DOJ Opens Probe Into NFL’s Sports TV Deals

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2:10Geetha Ranganathan:Really interesting headline came across the tape just a couple of minutes ago. According to a Wall Street Journal, the Department of Justice opens probe into the NFL on anti-competitive concerns. I mean, who wants to mess with the NFL? I guess the federal government can. But let's break it down a little bit, if we can. Randall Williams, Bloomberg Business of Sports reporter. Randall, what's the story here? So basically, Senator Mike Lee, he's from Utah. He sent a letter about a month ago, maybe a little bit longer than that. And he encouraged the Federal Trade Commission, the FCC, and the Department of Justice to review this Sports Broadcasting Act because of the fact that it costs over$1 ,000 to watch NFL games.

2:49Geetha Ranganathan:Now, rising costs over broadcasting deals is pretty normal. I mean, we've seen every single time a league goes to the negotiating table, normally the costs are passed down to the consumer, but also the games grow. And so I think that it'll be interesting to see how they approach this, if anything changes. But the NFL still has four years left. on its broadcasting rights agreement. There have been reports that they want to opt out of that and negotiate early. Those talks are very, very early. So we'll see. Could there be possible political motivations behind this? I think with everything happening in the country right now, you never know who is setting their sights on the NFL.

3:26Geetha Ranganathan:And I mean, you see what's happening with the Rooney rule. There is a Florida attorney general who has turned his sights towards the NFL and saying that the Rooney rule goes against federal law. we'll see how that plays out and i mean there are no reports right now that these those two things are connected but we've seen um different areas of this administration set their sights on sporting leagues and other organizations out there so it wouldn't surprise me but it hasn't been reported yet so rando this is focusing primarily on the media rights deals for the nfl now most of those even going back 30 years 40 years there's been some pay component to it because even i want to watch my CBS game, I'm probably getting it through my cable package as opposed to having my rabbit ears.

4:08Geetha Ranganathan:So it's always been some consumers directly paying for sports. Is it different now that it's streaming? There are more partners now. So Amazon has a Thursday night football game. You can stream on Peacock occasionally. YouTube has streamed a game before. The NFL has been selling rights to these streamers and these broadcasting companies for many, many years. And as the game has grown, as the business has grown, the costs have grown as well. And I think in reference to what it costs to watch all NFL games, yes, it would be expensive because you would then be paying for NFL Sunday ticket. You could be paying for Red Zone.

4:45Geetha Ranganathan:You could be paying for each individual subscription of some of these games. With that in mind, of course, the costs have gone up because they've added partners, they've added games, all of those things. But again, like we're talking about ABC, NBC, CBS, ESPN, all of these things are you could walk into a bar or just subscribe to your local cable and they would be right there. Now, you wouldn't be able to choose a game. And here in New York, you would probably be subject to the Jets and Giants. In other places, it would be the local markets there. So it really depends on if the customer wants to pay for all of these games that the NFL broadcast.

5:22Geetha Ranganathan:In the letter here by Senator Mike Lee, he said, to watch every NFL game during the past season, football fans spent almost$1 ,000 on cable and streaming subscriptions. Worth it. I would say. I guess if you're a fan, yeah, it's worth it. It just depends. I would just say this, that the last Super Bowl was 12 to 0, and it had 125 million viewers. And it was 12 to 0 at one point heading, I believe, heading into the fourth or, you know, fairly well into the game. And it was the second most watched Super Bowl of all time. And with that in mind, if you're the NFL, of course, you would like to go back to the negotiating table to try to get more money.

5:56Geetha Ranganathan:Now, let's just say that this investigation kicks things down the road. If your Super Bowl is 12 to zero and it's the second most watched game ever, four years down the line might not be a bad thing. You just want that money right now. So evidently, I do think that the NFL will get their money. It's just about when. To get even more money, there's obviously very advanced talks to add an 18th game. And that would be it. And that would presumably... I mean, there's that is. How does that happen? Do you have to open up the whole agreement with the Players Association? Of course, yeah. And the Players Association has been in flux for over a year.

