NBA Commissioner Adam Silver speaks to the media during a press conference as part of the 2022 All-Star Weekend at Rocket Mortgage Fieldhouse on February 19, 2022 in Cleveland, Ohio.
Jason Miller | fake images
Whether it's two people in a marriage or a business and a sports league, it's not easy to break up a 40-year partnership.
The NBA and Warner Bros. DiscoveryTurner Sports has been working together for almost four decades. The relationship is now in danger, as ComcastNBCUniversal is trying to steal its gaming package with a $2.5 billion-a-year bid, as CNBC previously reported.
The league ended its exclusive window to renew a deal with its two current media partners, Disney and Warner Bros. Discovery, on April 22. The league has since established a framework to renew with Disney and bring in Amazon as a new third partner. and sell its other package to Warner Bros. Discovery or NBCUniversal, according to people familiar with the matter. The league will triple the total value of a new deal, from about $24 billion to $76 billion or more.
Warner Bros. Discovery continues to hold talks with the NBA about retaining the rights, according to people familiar with the matter. The league could still decide to simply renew with its current partner, but that's not likely, said two of the people, who asked not to be identified because the conversations are private.
The most likely path would be for the league to sign documents with NBCUniversal, formally securing its bid. That would trigger a contractual option for Warner Bros. Discovery to match the offer.
This is where things can get thorny.
Both the NBA and Warner Bros. Discovery have begun poring over the legal language to determine whether the league can reject a potential game, the people said. The wording of the contract is vague and it's unclear whether the NBA has full discretion to walk away from Warner Bros. Discovery if it matches the offer, the people said.
If Warner Bros. Discovery decides to match and the NBA decides to choose NBCUniversal's offer, the parties could be headed toward a lawsuit. Warner Bros. Discovery believes it is fairly well protected by the contract language, one of the people said.
Still, that remains hypothetical at this point. Warner Bros. Discovery may not match NBCUniversal's offer, which would avoid potential conflicts.
Some league officials are concerned that Warner Bros. Discovery's balance sheet cannot support the $2.5 billion a year spent on the NBA, according to people familiar with the matter. Warner Bros. Discovery has a market valuation of about $20 billion and an enterprise value of about $60 billion, including $43.2 billion of gross debt, at the end of the company's fiscal first quarter. The company had a leverage ratio (net debt to adjusted earnings before interest, taxes, depreciation and amortization) of 4.1.
Warner Bros. Discovery CEO David Zaslav has preached both publicly and privately the importance of financial discipline for the company.
Comcast, parent of NBCUniversal, has a market capitalization of about $154 billion and an enterprise value of $244 billion. Comcast's leverage ratio is about 2.5.
NBA officials are more comfortable that Comcast could pay what would amount to more than double the previous price for the package, according to people familiar with the matter.
Warner Bros. Discovery had been paying $1.2 billion a year to broadcast NBA games. The new package also includes fewer games than the current one because the NBA is likely to introduce a third partner, probably Amazon.
Spokespeople for Warner Bros. Discovery and the NBA declined to comment.
The fate of Venu
Warner Bros. Discovery, disney and Fox announced Thursday that they plan to name their new sports streaming platform Venu, taking inspiration from the place where live sports are played. The new joint venture, owned by one-third of each media company, will offer a package of sports networks and ESPN+ at a yet-to-be-determined price that is less expensive than traditional cable. CNBC reported earlier this year that the price could be around $45 or $50 a month. The service will debut in the fall, the companies have said.
The three companies have not yet formally signed paperwork on the venture as they await regulatory approval. If Warner Bros. Discovery loses the NBA, that will decrease the value of the service to consumers since NBCUniversal and Amazon are not partners on the product.
Warner Bros. Discovery licenses the rights to other sports leagues and groups, including MLB, NHL and the National Collegiate Athletic Association's March Madness. The company will also have the NBA next year no matter what, as the new rights agreement will not take effect until the end of the 2024-25 season.
There has been no discussion about shutting down the company before launch if Warner Bros. Discovery loses the NBA, according to a person familiar with the matter. Still, without the NBA, Disney and Fox would contribute most of the service's sports content. ESPN and Disney's Fox own college football and NFL packages, unlike Warner Bros. Discovery. The three companies plan to split revenue in proportion to the membership fees associated with their linear networks.
Warner Bros. Discovery could use the money it saves by not getting the NBA rights to spend on other sports, such as more MLB games or bidding for the UFC, which will likely begin renewal talks with media companies in early 2025.
ESPN plans to launch its own “flagship” streaming service in the fall of 2025.
Disclosure: Comcast's NBCUniversal is the parent company of CNBC.
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