UPDATED at 2:40PM PT with new analyst reaction. After the close of trading, MoffettNathanson analyst Michael Nathanson issued a report contending the market’s reaction was not justified. “While the price tag on Thursday Night Football seems high, this is a clear indication that ‘New Fox’ is putting its money where its mouth is and sticking to the plan,” he wrote.
Fox shares, especially the implied value of the “New Fox” piece to be left after the Disney deal, are “still significantly undervalued by our estimates,” he added.
The company’s stock, which had been up modestly in 2018 to date, dropped 4% for the day to close at $36.90 after investors digested this morning’s announcement of the NFL deal.
A source familiar with the negotiations between the NFL and multiple networks told Deadline that Fox paid north of $3 billion for the five-year deal, more than 30% higher than the $450 million NBC and CBS paid to share last year’s slate. Fox and the NFL have declined to discuss the financial terms.
The stock drop reflects skepticism about the long-term viability of the NFL, whose total TV ratings have declined 17% in the past two years. This season’s broadcasts have faced ongoing viewer dissatisfaction with anthem protests by players as well as a flood of games on the schedule, something even Fox executives had previously criticized.
Thursday night in particular has been a complicated affair since its 2014 broadcast debut, posting strong and consistent ratings but yielding few memorable games and contributing to the glut of games. According to the Standard Media Index, Thursday night contributes about 20% of the gross ad spend revenue from in-season games and revenue in 2017 declined 3% compared with 2016, even as paid unit rates rose 7%.
On Monday, Nathanson issued an ominous report on the trendlines of NFL ratings and rights. “With regular season ratings down 13% and playoff rounds down between 12% and 20%, the NFL is experiencing a structural decline in viewership, and it is going to be an issue!” he wrote, adding the exclamation mark for emphasis. NFL games also make up an outsized share of Fox’s revenue, he noted, accounting for nearly 40% of gross ratings points, compared with about 12% for CBS and NBC and 15% for ESPN, which carries Monday Night Football.
Given that “New Fox” will be a much smaller company after the pending $52.4B deal with Disney, shelling out for rights could have a “disproportionate impact on earnings” at Fox, Nathanson wrote. NBC and CBS have each lost about $150 million a year on the Thursday night games.
The flip side of that coin, of course, is that all linear ratings are declining, so football offers an iceberg that may be melting at a slower rate than others in the programming sea. NFL games, as the league commissioner Roger Goodell pointed out earlier this month, represented 37 of the top 50 broadcasts of all types in 2017, according to Nielsen. Also, Fox incorporated a major sponsor, Budweiser, into today’s announcement. The beermaker’s involvement is likely to have offset some of the rights costs.
For Fox, which will be making a go of it as a network in a dramatically reduced environment once its studio arm is acquired by Disney as part of the companies’ pending deal, the NFL pact ensures a flow of reliable programming. And yet, for schedulers and marketers, it will create more fall disruption. The network already juggles show premieres in October and the first couple of days in November due to baseball post-season and the World Series.
Nathanson noted that Thursdays have become a problem for Fox, one that even slightly diminished asset like the NFL would greatly enhance. “Thursday Night Football should re-energize what has become a “dead night’ on Fox,” he wrote. “Last season, Fox aired The Orville and Gotham on Thursdays, which averaged an abysmal 3 million viewers, compared to TNF’s average 14 million viewers across CBS and NBC.”