Sports network profit margins plummet despite ratings and advertising gains

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While live games continue to attract some of television’s biggest audiences, US sports network profit margins have plummeted in 2021 and are expected to continue to deflate through 2025, according to Kagan.

Kagan, a media research group at S&P Global Market Intelligence, said sports networks’ cash margin was 25.3% in 2021 and forecasts it will dip to 14.7% in 2025, at as costs rise and subscribers cut the cord.

For all basic cable networks, Kagan estimates the average profit margin was 39.7% in 2020 and sees it dropping to 31.2% in 2025.

The decline in profit margins comes despite rising advertising revenue and cable sports networks charging cable operators some of the highest distribution fees in the industry.

Kagan says net ad revenue for the top 20 basic sports-related cable networks grew 13.2% in 2021. Ad revenue fell 23.2% in 2020 when sports leagues canceled games due to COVID-19.

The highest programming fees in the industry go to Disney’s ESPN, which Kagan estimated at $8.15 per subscriber per month. This rate has been increasing by 45.6% per year for 10 years. But Kagan estimates that ESPN’s cash margin peaked in 2011 at 41.5% and has since declined to around 25.1% in 2021. ESPN is expected to see its margins dip into the single digits as early as 2023.

TNT, now part of Discovery, generated $2.78 per subscriber. NFL Network, USA Network, TBS, Fox Sports 1 and ESPN2 also get more than $1 per sub, according to Kagan.

The reasons for the squeeze on profit margins are higher rights fees and declining subscriber numbers.

Good fees have risen faster than inflation, Kagan says. Current contracts for major sports leagues bring in around $15.5 billion a year. Programmers will try to continue to pass on rate increases to cable companies and consumers. Kagan says that could add up to an additional $15 per month per subscriber.

Total subscribers to live linear network bundles on traditional and virtual multi-channel video programming distributors (MVPDs) fell by 4.6 million, or 5.1% in 2021.

Kagan notes that the networks aren’t the only companies experiencing shrinking profit margins. Multichannel operators have seen declining margins on video deals over the past decade as more people cut the cord in the face of rising program spending. ■

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