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Apple Could Make $24 Billion From Winning The NFL's Thursday Night Football Rights

This article is more than 8 years old.

[Author was long YHOO at time of writing]

Last August, I argued here that Apple had wasted $130 billion in stock buybacks and dividends over the past 3 years.

The stock has gained about $18/share since September 2012. That's a total gain of about 19% vs. the Nasdaq which has done 63% over the same period.

What was the point?

Had Apple done nothing with this misguided notion that their stock price would increase if they gave money to their shareholders, today Apple would have $330 billion in cash (vs. $200 billion) and no debt (vs. $60 billion). And the stock price would be about the same (I know that all the Apple fans will write me or comment that I'm wrong because I'm arguing a hypothetical. I've explained elsewhere why the stock price would be the same, so I'm not going to get into it here again).

In my prior Forbes post, I said that Apple should have used that $130 billion to do lots of M&A. I said the reason why they probably didn't was because they were worried the government was going to wrap them up in antitrust red tape the way Microsoft and Google were caught up in.

Well, here's a use of cash that Apple should be following up on right now, with no concerns for anti-trust. They don't have $330 billion in cash on hand, but they do have $200 billion sitting around. Apple should outbid all the broadcast networks and cable companies and win the exclusive rights to the NFL Thursday Night Football package which is available right now, as described this morning by Peter Kafka. Apple could pay $4 billion for a 5 year package and still make boatloads of money from it. Here's how.

Kafka correctly says that the package will probably go for $600 million a year because networks are desperate to keep viewers and there will be no new NFL package up for bidding until 2022.

Yahoo spent $20 million on broadcasting the Jags - Bills game from London last month.  And, even though they only generated $3 million in revenues and no long-term commitment from NFL for their trouble, Yahoo did "prove" that it was possible to broadcast a live NFL game at a high quality via streaming technology. The world is ready for it.

Kafka says that some digital companies including Apple will look at making a bid for the Thursday package but that CBS (who has $133 million of cash on their balance sheet vs. Apple's $200 billion) had the inside track on keeping the package.  Kafka cites two big (and valid) reasons why the NFL would want to stick to the broadcast networks vs. going digital on this one:

  1. NFL owners like mass market audiences and broadcast TV still delivers that. Although Yahoo puffed up its Jags-Bills "views," a true apples-to-apples comparison showed that Yahoo delivered 1.5 million average viewers in the US vs. 20 - 25 million for a typical NBC Sunday Night game.
  2. It's still tricky for most of us, let alone our parents, to figure out how to stream an NFL game compared to turning on your TV.

I would argue that Apple should outbid all contenders and win the exclusive Thursday Night rights for these NFL games.

Here's why:

  • Apple has the cash to pay $600 million, $700, or $800 million a year for several years and not bat an eye (even though they've wasted $130 billion in the past 3 years on stock buybacks and dividends). All these other potential players - Time Warner, ESPN, CBS, NBC - are under severe financial constraints as their ratings keep dropping. At some point, they'll have to fold in the bidding process if Apple keeps going.
  • Apple is mass market. This isn't Yahoo. This isn't even Google. If the game is on Apple, Apple will figure out how Grandma can watch it easily. And Grandma will watch it. If other vendors need to improve stuff between Apple's servers and your TV, they will do it because Apple is involved and the audiences will be massive. If Google won the bidding for these rights, they'd force Grandma to stick a memory stick in the side of her TV and it would be game over before it started.
  • As the Sports Business Journal's John Ourand said to me on my podcast a few weeks ago, no one has ever lost money on NFL rights. Remember Fox winning the NFL rights away from CBS in the 80s? That deal built the whole network. That network probably doesn't exist today kicking off loads of cash still if they don't win that deal for which most said at the time that they overpaid. As Ourand said to me, it's not that these networks look to make money on the actual games. It's how they monetize their other shows or properties with the massive audience that the NFL delivers. So how does that apply to Apple?
  • Apple has sold 25 million Apple TVs to date.  Some of those are duplicate next-gen boxes.  Let's assume 20 million are in use. If Apple announces this deal for NFL rights, my guess would be Apple would go to 100 million Apple TVs in the US and another 20 million outside the US. So, you're talking 100 million new Apple TV units in the next year. Assume an ASP of $180 for those. That means $18 billion in additional revenue for Apple at a typical Apple margin of 40%. This isn't a hobby any more for Apple. So Apple spends $6 - 800 million a year for X number of years, to generate an additional $7.2 billion of profit? Sounds like a good use of cash to me right there.
  • But there are many incremental benefits of having these extra 100 million Apple TVs out there in use. Assume that the average new household will spend an extra $75 / year on media from their Apple TV.  That's another $7.5 billion in revenue.  Apple's 30% cut of that revenue leaves $2.25 billion in their pockets for their trouble - for one year. Over a 5 year period, Apple would rake in $37.5 billion in revenues and $11.25 billion in profits.
  • And what percentage of those new Apple TV households are Android users? Will 20% of the 100 million new Apple TV owners decide they really like the idea of using AirPlay from their phones to their new TV and be convinced to buy an iPhone instead of an Android? That's an extra $13 billion in revenue and $5.2 billion in profits.
  • And what's the value of getting these 100 million extra households locked up on Apple TV so that they never mess around with Chromecast, Roku or Amazon? Priceless.
  • And can you make money from the 100 million new iTunes accounts linked to credit cards who might also start spending money on ApplePay? Of course, but let's leave that to the side for the moment.
  • So adding it up, Apple could spend $800 million a year for 5 years to obtain these Thursday Night NFL rights or $4 billion. In return, they would gain $68.5 billion in revenues for Apple TVs, iPhones, and media on iTunes. And that nets out as $23.65 billion in extra profits for Apple.

Spend $4 billion. Make $24 billion. I'm not as smart as Tim Cook, but that seems like an attractive trade to me.

That's real value. Unlike the stock buyback and dividend wastage.