Sports is coming for Hollywood's budgets

Sports has increasingly become the star of the show for big TV companies, and its ascent is sending a shiver down Hollywood's spine.

The TV giants have recently been battling for NBA broadcasting rights, a fight that has spotlighted how important sports content has become to keeping audiences despite its ever-soaring costs.

But the land grab for sports — with billions of dollars being spent — could have dire consequences for a shaky Hollywood ecosystem.

"The growing relative importance of sports is another looming problem for an already-struggling Hollywood," wrote Doug Shapiro, a senior advisor at BCG and former strategy head at Turner Broadcasting System.

Sports media rights have never been more expensive, but media companies keep paying up. Why? They need sports to keep their declining TV businesses afloat and grow their streaming services.

At the same time, tech companies like Apple, Google, and Amazon have been gobbling up media rights, expanding the market for sports content.

The NBA is close to sealing a $76 billion, 11-year rights contract that would be 2.5 times the amount of its last one, The Wall Street Journal reported. Comcast's NBC, Disney's ESPN, Amazon, and Warner Bros. Discovery are in contention. But the biggest contracts have gone to the NFL, whose $110 billion, 11-year media deal of 2021 was nearly double its previous deal. S&P estimated the value of US sports rights has doubled in 10 years.

And as media companies, their businesses already wobbly — take Warner Bros. Discovery, with a staggering $43 billion in debt — consider how they're going to fund sports, they could look no further than their entertainment budgets, which encompass TV shows like dramas and comedies. Those budgets are four times as big as sports, according to Shapiro.

A shift of budgets from sports to entertainment is already playing out in some places.

NBC parent Comcast is expected to cut programming costs to help pay for NBA rights, the Journal reported. Viewers have since learned NBC's "Late Night With Seth Meyers" will lose its house band.

Netflix also seems to be thinking of its new NFL deal as a replacement for mid-budget movies. When asked about the cost of the deal at a MoffettNathanson conference in May, senior Netflix exec Spencer Wang said he would characterize each game as "roughly the size of one of our medium-sized original films." Netflix already has been releasing fewer shows, and its former film chief recently laid out a plan to make fewer original movies.

The number of TV shows across the industry has been declining since the 2022 end of the Peak TV era. The rise of sports could accelerate that downward trend.

How sports content became so valuable

It may seem counterintuitive that media companies have to pay more for sports media rights, given their traditional TV audiences are shrinking as more people cut the cord.

But sports programming continues to draw huge, live audiences on a predictable schedule. Ninety-three of the 100 most-watched programs in 2023 were sports. And 13 of the last Super Bowls got more than 100 million viewers, with this year's game attracting a record 123.7 million, according to Nielsen.

With sports betting now legal in most states, people's interest in live sports could continue to grow. A Variety report showed that sports gamblers watch sports more than usual when they're betting on them, especially NFL fans (67%).

The live nature of sports makes it a must-buy for advertisers with time-sensitive product launches like cars or movies they need to promote. It's why primetime ad rates for sports can be as much as 25% higher than entertainment, said David Levy, former Turner Networks president and now co-CEO of Horizon Sports & Experiences.

"No one records sports and watches it the next day — it's still appointment viewing," Levy said. "And advertisers find that very attractive."

'Who's paying for all this?'

As sports content has become a sure thing, TV shows and movies look increasingly risky.

Entertainment viewing has shifted to streaming on demand, where it's lost some of its watercooler effect. Streaming has created relatively few new franchises, which are valuable for their built-in audiences. Established ones like Disney's Marvel and Star Wars have been running dry lately.

"What these companies are trying to tap into is existing fandom," said Jonathan Miller, a veteran media executive and chief executive of Integrated Media Co., which invests in digital media. "As the Hollywood franchises have become fatigued, sports has not. The fans find you. So it's about fandom and franchises you can bet on."

It's not game over after the NBA, either. Media companies have been aggressively pursuing other secondary sports to maintain their value to distributors and advertisers, as Warner Bros. Discovery recently did by picking up some college football games.

Sports' prominence was noticeable in the parade of athletes at the Cannes Lions advertising conference, as well as at the recent upfronts, the annual TV ad showcase where sellers from Amazon to WBD made their pitches to advertisers.

All this has dire implications for entertainment budgets, which media companies have already been trimming after overspending to build streaming businesses.

"Who's paying for all this? The other side of the house," the ubiquitous media and ad industry consultant Michael Kassan said. "All you have to do is go to the upfront and it's sports and news, sports and news."

Shapiro predicted sports could increase to represent more than 40% of total industry content spend by 2030, double the 20% it represented in 2023, while entertainment spending could decline as much as 8% a year in that same period. Gen AI tools could reduce Hollywood production costs, freeing up more money for sports, he wrote.

"Sports spending is absolutely coming at the expense of film and TV," fretted a creative-side figure at an entertainment company who was granted anonymity to speak candidly about internal divisions.

Power is shifting to the sports side of the house

The rising importance of sports also portends a power shift at media companies, where sports has traditionally been treated dismissively, with primetime slots given to entertainment, news, and other shows. To some, the shift is overdue. Levy said that during his time at Turner, sports was under 4% of programming hours at TNT and TBS but contributed 20% of the revenue.

"Sports was punching above their weight," he said.

Relationships with the top people in sports will likely be a bigger factor in leadership at media companies moving forward. Mark Lazarus, NBCUniversal Media Group's recently named chairman, came out of a sports background. NBC, which is looking to take WBD's NBA rights, has done the most of the broadcasters to elevate sports like the Olympics and the Premier League, sports media consultants John Kosner and Ed Desser recently wrote.

Sports can't solve all media companies' problems, though. They can only rent sports rights, which limits their ability to monetize them. It's one reason Netflix has downplayed the idea of getting into live sports (though in addition to the NFL, it's doing deals for sports-adjacent entertainment like WWE as it looks to build its ads tier). Sports doesn't get repeat viewing the way entertainment does. Viewers want a mix of content, not just sports. And media companies have to bear in mind that live sports is significantly less popular with Gen Z than the population overall.

WBD CEO David Zaslav took heat for saying in 2022 that "we don't have to have the NBA" in anticipation of upcoming contract talks. He later walked back the comment, but it raised a larger question all media companies face: How much sports do they actually need to keep audiences and advertisers hooked?

"At the end of the day, all these streamers and platforms have to keep putting new stuff on screens, and sports isn't going to solve the need for 75% of viewership," said Alex Iosilevich, cofounder of Alignment Growth, a media, entertainment, and gaming investment firm.