By Weston Blasi

TNT recently signed deals to show the French Open as well as more college sports

The most seismic contract negotiation in basketball this offseason isn’t between an All-Star player and a team. It’s between the NBA and its TV partners.

After months of speculation, the NBA has reportedly agreed to an 11-year, $76 billion TV deal with Disney (DIS), NBC and Amazon (AMZN) that will begin in 2025. One notable entertainment giant that was left without a seat when the music stopped was Warner Bros. Discovery (WBD). It owns Turner Entertainment, whose TNT channel won’t be showing any NBA games after the 2024-25 season if the deal goes through.

The Comcast-owned NBC (CMCSA) swooped in and secured a version of Turner’s NBA broadcast package for $2.5 billion, leaving Turner and TNT without any NBA games for the first time since 1988.

With NBC set to broadcast NBA games for the first time since 2002 – the network’s 12-year run back then included iconic NBA Finals games in the 1990s featuring Michael Jordan and Magic Johnson and the famous “Roundball Rock” theme – Warner Bros. Discovery is left picking up the pieces.

“??If Turner doesn’t license the NBA, their costs will fall immediately, but soon after that, the revenue they get from cable and satellite distributors will fall,” Wolfe Research media and entertainment analyst Peter Supino told MarketWatch. “And the ad revenue they got from putting the NBA on the air will not nearly be replaced by the ad revenue that they get for whatever they put in the NBA’s place.

“The question for the financial forecast, after all this is said and done, is what fell more, the cost or the revenue? And our estimate is there’s about $600 million of profit [yearly] that’s going to go away, because the revenue will fall more than the cost,” he said.

“The NBA is contributing 7% of their [earnings before interest, taxes, depreciation and amortization],” Supino added.

Supino downgraded Warner Bros. Discovery’s stock in April.

See also: Want Lamine Yamal on your team? The 17-year-old soccer star will cost you $1 billion.

Turner has paid the NBA an average of $1.2 billion a year during its current TV deal, which consists of at least 65 regular-season games, plus playoff games until the start of the Western Conference Finals.

Turner must also pay to produce the games and hire on-air talent, which can be expensive. One of the four hosts of TNT’s “Inside the NBA,” Charles Barkley, signed a 10-year contract worth over $100 million in 2022, according to Andrew Marchand of the New York Post.

Warner already faces an uncertain economic future. The company has over $40 billion in debt and its stock is down 39% over the past 12 months – and down 76% over the past five years. The S&P 500 is up over 87% during the same period.

On nights when it’s not broadcasting live sports, TNT typically airs classic movies during its prime-time hours – a far cry from the appointment viewing that is the NBA, whose regular-season games averaged 1.56 million viewers in 2024. This month, TNT featured films such as “The Hobbit,” “The Dark Knight Rises” and “Now You See Me.”

See also: Charles Barkley says the best financial advice he ever got was from this NBA star’s mom

As Supino noted, missing out on the revenue Warner could earn from selling advertising during regular-season and postseason NBA games is just one way this deal could hurt the company’s financials.

The other is via the fees Turner charges cable and satellite companies like Charter Communications (CHTR) and Verizon (VZ) to carry its TNT channel. Without the NBA, which accounts for hundreds of hours of programming throughout the calendar year, Turner could end up with less pricing power in those negotiations.

Agreements surrounding these charges, called distribution fees or affiliate fees, typically get agreed to quietly. But in some instances, broadcast brands can deprive cable companies of their channel’s signal temporarily in order to get more favorable terms on their fees.

ESPN went dark for millions of Charter Spectrum subscribers last year during the college football season and the U.S. Open tennis tournament. The outage lasted for 10 days, during which Spectrum users couldn’t watch any Disney channels, including ESPN, ESPN2, SEC Network, ACC Network, ESPNU, ABC-owned stations, Disney-branded channels, Freeform, FX and National Geographic.

In an effort to keep the fees it charges cable and satellite brands from dropping, Warner’s embattled CEO, David Zaslav, will likely try to use the billions he would have spent on a new NBA deal for the rights to show other live sports – the one thing that many TV viewers can’t seem to go without.

TNT will still broadcast NBA games for the 2024-25 season. The network also has live sports rights for NHL, MLB and men’s March Madness basketball games.

“We suspect that [Warner Bros. Discovery’s] reaction to the loss of the NBA will be to scramble to license as much sports content as they can with an equal or lesser budget than their NBA commitment in order to negotiate with their distributors on the best possible terms,” Supino said. “The opportunities I am aware of are sublicensing deals like the one they seem to have struck with ESPN. The UFC has a media-rights agreement with ESPN that expires in 2025 that they’ll soon begin to renegotiate, so Warner might bid for that. Formula One racing has a U.S. media rights that is also up in 2025 that is currently licensed by ESPN. So UFC and F1 are both medium-sized and significant sports rights that Turner could bid for.”

In May, ESPN agreed to sublicense some of this season’s College Football Playoff games to TNT Sports as part of a five-year agreement. TNT will show two first-round games initially and then expand to four total games in 2026, the CFP told MarketWatch. ESPN paid $7.8 billion to the CFP to broadcast games but is allowed to sublicense games to other networks.

TNT Sports also agreed to separate deals to show some Mountain West college football games beginning in 2024 and Big East college basketball games beginning in 2025. The games will be shown on its family of other channels, which include TruTV and TBS, as well as its Max streaming service.

And TNT agreed in June to become the new broadcast host of the French Open tennis tournament, in a 10-year agreement that will cost an average $65 million per year, the company told MarketWatch.

“Having the NBA is important. Having sports is absolutely vital,” Supino said.

See also: Netflix buys NFL Christmas Day games. The streamer may raise prices as a result.

Reports from Sports Business Journal, the Wall Street Journal and CNBC have indicated that Warner has the ability to match offers made by other broadcasters built into its contract, but the details of the match clause are not fully known and could lead to a legal dispute between Warner and the NBA.

Representatives for Warner Bros. Discovery, TNT and the NBA did not respond to requests for comment.

After reports began to surface that Turner could be losing broadcast rights to the NBA, Barkley voiced his concerns in a May interview with sports commentator Dan Patrick.

“Morale is low, plain and simple,” Barkley said.

In a separate announcement, Barkley said that he would retire after the 2024-25 NBA season and would not look to change networks, despite some speculation that the new brands that acquired NBA rights, such as Amazon and NBC, could look to poach the Emmy-winning host away from TNT after its farewell season.

“No matter what happens, next year is going to be my last year on television,” Barkley said.

Read on: Disney+, Hulu and Max to be part of new bundle as streaming rivals team up

-Weston Blasi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

07-17-24 0920ET

Copyright (c) 2024 Dow Jones & Company, Inc.