By Shalini Ramachandran, Kevin Clark and Thomas Gryta
AT&T Inc.'s proposed $49 billion acquisition of DirecTV
comes with a big caveat: Without football rights, there may be no
deal.
AT&T can walk away if the satellite-TV provider isn't able
to renew its prized "Sunday Ticket" offering with the National
Football League on "substantially...the terms discussed between the
parties," the telecom company said in a securities filing Monday.
DirecTV's current deal with the NFL expires at the end of the 2014
football season.
The "Sunday Ticket" provision highlights the outsize importance
of football rights to AT&T in pursuing a takeover of DirecTV.
The nation's largest satellite operator has held the rights to the
"Sunday Ticket" package since it started offering TV service in
1994. The package allows DirecTV to broadcast every out-of-market
NFL football game on Sunday afternoons to TVs and mobile
devices.
Football has been crucial to DirecTV's business: One out of 10
subscribers has the "Sunday Ticket" package, which starts at $240 a
year. It is a reason DirecTV's average monthly revenue per user is
significantly higher than rival Dish Network Corp.'s.
Under the current deal, DirecTV pays about $1 billion a year for
the rights.
Lee Berke, a sports media consultant who has advised companies
in rights negotiations, noted that AT&T's deal caveat puts the
NFL in a prime negotiating position. "A $49 billion deal is
contingent on the NFL's television rights," Mr. Berke said.
The exclusive negotiating window for the NFL and DirecTV to
hammer out a renewal has expired, meaning the league could approach
other companies about a "Sunday Ticket" deal, according to a person
familiar with the situation. But for now, the two sides are
continuing discussions toward a renewal and there isn't another
serious contender, the person said.
A member of the NFL's broadcasting committee, which is made of
up team owners, expressed optimism Monday that a deal with DirecTV
is coming soon.
On a call with analysts Monday morning, DirecTV Chief Executive
Mike White reiterated that he is "highly confident" DirecTV can
renew the deal "before the end of the year." He noted that both he
and AT&T Chief Executive Randall Stephenson met with NFL
Commissioner Roger Goodell and New England Patriots owner Robert
Kraft to convey "why this transaction is great for the NFL...as
well as great for us."
By gaining control of "Sunday Ticket"--via a purchase
DirecTV--AT&T would become a major broadcasting partner of the
NFL, a critical move given its rivalry with fellow telecom giant
Verizon Communications Inc. Verizon last year signed a four-year,
$1 billion deal with the NFL for the rights to air NFL games on
mobile devices--including Sunday night, Monday night and Thursday
night games, as well as home-market Sunday afternoon games starting
this season.
Both AT&T and Verizon view tie-ups with the NFL as a way to
lure new wireless subscribers in a saturated U.S. marketplace.
Streaming of NFL games can also help the companies earn more in
wireless data fees, an important source of growth as their core
voice business has matured. Verizon subscribers can watch the games
over an app for $5 a month, plus data charges. Verizon Wireless and
AT&T have both positioned themselves in recent years to move
away unlimited data offering and into plans that charge subscribers
more money as they use bigger chunks of data.
For wireless carriers, Mr. Berke said, "the differentiators will
be sports properties and other key pieces of content" to "retain
subscribers and increase the amount they're spending."
UBS analyst John Hodulik said AT&T and Verizon will likely
end up on opposite sides of the table when it comes to getting
these types of high-impact programming rights. "I think they will
be bidding against each other in areas where it is exclusive," Mr.
Hodulik said.
Before its recent pursuit of DirecTV, AT&T was already
working to develop deeper ties with the NFL. Last year the company
won the naming rights for the Dallas Cowboys' stadium, now called
AT&T Stadium. As part of the deal, AT&T promised to double
the capacity of its fourth-generation wireless broadband network in
the stadium and improve Wi-Fi access. The Cowboys owner, Jerry
Jones, is on the NFL's broadcasting committee, which oversees
programming rights deals.
AT&T has also expressed interest in joining with teams to
provide "in-stadium" content, so that fans watching the game in
person can use their smartphones to see instant replays and
different camera angles of highlights, according to people familiar
with the matter. While the NFL controls broadcast rights, the
individual teams control such in-stadium rights. Other companies,
including Verizon, are also jumping into the fray. "This has become
a substantial battleground," Mr. Berke said.
While AT&T is confident that DirecTV can renew the "Sunday
Ticket" deal, the telecom company wanted to make sure it was
protected, so it added the provision allowing it to call the deal
off if the league's talks with DirecTV break down, according to a
person familiar to the situation.
AT&T said it won't be able to seek damages if DirecTV fails
to renew the deal "so long as DirecTV used its reasonable best
efforts to obtain such renewal."
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com,
Kevin Clark at kevin.clark@wsj.com and Thomas Gryta at
thomas.gryta@wsj.com
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