Those of us that remember when a $100,000 ball player was a big deal are accustomed to sports salaries and prices increasing at phenomenal rates. Clay Travis has a thoughtful column on why it may end soon.
Sidebar: According to Travis every cable/satellite subscriber, like MWG, is paying $30 a year for the NBA. Since we watch no basketball of any kind in the house ( we know it exists because we see it elsewhere) we are interested in a different pricing model. If we could trade handball for basketball it would be a deal. End Sidebar.
The cause of the shortfall is that ESPN has gone from 101 million to 89 million subscribers over the past five year. Travis uses an idea from Sports TV Ratings that identifies the losses in three area: death (us old folk are likely to subscribe), cord cutters, and cord nevers. The demographics make sense to us. Therefore, the extrapolating the drop in ESPN revenues is not as unreasonable as most extrapolation is. ESPN’s Monday Night Football contract expires in 2021 when they are estimated to be down to 73 million subscribers. Something will have to give at that point. We don’t have the price elasticity data on subscriptions but we are of the belief that a sharp increase in prices will lose lots of subscribers. So the reckoning on sports revenue will could come in the next five years. It will be ugly if it happens. Nobody wants less.
We think Travis’ vision is pretty likely but there are a couple of reasons to think it won’t happen. We could go to a world-wide model where the numbers in emerging countries like China and India allow for a cord solution. ESPN could have many channels if it had a billion subscribers. Rational economic policies cannot be taken for granted (see USA). Another alternative is that teams will find a new revenue source that is not tied to the cord. It is not our area of expertise but it is certain the teams will find new sources of revenue. One issue is the amount. Will the additional revenue make up for losses to the cord? The other issue is control. If you have the cord you have seen the Real Madrid advertisement. Will teams control the revenue or will leagues control the revenue. We might end up with three or four real teams and a bunch of teams that provide competition. Travis is right big changes are ahead. They might be the ones he envisions or they might be very different.