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Last week, Dallas Mavericks owner Mark Cuban betrayed his skeptical view for the future of sports media distribution when he sold a majority share of the team to the Adelson family, owners of the Las Vegas Sands casino empire, for $3.5 billion. It is a short-term cash-out at a near 11X multiple of his original investment ($285 million in 2000), implying that the team may not be as valuable in the future as it is today.
This bearish signal emerges at a time when the NBA is seeking to triple the value of its existing distribution rights deal where Disney—owner of ESPN and ABC, and Warner Bros. Discovery—the parent company of TNT and TBS—are collectively paying the league $24 billion over nine years through 2024. NY Post reporter Andrew Marchand reported that the likely outcome of current negotiations is that the NBA may not double or triple the value of its current rights deal.
As longtime readers of The Medium may recall, I like to quote an interview with Cuban from April 2020 where he lays out a vision of “three, four, five streams of the same game that’s going on traditional TV”. He also described “a unique opportunity to juice up paid-TV subscriptions” and offer gamblers an exclusive feed via TV with little to no time delay (“There’s a delta between a satellite feed and a cable feed and even a good stream”).
Cuban was prescient. Four years later, Amazon Prime Video is offering multiple streams of every Thursday Night Football game, and ESPN has found success in an alternate broadcast of Monday Night Football with the ManningCast (former NFL quarterbacks and brothers Eli Manning and Peyton Manning and guests. But now, Cuban’s sale reasonably implies that neither the Dallas Mavericks nor the rest of the NBA will benefit similarly from those distribution business models in a streaming world. Cuban’s checklist of experiments instead has become a helpful checklist to understand why the NBA's distribution deal will likely disappoint owners.
Key Takeaway
There is unlikely to be long-term upside to taking on short-term risks with streaming and sports betting in any future NBA deal. That presents a scary long-term future for his fellow NBA owners, and perhaps a scarier future for the NBA's existing TV distribution models.
Total words: 1,500
Total time reading: 6 minutes
Cuban’s Checklist
As I argued back in 2022’s "Billions of Dollars More In Sports Streaming Deals" , it is worth re-reading Cuban’s full quote whenever a new sports streaming rights deal is announced:
One of the things that’s changed dramatically in terms of making our games available is that we’ve gone from a bandwidth-constrained environment on paid TV to a non-bandwidth-constrained environment. … With the Mavericks, we’re having conversations: Can we have three, four, five streams of the same game that’s going on traditional TV? You might have one where you have Twitch-like announcers; you might have two of your favorite YouTubers that are doing another stream; you might have your traditional broadcasters doing another stream; you might have a players-only doing another stream. We don’t care if there’s four, five, six streams—we care about the aggregate audience. By setting the priority of being an aggregate audience, then we can do things to experiment and try a lot of different things.
Then there’s the element of gambling. You can have a gamblers feed where it’s geared toward the prop bets going on right now. That might be an element for paid TV that’s kind of a salvation. One of the problems with streaming is that you don’t know what’s going to buffer or when, and you don’t know if everybody is getting the feed at the same time. There’s a delta between a satellite feed and a cable feed and even a good stream—and that’s an issue for gambling on some level, maybe 5G changes that with low latency. But there’s a unique opportunity to juice up paid-TV subscriptions and get gamblers in particular say, ‘There’s this unique paid-TV feed that’s geared toward prop bets, gambling, so I know what’s happening.’
Broadly, Cuban is making two predictions:
Streaming has enabled the concept of "aggregate audience" across "four, five six streams", and that should be a team's priority in broadcast; and,
The growth of sports betting may counterintuitively save the pay-TV business from disruption of streaming.
Neither has held up almost five years later.
Traditional TV Dilemma
The ongoing NBA negotiations face the primary question of whether the NBA is still valuable to traditional TV networks. Warner Bros. Discovery CEO David Zaslav has vacillated openly about whether or not the company needs NBA rights—his latest salvo at last week’s New York Times Dealbook conference was “We don’t need the NBA.” Disney CEO Robert Iger has been more consistent in his desire to retain NBA rights, including discussions around bringing the league on as a minority investor in ESPN. The two companies together show about 160 regular-season games each year, and the playoffs and NBA finals. Most games are shown on cable (ESPN and TNT), and some on ABC.
