ESPN (NYSE:DIS) currently holds exclusive negotiating rights for college football’s new, four-team playoff slated to begin in 2014. The deal could reportedly be worth $500 million annually and will likely pay huge dividends to the company, or companies, that secure it.
According to a recent article by Kurt Badenhausen, ESPN—along with a small contribution from the Disney Channel—generates more profit than the rest of Disney combined. Their profit line could skyrocket in the next few years if ESPN and the Bowl Championship Series agree to the proposed deal worth an estimated $7.3 billion over 12 years.
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However, the BCS may wait out ESPN’s exclusive negotiating window in the hopes of fielding bids from competing networks like Turner (NYSE:TWX), NBC Sports (NASDAQ:CMCSA) or Fox (NASDAQ:NWSA) (NASDAQ:NWS). USA Today is reporting that the BCS may also consider splitting the television rights between networks to help sweeten the deal, but there is no official word yet.
Whichever network ends up with the television rights will have a field day with advertisers; the BCS Championship game had 24 million viewers last year, a number that was diminished because two southern schools, Alabama and LSU, don’t tend to draw viewers from densely populated cities on the east and west coasts.
The BCS playoff format will have three games—two semifinals followed by the national championship, potentially tripling the number of viewers from the current format. In later years the format could evolve into 8- or even 16-team playoffs. The proposed 12-year deal could see those larger formats come to fruition, providing even more advertising revenue.
A company like Disney, who relies so heavily on television revenues, cannot afford to let their exclusive negotiating window slip away. While many television programs nowadays are recorded and watched later, rendering many commercials unwatched, 99 percent of sports are watched live, according to Disney CFO Jay Rasulo.
If the contract negotiations extend beyond Disney’s exclusive window, a bidding war between Turner, NBC Sports and Fox would likely balloon the asking price. It would therefore be a prudent move for Disney to settle this quickly, no matter the asking price.