6:29Geetha Ranganathan:They've had three executive directors in under a year. And when you have three executive directors, the NFL then has to go to the Players Association, rip up the collective bargaining agreements, and then they have to come to terms on a deal. Those negotiations have not started at all. So an 18th game, a 16 international game package that the NFL could sell. those negotiations haven't started at all so i think that roger i've heard jerry jones i've heard robert craft you know those are the patriots and the cowboys owners all talk about adding these things and i do think that they want to but it's so so early which is why you know going back to this investigation in a worst case scenario for the nfl if they had to wait four years it might work out in their favor because of the fact that they haven't negotiated a cba so you know i think that we'll see how this plays out but right now i think that if i'm the nfl watching this it's like okay, we'll see.

7:19Geetha Ranganathan:Yeah. What could possibly be the end game here? I'm not exactly sure. I think that it could be to congregate some of these costs to make sure that the CBS and ABC, that there are less streamers involved, that it is not passed down to the customer as much. But again, you got to think, this was one of the most watched NFL seasons of all time. So really, are the streamers hurting? And excuse me, are the customers hurting if they're continuing to tune in. That is what I think the NFL's defense to this would be, is that people are watching regardless, and they're paying. Stay with us. More from Bloomberg Intelligence coming up after this.

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11:15Geetha Ranganathan:want to cover it from a different angle is the nfl uh the doj is investigating the nfl on anti-competitive tariffs and it relates to the media rights deals that they have so um and they The media rights deals are so important to these leagues. It is a primary driver of value for the franchises across pretty much all sports. And it's equally valuable to the broadcast networks and to the cable networks and to the streamers that put this stuff out there because, boy, advertisers love live programming. Geetha Ranganathan, she's the expert here. She's the U.S. media analyst here. So, Geetha, just talk to us a little bit about this DOJ investigation into the NFL.

11:51Geetha Ranganathan:What are the big media companies who are so vested into this? What are they saying? This is actually good news, Paul, for the media companies. So remember, we are right smack in the middle of what is expected to become a very, very contentious media rights renegotiation process with the NFL. So the NFL is seeking something like about a 60 percent increase in its rights fees, basically from companies like Fox, Paramount Skydance, from Comcast, NBC, from Walt Disney. Those are the companies that are the most exposed. And with the DOJ going after the NFL on anti-competitive practices, it looks like what they're saying is that the NFL is trying to harm consumers by basically making it more and more difficult to access their programming.

12:36So we know that the NFL in the past has tried to sell these smaller packages to streamers, you know, whether it's Christmas Day games to Netflix or the Thursday night football package to Amazon. They tried to carve out these smaller deals basically in a move to kind of maximize, you know, monetization. But obviously that's not sitting well with the DOJ. But this is good news for the broadcasters because, you know, we think it gives them definitely better negotiating leverage when they go back to renegotiate deals this year with the NFL.

13:07Geetha Ranganathan:What about let's now head to Disney. They're ready to cut a thousand jobs largely in marketing. You've talked a lot about efficiency. So where exactly are these job cuts happening? And how do you make sure that or as an analyst, how do you make sure that these don't hit the creative engines of Disney and really affect the future of the company? Yeah, so it looks like, Isabel, these job cuts are really happening in the marketing department. So let's just look at, you know, if you kind of take a step back and look at the whole Disney engine, I mean, they have over 230 ,000 employees. So, you know, cutting about a thousand jobs, it's less than one percent.

13:45And it's really just a drop in the bucket. But, you know, the layoffs are really part of this whole cost cutting. And as you just said, the efficiencies, you know, ever since Bob Iger returned to Disney as the CEO in November of 2022, he embarked on this whole efficiency cost cutting program. He eliminated about 8000 jobs, which resulted in about seven and a half billion dollars of cost cuts. And really, this latest wave of another thousand layoffs is just part of that. So it is not in any of the creative parts of the company. This is really more in the marketing department. So we already know that, you know, Disney has many multiple operations.

14:26So they have like a whole team supporting Disney+. They have a very similar team supporting Hulu, which is basically, you know, a product that is very soon going to be integrated. So Disney +, and Hulu are going to become one consolidated integrated product, which means there's really no need to have two separate teams. And so this is just really a process of streamlining and removing redundancies and increasing the efficiency in the business.

14:52Geetha Ranganathan:Geetha, what's the latest on the Paramount Skydance and Warner Brothers Discovery? When is that deal going to close? And what's some of the feedback you're getting from investors about this deal? The deal, Paul, is expected to get regulatory approval and to close by September 30th of this year. So we have a few more months. It looks like some of the biggest investors are recommending that, you know, Warner Brothers shareholders obviously vote in favor of the deal. That vote is set for April 23rd. So it definitely looks like they're not going to head into any big regulatory problem, something that we were kind of anticipating with Netflix.

