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NBA TV rights deal hinges on Warner Bros. Discovery

NBA Commissioner Adam Silver speaks to the media during a press conference during the 2022 All-Star Weekend at Rocket Mortgage Fieldhouse on February 19, 2022 in Cleveland, Ohio.

Jason Miller | Getty Images

Whether it’s two married people or a business and sports league, it’s not easy to break up a 40-year partnership.

The National Basketball Association and Discovery Warner Bros.Turner Sports have been in business together for nearly four decades. The relationship is now threatened, because ComcastNBCUniversal is trying to steal its gaming offering with a $2.5 billion per year offer, as CNBC previously reported.

The league ended its exclusive window to renew a deal with its two current media partners, Disney and Warner Bros. Discovery, April 22. Since then, the league has established a framework to renew with Disney and bring on Amazon as a new third-party partner. , and sold its other package to Warner Bros. Discovery or NBCUniversal, according to people familiar with the matter. The league is expected to triple the total amount of a new deal, from about $24 billion to $76 billion or more.

Warner Bros. Discovery continues to have discussions with the NBA to retain the rights, according to people familiar with the matter. The league could still decide to simply renew its contract with its current partner, but that is unlikely, said two of the people who asked to remain anonymous because the negotiations are private.

The most likely path would be for the league to sign documents with NBCUniversal, formally guaranteeing its offer. This would trigger a contract option for Warner Bros. Discovery matches the offer.

This is where things could get tricky.

The NBA and Warner Bros. Discovery have begun looking into legal language to determine whether the league can reject a potential matchup, the sources said. The contract language is vague and it is unclear whether the NBA has any discretion to walk away from Warner Bros. Discovery if it matches the offer, the sources said.

If Warner Bros. Discovery decides to fall in line and the NBA chooses NBCUniversal’s offer anyway, the parties could be headed to a trial. Warner Bros. Discovery believes it is fairly well protected by contract language, one of the sources said.

However, this remains hypothetical at this stage. It is possible that Warner Bros. Discovery does not match NBCUniversal’s offer, which would avoid a potential conflict.

Some league officials are concerned that Warner Bros.’s balance sheet Discovery can’t handle the NBA’s $2.5 billion-a-year spending, according to people familiar with the matter. Warner Bros. Discovery has a market valuation of approximately $20 billion and an enterprise value of approximately $60 billion, including $43.2 billion in gross debt, as of the end of the company’s fiscal first quarter. The company had a leverage ratio (net debt to adjusted earnings before interest, taxes, depreciation and amortization) of 4.1.

David Zaslav, CEO of Warner Bros. Discovery, has publicly and privately preached the importance of financial discipline to business.

Comcast has a market capitalization of approximately $154 billion and an enterprise value of $244 billion. Comcast’s leverage ratio is around 2.5.

NBA officials are more comfortable with Comcast being able to pay what would amount to more than double the package’s previous price. Warner Bros. Discovery paid $1.2 billion a year to broadcast NBA games. The new package also includes fewer games than the current one, as the NBA is likely to introduce a third partner – most likely Amazon.

Warner Bros. spokespeople Discovery and the NBA declined to comment.

Venu’s fate

Discovery of Warner Bros., Disney And Fox announced plans on Thursday to name its new sports streaming platform Venu, taking inspiration from where live sports take place. The new joint venture, owned equally by each media company, will offer a bundle of sports networks and ESPN+ at a price yet to be determined, cheaper than traditional cable. CNBC reported earlier this year that the price could be around $45 or $50 per month. The service will debut in the fall, the companies said.

The three companies have not yet officially signed corporate documents as they await regulatory approval. If Warner Bros. Discovery losing the NBA will decrease the value of the service to consumers because NBCUniversal and Amazon are not partners in the product.

Warner Bros. Discovery licenses rights to other sports, including Major League Baseball, the National Hockey League and the National Collegiate Athletic Association’s March Madness. The company will also have the NBA next year no matter what, as the new rights deal won’t take effect until the end of the 2024-25 season.

There has been no discussion of shutting down the company before its launch if Warner Bros. Discovery was losing the NBA, according to a person familiar with the matter. Yet without the NBA, Disney and Fox would contribute the lion’s share of the service’s sports content. Disney’s ESPN and Fox have both college football and NFL packages, while Warner Bros. does not. Discovery. The three companies plan to share revenue based on affiliate fees associated with their linear networks.

Warner Bros. Discovery could use the money saved by not getting NBA rights to spend on other sports, like more MLB games or deals for the UFC, which will likely begin renewal discussions with media companies at the beginning of 2025.

ESPN plans to launch its own “flagship” streaming service in fall 2025.

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

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