[Satellite News 10-06-10] As the U.S. broadcasting industry looks to projected increases in third quarter advertising sales to help recover from a damaging 2010 second quarter with, analysts and investors are paying close attention to DirecTV, which faces a potential problem with its popular and lucrative NFL Sunday Ticket package.
    Since 1994, DirecTV’s NFL Sunday Ticket package, which provides subscribers access to every NFL game, has been the satellite operator’s strongest weapon against U.S. pay-TV competitors. DirecTV holds the exclusive rights to the Sunday Ticket package through 2014, which would mark its 20th season carrying the programming.
    In 2009, DirecTV signed a deal with the NFL that guarantees team owners $1 billion a year — $31 million per team — from 2011 to 2014. DirecTV’s NFL fees increased $300 million from its previous contract, which many analysts attributed to the lagging economy and the average value of an NFL team dropping from $1.04 billion in 2009 to $1.02 billion in 2010.
    However, a dispute over a collective bargaining agreement, which expires at the end of the 20 between the NFL Players Association (NFLPA) and league owners has put the 2011 season in jeopardy, as the agreement expires at the end of the 2010 season. But even if games are not played in 2011, the NFL’s deal with DirecTV calls for DirecTV to pay the $1 billion broadcasting rights fee.
    Wells Fargo Broadcast and Cable Analyst Marci Ryvicker said a lockout could spell trouble for DirecTV and downgraded the operator’s stock. “Given that DirecTV is paying a lot of money for the exclusive right to carry the NFL Sunday Ticket through the 2014 season, plus the fact that the NFL Sunday Ticket is a huge selling point for both subs and investors, we see risk as it relates to both headlines and 2011 estimates.”
    When asked about the consequences of the lockout during DirecTV’s second quarter 2010 conference call, DirecTV CEO Michael White opted to postpone his company’s response. “I think we’ve been clear that there are provisions in our contract where if there are games that get canceled, we get something back for that, either in a longer contract or whatever. I think probably when we get toward the end of this year and we talk about how we’re planning for next year, we can talk a little bit more about it at that time, but I’d say it’s bit premature.”
    In addition to its troubles over the lockout, the NFLPA has criticized the DirecTV deal as a “lockout insurance policy” for NFL owners and filed a grievance with an arbitrator over the guaranteed money the league will get from its television distributors in 2011, which also includes $20 billion from the NFL’s multiyear broadcast deals with CBS, Fox, NBC and ESPN through 2014.
    In a response statement to the DirecTV NFL deal, NFLPA Executive Director DeMaurice Smith said that broadcaster fees alone would not be able to sustain teams’ income. The fees “will not be enough, according to the players, for any party or owner to say, ‘Yes, we maximized revenue.’ If it is the case that networks have obtained digital right or other media rights for free in exchange for the promise that the full funds will be available to the teams even if the games aren’t played, that means that they have left revenue on the table.”
    Analysts expect DirecTV to address the NFL lockout in more detail in its upcoming 2010 third quarter report, but Ryvicker has mixed feelings about the year-end period. “Economic and ad-market signs for 2011 will be key drivers along with how strong investor concern about the effect of new technologies on established entertainment players will be.”
    DirecTV is enjoying short-term success, as its shares hit a high at the end of September, up 24.8 percent for the year. According to the NFL, average television viewership last season was 16.6 million for regular-season games, compared with 8.1 million for primetime viewing among the four major networks, and that figure is expected to increase this year. In June, DirecTV invested $100 million in advertising its new $300 Sunday Ticket package for the 2010 season. Ryvicker and other analysts will want to know how that money will be made up next year.