15:31This path seems a lot more cleaner, a lot more smoother. And in good news for Paramount, what they've done is they've kind of secured the Middle Eastern funding. So they've got about$24 billion from some sovereign wealth management funds. This was kind of a little bit of an investor concern, just kind of given all of the geopolitical tensions and the regional conflicts there. But with that kind of locked and loaded, I think investors are definitely kind of heaving a sigh of relief here. And it looks like everything will go as per plan. The question really, Paul, is whether they're going to be able to deliver after the deal closes.

16:09That's really what investors are going to be looking for, especially with the six billion dollars of synergies that they've outlined.

16:15Geetha Ranganathan:And a lot of debt on the balance sheet. Talk to us just real quickly how the market's thinking about their leverage profile, because they're going to be the most or one of the most levered media companies out there. Absolutely right, Paul. Seven times leverage, about eight billion dollars in debt when the deal closes. So that is really what the market is worried about, as you pointed out. And, you know, again, we have so many different parts here, but I think the biggest worry is really the exposure to the linear TV ecosystem. It's, you know, about 55 percent of revenue still is going to come from, you know, the linear TV bundle.

16:49And really, it's about how well they can manage that. So this is going to be a wait and watch story. We've not seen very good results in the past. So fingers crossed.

16:58Geetha Ranganathan:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins or the S &P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria.

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19:22That's what it means to be 4imprint certain. So if you're prepping for a last minute event or jumping on a big opportunity, you don't have to settle or scramble. With 4imprint, fast, reliable service and peace of mind are built right in. Check out their full 24-hour selection at 4imprint.com. 4imprint, 4certain. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

19:59Geetha Ranganathan:You know, it seems like a lot of these big tech companies are almost tripping over themselves to get press releases out saying how big their AI revenue is, how fast it's growing. And Amazon's no difference. Amazon CEO Andy Jassy in a shareholder letter said AWS's AI revenue run rate is over$20 billion, as Alexis was just reporting. That's up from$15 billion just in the first quarter. So that's pretty good. Stocks trading higher. Anurag Rana joins us here, technology analyst for Bloomberg Intelligence. He's out there in Chicago. Anurag, Amazon,$20 billion. It seems big to me. How about you? Yeah, no, it's a very big deal.

20:34In fact, this is the first time they are actually putting a number around it. Because if you remember a couple of years ago, Microsoft was throwing its number out and everybody else was asking Amazon, where is your number? Where are you? But, you know, one of the things we talked about at that point, Amazon's riding on the chart GPT wave where Amazon's more enterprise focus. And now those enterprise workloads are coming in. And that's where we see the AI revenue for Amazon.

20:58Geetha Ranganathan:How does this change the calculus for the outlook of the company? Like, are you more bullish than you already are? That's a very good question. In fact, we published a note yesterday saying that we anticipate AWS growth to pick up this year. In fact, even in the first quarter, because one of the things we saw just announced two days ago was Anthropics revenue went from, I think,$9 billion to$30 billion within no time. And AWS is one of their preferred partners. And if you remember, two years ago, it was all OpenAI Microsoft. Now we are seeing Anthropic doing really well, and that helps Amazon Web Services.

21:31So this year, we think Amazon Web Services is going to do better than what most people anticipate.

21:38Geetha Ranganathan:Anarag, update us on kind of the competitive landscape now. Where does Amazon fit in these days? Yeah. So when you go back and look at it prior to the AI era, Amazon Web Services was the largest. It's still the largest, but it was largest by a massive amount compared to Microsoft and Google. Since then, after ChatGPT, Microsoft really closed the gap with them and became a much bigger cloud vendor compared to Google, but not as big as Amazon. But all three of them are doing phenomenally well. Because remember, this is a business where you need to put in a lot of CapEx and data centers in order to gain this revenue.

22:17This is not something you and I can build in-house using, you know, either Claude or anything because you need physical infrastructure, data center, chips. Amazon talked about their chip business, for example. So Amazon still is in their driver's seat with the largest market share. But both the others, I would say Microsoft and Google, are catching up fairly fast at this point.