Channel Nine and Foxtel are unlikely to recoup their NRL broadcast rights costs through advertising alone, according to sports and advertising experts.
Nine, Foxtel and Sky NZ confirmed on 7 July they would continue to control NRL broadcast rights from 2028 to 2034, valued at a record breaking $5.3 billion over seven years.
The annual cost to Nine will be $145 million in cash, offset by $10 million of committed annual NRL spend on advertising or other services, plus $15 million a year in contra.
Overall the deal means Nine has to pay more, but the media group can absorb that in the already planned cost cutting.
Brian Han, director of equity research at Morningstar, said the 15% lift on the current deal, on an annual average basis, may be less than consensus had feared.
“But we anticipate no incremental revenue, a common travesty inflicted on traditional broadcasters around the world by premium sports organisations,” he wrote in a note to clients.
“In the end, Nine had no choice, even though the new rights will lift NRL's share of its TV costs to 20% before related production and staff expenses, from 16%.
“A failure to renew would have punched a big hole in Nine's dominant 43% share of the total TV advertising market.
“It is a scenario too dire to contemplate and one the NRL ably exploited.”
Analysts at Macquarie estimate the new NRL agreement has a $15 million higher annual cost.
“Sports rights have always been a key competitive advantage for domestic TV operators, compared to other media formats,” the analysts said.
“Industry feedback suggests that FTA/BVOD rights often operate at near break even levels.
“However, sports rights still remain an essential competitive advantage to attract customers to the general content ecosystem; with news and entertainment content seen as less differentiated competitively.”
Analysts at investment bank Jefferies said it is necessary, despite increased costs, for Nine to broadcast premium sport to retain relevance as a network.
“Pleasingly, the NRL is growing its audience very strongly,” they said.
“And we suspect NEC (Nine) could increase their advertising rates as a result, which could offset some of the higher broadcasting costs.”
Colin Smith, managing director at consultancy Global Media & Sports, told AdNews it was critical that both Nine and Foxtel retained the rights “irrespective of price".
"The game changer that redefined the value of the NRL rights was Nine bidding for all NRL media rights — both FTA TV and streaming on Stan Sport,” said Smith.
“This meant that Foxtel, under anti-siphoning law, had to find an alternative FTA TV partner in Seven and/or Ten, resulting in a media rights auction that exploded the value of the NRL.
“The winner is the NRL, the NRL clubs, the NRL players and NRL expansion through chairman Peter V'landys."
Lewis Hearn, managing director at Havas Media Melbourne, told AdNews advertising alone would not cover the cost.
"The rights won't pay for themselves through advertising alone," said Hearn.
"Their value comes from creating multiple revenue streams. Subscription growth, premium advertising, integrated partnerships, commerce and customer retention will all play a role."
Paul Wilkinson, client and investment lead at Hatched, agreed price increases across subscriptions were almost guaranteed.
"Foxtel and Kayo are carrying the bulk of the cost, reportedly around $520 million a year — viewers can expect Kayo price increases and subscription tiering, such as ad-free models and premium passes, justified by exclusive content and more games," said Wilkinson.
Hearn said the January 1 gambling advertising reforms would change the economics of paying for this deal.
"The reforms make the economics more challenging by reducing a significant revenue stream, but they also create an opportunity to diversify the advertiser base," said Hearn.
"The future value of the NRL won't depend on replacing gambling dollars with more gambling dollars — it will come from attracting a broader mix of brands across retail, finance, automotive, technology, telco and FMCG."
Brett Hutchins, professor of media and communication at Monash University, said DAZN, the owners of Foxtel, could use the NRL deal to expand rugby league to international audiences, with gambling a key part of that strategy.
"DAZN knows how to leverage gambling and gambling advertising as part of an overall media service," said Hutchins.
"They went into significant amounts of debt buying up popular live sports around the world and have been working on this model for a lot longer than most Australians realise.
“So we're not just talking about onshore, we're also talking about expanding the market for rugby league and rugby league gambling, which I think is probably the primary thing being expanded to overseas markets."
Hutchins said the premium cost of the NRL rights would also affect AFL broadcast negotiations in the coming years.
"They'll be wanting, in terms of winning the PR battle, to come up with a figure that is larger than the NRL's,” said Hutchins.
“The needling between those particular competitions is pretty much masculine melodrama by sports executives.”
"My guess is you'll see a roughly similar figure, and then claim that it's bigger. It's trying to win the minds of advertisers."
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