Buy The Boon In Live Sports Broadcasting

Honestly, spring is right around the corner, no lie! Once the country climbs out of the Siberian Cold Front plaguing most of the nation, flowers will blossom, cardinals will be chirping, and the sound of baseballs cracking off Louisville Sluggers will be heard.

It is that time of the year, when we brush off the snow, and emerge outside after months of cold weather and return to the nation's pastime, baseball. Lucky for the athletes, they get to warm up in Arizona, and Florida for spring training.

Over the past few years, baseball players have seen significant upswings in salary, and this is primarily due to the increasing trend of massive television contracts each team is signing with major broadcast networks and cable companies. Players' salaries have exploded since the 1970s. According the MLBPA (MLB Players Association), the average salary in 1970 was $29,303, in 1980 it was $143,756, in 1990 it was $597,537, in 2000 it was $1,895,630, in 2010 it was $3,297,828, and in 2015 the average salary is expected to be $4.0 million. Major TV and cable deals started in the mid-to-late 1990s, and have increased each year up through 2015.

The most recent TV contract was by the Houston Astros, signing a deal that is expected to be above $1.5 billion over the next 15-20 years. This would triple their previous television contract which ended up averaging $31 million per year for the club, but is now valued at over $93 million per year. While this seems like a lot, the New York Yankees earn about $385 million per year with their current TV contract, and the LA Dodgers are right behind the Yankees with about $330 million per year. These billion-dollar deals are enabling MLB teams to buy free agents, and therefore driving up the average salaries into stratospheric levels as demonstrated by the average player salary decade over decade.

So why are TV and cable companies paying billions of dollars for these contracts? Because live sporting events are essentially DVR proof. It goes to the same level of why advertisers pay $4+ million for 30-second commercial spots during the Super Bowl: people are watching live, and therefore almost guaranteed to watch the sponsor's advertisement (while not at the same viewership levels, it is a captive audience). This does not occur with normal scheduled television shows because people tend to DVR their favorite shows, or stream the shows via Netflix or another online service provider. But people tend not to DVR live sporting events - they watch them live.

Leaders in Televising Live Baseball Games

One of the first big players in the baseball television expansion is ESPN, a Disney (DIS) owned network, which began to televising games in 1990. Just two years ago, ESPN inked an 8-year $5.6 billion agreement to keep MLB games on the network through 2021, anchoring their Sunday Night Baseball block. Disney paid a 100% increase from their previous contract, which broke the all-time record for broadcast deals, and is now paying about $700 million per year. This contract enables Disney to broadcast up to 90 regular season games per year, coverage of Opening Day, and All-Star game festivities.

While Disney made a huge splash into the live sporting events category with the $5.6-billion agreement, they were not and are not the only ones getting into the game.

21 Century Fox (FOXA) has been gobbling up regional sporting events as quickly as they can. Fox, has more than 30% of all baseball teams under contract to show all their games, at a minimal annual cost of $680 million (contracts have ranges, and this is a close approximation. Also, equity stakes are not accounted in this number, or partial ownership deals for the likes of the YES network).

DirecTV (DTV) through its subsidiary Roots Sports, has the rights to 10% of the league, costing them about $153 million per year.

Comcast Corp (CMCSK) has just over 16% of all MLB teams under contract, costing about $510 million annually. The bulk of the money goes to the LA Dodgers, who get $330 million a year from Comcast Sports.

And soon to be part of Comcast network, Time Warner Cable (TWC) has a small investment in MLB through the New York Mets franchise. Time Warner owns 27% of the SNY network which has the rights for the Mets games, therefore costing TWC just over $18 million annually.

Long View

These TV and cable companies are investing long-term into live sporting events to combat streaming video companies, and the now ever-present DVR machines. This move is designed to ensure the life-blood of TV and cable companies; advertising dollars and subscriptions. These live sporting events bring in higher commercial rates, and are very easily targeted to specific demographic groups.

Who to Watch

Disney holds a Zacks Rank #2 (Buy) and has a strong foothold in live sports programming, and continues to invest long-term into many different sporting franchises. Their recent long-term commitment to MLB is a prime example. Through the ESPN segment, Disney is one of the leaders in live sporting events worldwide. This commitment to live sports will continue to attract viewers for the long term and therefore will be a positive for their top and bottom lines.

21 Century Fox holds a Zacks Rank #3 (Hold) and currently has the most exposure to MLB; it's attempting to further their exposure to live sporting events. The signing of the UFC (Ultimate Fighting Championship) is another prime example of their commitment to live sports programming. This company obviously has many arms to their business model, but management has been pushing live sporting events. For example, Fox, recently started Fox Sports 1 and Fox Sports 2 channels to capture the eyes of millions of live sports fans. This commitment to live sporting events will ensure strong advertising dollars for the near and long term.

DirecTV holds a Zacks Rank #3 (Hold) has three baseball teams through its Roots subsidiary, the NFL Sunday ticket package, NBA League Pass, MLB extra Innings, NHL center ice, and several other smaller sports packages. This premium offering enables fans to watch out-of-market games which not only helps DirecTV, but it also puts eyes on their competitors sporting events as well. This satellite cable provider has heavily invested in live sporting events in both the near and long term.

Bottom Line

With increasing competition from the likes of Netflix, TV and cable providers are doing everything they can to keep and attract eyeballs on their shows. We believe that Disney, 21 Century Fox, and DirecTV are the best positioned to capture the live sporting events segment for the long term. It is believed that live sporting events will be the major driver behind growth and sustainability for TV and Cable companies going forward.