhile, distributors are paying fees for channels that fewer and fewer consumers are watching. Those consumers are now all the more likely to cut the cord (which also drags down advertising revenue).

But there's a caveat: As part of their legal arrangements, sports leagues are contractually obligated to provide broadcasters with a certain number of live sporting events. The broadcasters, in turn, are contractually obligated to provide a certain number of hours of live sports to the distributors. In a world without sports, that becomes impossible.

If the sports suspension continues to the point where the parties fall into breach of contract, distributors could renege on agreements with broadcasters, and broadcasters could renege on agreements with the leagues. The parties might also invoke a "force majeure" clause allowing them to void contracts due to uncontrollable circumstances.