Both companies need sports rights to keep their distribution partners happy. ESPN was crucial to the recent deal between Disney and Charter. ESPN is guaranteed pay for 85 percent of Spectrum TV subscribers, and the deal kept all six channels in linear packages reaching around 15 million homes. Warner Bros. Discovery does not have carriage renegotiations until 2025. NBCUniversal is circling negotiations to be a viable alternative to Warner Bros. Discovery or as part of the broader deal.
Teams have also relied upon regional sports networks (RSNs) for “free money” to NBA teams via high carriage fees paid by cable networks to the RSNs. Their programming (live sports, replays, and fan nostalgia) has provided cable networks and advertisers with the valuable demographic of 18-34-year-old males with disposable income to watch sports. For these reasons and more, cable networks have been willing to pay high carriage fees to carry these networks, sometimes over $6.00 per subscriber (ESPN charges MVPDs nearly $10 per subscriber for each of its six branded channels).
With cord-cutting that distribution and therefore those revenues are disappearing Diamond Sports Group and its subsidiary Bally Sports, the nation’s largest regional sports network, expect their RSNs to liquidate their operations at the conclusion of the 2024 MLB season next September. Afterwards, 15 franchises and NBA would then own the local broadcast and streaming rights after 2024. The rest of the NBA’s 15 franchises face a variety of interesting situations, from owned RSNs continuing (The New York Knicks, Brooklyn Nets, Los Angeles Lakers), and new local broadcast models emerging (Phoenix Suns, Utah Jazz). The latter will attract audiences at greater scale, but without the reliable revenues of monthly affiliate fees from cable networks.
Any new national deal is unlikely to compensate for these lost revenues, too.
As for streaming…
There is no evidence yet that there is demand from NBA fans for the model of multiple streams that Amazon delivers for the NFL (although Warner Bros. Discovery experimented with the format during last year's finals across TBS, TNT and Twitter). Amazon Prime Video is notable in this sense because it has had success on Thursday Night Football with “Twitch-like announcers” who comment on its Prime Vision with Next Gen Stats feed. It also has YouTubers (Dude Perfect), a players-only stream (LeBron James and Maverick Carter have a live version of “The Shop”, a show formerly on HBO). and a Spanish language feed. "Thursday Night Football" games have averaged about 12.5 million viewers.
Experiments like the ones Cuban outlined could still succeed in later iterations. But, the streaming businesses of both Disney and Warner Bros. Discovery are in a weaker position than Amazon. Streaming is a loss leader for Disney, despite promises of profitability by 2025. Warner Bros. Discovery has found profitability in streaming (with some financial engineering around cash saved from delayed productions resulting from the recent Hollywood strikes). It has created an add-on tier to Max branded with Bleacher Report, available to all Max subscribers for a promotional period through February 29 and $9.99 per month thereafter. But, it reported a loss of 1.8 million subscribers in Q2 and another 700,000 subscribers in Q3.
The business case for multiple feeds like Amazon’s requires scale and low churn that neither Disney nor Warner Bros. Discovery streaming efforts have. Amazon could deliver NBA audiences at ManningCast-type scale regularly. That would not be impossible. But, a deal would require Amazon to attract anywhere between 2 and 3 million viewers (which ESPN saw on opening night) multiple times per week. That may be more expensive and more risky than devoting the resources to ensure a tentpole production like Thursday Night Football succeeds once per week.
Bullish on Gambling
Cuban's checklist of experiments seemed to acknowledge, then, that there were no hard answers to audience demand fragmenting during cord-cutting. He was saw the clearest signal sports betting, assuming it would preserve enough audience demand to create a national RSN targeting sports bettors—basically, a discounted ESPN focused on betting. But there is no evidence that the demand from sports gamblers to arbitrage time delays across feeds, much less at the scale of a ManningCast on ESPN (plateaued at around 1 million viewers per game, down around 600,000 viewers year-over-year). It is a niche use case. Without it, the business rationale of his 2019 vision falls apart
That said, Cuban has long been a proponent of sports betting (since 2014). His deal with the Adelsons is a long-term bet that Texas will legalize sports betting and resort gambling despite current opposition from state lawmakers. That is risky, but the risk is shared with a casino organization and where the upside can be calculated in real estate value, gambling revenues and ticket revenues to future Maverick games.
In other words, the experiments he predicted have produced results that are more safe than exciting, and any therefore any future NBA distribution deal is going to be more safe than exciting. There is unlikely to be long-term upside to taking on short-term risks with streaming and sports betting in any future NBA deal. That presents a scary long-term future for his fellow NBA owners, and perhaps a scarier future for the NBA's existing TV distribution models.