The NBA is selecting its television partners, with a deal contingent on Warner Bros. Discovery's next decision.

The NBA is in the process of choosing its television partners, and the outcome depends on Warner Bros. Discovery's next move. This decision holds significant implications for broadcasting rights and the future distribution of NBA games.

Ending a 40-year partnership, whether between two individuals in a marriage or a company and a sports league, is challenging. The NBA and Warner Bros. Discovery's Turner Sports have enjoyed a longstanding business relationship spanning nearly four decades. However, Comcast's NBCUniversal aims to disrupt this partnership by proposing a $2.5 billion per-year offer for the NBA's game package, potentially putting the relationship at risk.

The NBA concluded its exclusive negotiation period with its current media partners, Disney and Warner Bros. Discovery, on April 22. Subsequently, the league has devised a plan to renew its partnership with Disney, introduce Amazon as a new third partner, and potentially sell its remaining package to either Warner Bros. Discovery or NBCUniversal. This strategic move aims to significantly increase the total value of a new deal, potentially tripling it from approximately $24 billion to $76 billion or higher.

Warner Bros. Discovery remains engaged in discussions with the NBA regarding retaining the rights, as per sources familiar with the situation. While the league could opt to renew with its current partner, it's deemed unlikely, according to two anonymous sources familiar with the matter. Instead, the probable course of action would involve the league finalizing an agreement with NBCUniversal, prompting Warner Bros. Discovery to exercise its contractual option to match the offer.

This situation may become complicated. Both the NBA and Warner Bros. Discovery are scrutinizing legal language to determine if the league can reject a potential match. The contractual terms are ambiguous, leaving uncertainty about the NBA's ability to decline Warner Bros. Discovery's bid if matched. Should Warner Bros. Discovery opt to match and the NBA selects NBCUniversal's offer, it could lead to a legal dispute. However, this scenario remains speculative, and Warner Bros. Discovery might choose not to match NBCUniversal's bid to avoid conflict.

Some league officials are concerned about Warner Bros. Discovery's financial capacity to sustain a $2.5 billion annual investment in the NBA. Warner Bros. Discovery, with a market valuation of approximately $20 billion and an enterprise value of about $60 billion, including $43.2 billion of gross debt, as of the end of its fiscal first quarter, has a leverage ratio (net debt to adjusted earnings before interest, taxes, depreciation, and amortization) of 4.1. Warner Bros. Discovery CEO David Zaslav has emphasized the importance of financial prudence for the company, both publicly and privately.

NBCUniversal's parent company, Comcast, boasts a market capitalization of around $154 billion and an enterprise value of $244 billion, with a leverage ratio of approximately 2.5. NBA officials are confident in Comcast's financial capability to handle a substantial increase in the package price, which is anticipated to be more than double the previous amount.

Previously, Warner Bros. Discovery paid $1.2 billion annually for NBA game broadcasting rights. The new package is expected to include fewer games due to the potential introduction of a third partner, likely Amazon. Spokespersons for Warner Bros. Discovery and the NBA declined to comment.

Regarding the Venu streaming platform, Warner Bros. Discovery, Disney, and Fox have announced plans to launch it in the fall. The service, inspired by sports venues, aims to offer a bundle of sports networks and ESPN+ at a lower price than traditional cable, possibly around $45 to $50 per month. However, if Warner Bros. Discovery loses the NBA rights, it could diminish the service's value for consumers, as NBCUniversal and Amazon are not involved. Despite this, there are no discussions about terminating the venture before its launch. Without the NBA, Disney and Fox would contribute most of the sports content to the platform, as they own college football and NFL packages, unlike Warner Bros. Discovery. The companies plan to share revenue based on affiliate fees associated with their linear networks.

Warner Bros. Discovery may allocate the funds saved from not securing NBA rights to other sports, potentially acquiring more MLB games or bidding for UFC rights, which are due for renewal discussions in early 2025. ESPN also intends to introduce its own flagship streaming service in the fall of 2025.

Source: CNBC