Analysts said Thursday that The Walt Disney Co.'s ESPN has scored a touchdown by renewing its Monday Night Football deal with the NFL for another eight years through the 2021 season.
Although on the surface, the deal seems as if it would raise costs tremendously, there's not a huge increase from the tail end of the current deal to the start of the new one. Costs go up a little in each year of the deal.
The average is $1.9 billion per year, up from the current deal at $1.1 billion, two people with knowledge of the agreement told The Associated Press. The people spoke on condition of anonymity because no money figures officially were announced.
Factoring in a one-time bump when the new contract kicks in for the 2014-2015 season, Morgan Stanley analyst Benjamin Swinburne said the deal will increase costs 6 percent a year for the life of the contract. That's below the 10 percent annual inflation for sports rights fees in general over the past decade.
Disney will likely be able to make money by hiking fees even more to pay TV distributors such as Comcast Corp. and Time Warner Cable Inc., he said. Those distributors pay per-subscriber fees to carry channels such as ESPN on their lineups.
"We believe ESPN can leverage this investment into incremental (earnings before interest and taxes)," Swinburne wrote.
Nomura analyst Michael Nathanson also pegged the annual rights costs to a 6 percent annual bump.
"How will Disney monetize this increased, but not unprecedented, step-up in sports costs? We expect affiliate fees and advertising to provide a strong cushion as it did back in the 2006 when the last NFL contract kicked in," Nathanson wrote in a research note.
The analysts pointed out that most of Disney's deals with distributors come due between now and 2015, so it has plenty of time to cut new deals that reflects its higher costs for ESPN. They also noted that the deal would keep Monday Night Football away from other potential bidders such as Comcast's NBCUniversal, Time Warner Inc.'s Turner Broadcasting and News Corp.'s Fox Sports.
Still, Disney shares were trading down amid a broader decline in stocks. The stock of the Burbank, Calif., company fell 63 cents, or 1.9 percent, to $32 in late afternoon trading Thursday.