CBS Corporation ( CBS ) recently announced that it has extended its broadcast rights deal with the National Football League (NFL) for nine more years. However, the financial terms of the deal were not disclosed.
The newly announced deal will extend CBS Corporation's existing deal to 2022. The current deal was scheduled to end in 2013.
As part of NFL's expanded "flexible scheduling", CBS Corporation for the first time, will broadcast AFC and NFC matches in the same season.
Is the Deal Financially Viable?
Though the financial terms were not disclosed, we believe that the new contract, commencing in 2014, will mark a substantial increase in the cost of broadcasting-rights when compared with the current deal.
Due to huge viewer demand and surging NFL games ratings, prices of the sports rights marked a sharp rise in the recent past.
It is evident in the case of TheWalt Disney Company ( DIS ), which increased its cost for approximately 73% when it extended its broadcasting rights for eight more years with NFL. Disney will shell out $1.9 billion per season over the tenure of the deal, up from its current $1.1 billion per season starting from 2014.
Further, according to Forbes, broadcasters are expected to pay approximately 60% more to gain the broadcasting rights.
Competitors in Close Proximity
According to Associated Press, NFL will mark an annual increase of approximately 7% in average fees from the above three broadcasters. Thus, the total cost is expected to reach approximately $3.1 billion per year in 2022 from its current $1.93 billion per year.
We believe that the broadcasters might hike fees for pay-TV distributors with affiliate fees and advertising providing an opportunity to hedge against the rising cost.
Currently, we maintain a long-term 'Outperform' recommendationon the stock. Moreover, CBS Corporation holds a Zacks #2 Rank, which translates into a short-term 'Buy' rating.