NFL Rights Could Be Worth A Quarter of A Trillion To Apple (or Amazon)

Last week, I wrote a post in Forbes which described why I thought Apple should outbid traditional broadcast TV and cable operators for the NFL's suite of Thursday Night Football games which is up for bid.

The post generated lots of attention. Even though I argued that Apple could make $24 billion in profits over the next 5 years as a result of bidding $800 million a year for 5 years (or $4 billion in total), I don't think I really made clear how significantly that could help Apple's stock.

The extra sales of Apple TVs, content via iTunes that people would then buy on their Apple TVs, plus incremental iPhone sales would all be new iOS ecosystem sales not currently factored in by Wall Street analysts in their current price targets for the Apple stock price.

Therefore, they would have to model in all this additional revenue which would be prompted by large numbers of Americans and those internationally who love their NFL migrating to Apple to be able to stream the games on their Apple TV hockey pucks.

The Wall Street analysts would have to take their best guess of future profits flowing to Apple from this move (which I have argued is $24 billion) and multiply that number by the current forward price-to-earnings multiple which Apple has (which is 11x).

The bottom line is that this move by Apple to get into the live-streaming sports area would likely cause the Wall Street analysts to have to upgrade their price targets by another $264 billion or a quarter of a trillion dollars.

With 5.58 billion Apple shares outstanding currently, an extra $264 billion in market cap would mean an extra $47/share tacked on to their Apple price targets.

Currently, the median price target for Apple by Wall Street (i.e., where they think the stock price will go in the next year) is $150/share.  This new move by Apple to lock up NFL streaming rights would mean that the price targets could go up to almost $200/share.  The stock currently trades at $119/share.

Just making the announcement to get the NFL streaming rights for Thursday doesn't mean Apple's stock will go to $200 right away.  However, it would be an immediate boost to the stock as Wall Street realized how many people would be prompted to migrate to the iOS ecosystem right away and it would likely act as a magnet as time goes on and more evidence piles up of customers making a big upgrade in their home infrastructure to watch streaming games on a regular basis.

Of course, Apple shouldn't sit back after winning the NFL rights. They should look for other sporting events to obtain which will have broad international appeal and not just appeal to American couch potatoes. Such events - which few other than Apple would have the financial horsepower to go after - are exactly what Apple should be using its cash hoard for.

The broadcasters and cable providers or even telcos like Verizon or AT&T have the cash flow to bid on various sporting events going forward, but they can't get viewers to buy more of their stuff the way Apple can.  The best the broadcasters can hope for is that they can use the large NFL viewers to promote new series they plan to launch. Therefore, these games are much less valuable to them than the digital players.

Only Apple can use a Thursday night NFL game to vault millions of users to go out and upgrade their whole home infrastructure to be able to watch these handful of games (plus probably more streaming content down the road). The handful of games gets translated into a quarter of a trillion dollars in Apple market cap. Even if the NFL insists that Apple takes the NFL Network off their hands as part of the deal, this is still a no brainer for Apple.

I've often criticized Apple for wasting $130 billion over the past couple of years on stock buybacks and dividends presumably because Tim Cook wanted to increase the stock price (in order to help with employee retention).  All those financial machinations have resulted in Apple's stock price increasing by only $19/share since September 2012. Spending $4 billion on NFL rights could move Apple's stock price by more than double that amount over the next couple of years by the math I've laid out above.

One caveat here. Google or Amazon could also make a play for these NFL rights, for all the same reasons that Apple would.

Google would get incremental sales from people getting Chromecast, or ad revenues on YouTube, or from Google Play content sales, or from additional people getting on to Android and doing Google searches.  It's not quite so clear how big the opportunity is for Google compared to Apple because it depends on how Google decides to present the series of games to the public.

With Amazon, it's a little more straightforward.  It's a way of augmenting the power of their Prime service. They currently have 40 million Prime subs paying $100/year. If you assume there are 100 million American households who'd want to watch NFL football (i.e., the number ESPN maxed out at a couple of years ago) plus another 20 million outside the US, Amazon could try to leverage these NFL games to get an incremental 80 million Prime subs over the next few years. That's another $8 billion a year in cash flow for Amazon potentially from the subscription sales.

Plus those are 80 million rabid sports fans are weighted mostly in the US where people spend more buying other Amazon stuff. If Amazon users do spend $1500 a year as has been estimated, Amazon would generate an additional $120 billion a year in revenues from getting these extra 80 million Prime users signed up thanks to the NFL Trojan Horse.  Amazon's current trailing twelve months of revenues is $100 billion a year.

Now, I'm not arguing that Amazon would double its sales overnight thanks to getting the NFL steaming rights for Thursday. Even if Amazon only got 20 million new Prime customers spending $1500 a year which they hadn't been previously on Amazon, then Jeff Bezos has grown his company by $30 billion in annual revenues (or 30%) just from spending $4 billion to get these NFL rights.

And how valuable is it for Amazon to get 20 or 80 million users into an annual subscription relationship with them and not with Apple? Or vice versa? That's the real opportunity here for Apple, Google, or Amazon. The first big digital player to throw down the gauntlet and prompt this massive migration to one digital platform will box out players #2 and #3 from getting that first wave of subs. The vast majority of those subs will stay on that platform for life.

A friend of mine who I respect in this space told me this week he thinks it will be Amazon who makes a play for these NFL rights. He thinks Apple is just too slow and plodding to make this happen, even though it would be a no brainer for them compared to all the time and attention they've given stock buybacks and dividends.

Claire Atkinson of the New York Post told me she thinks this NFL deal for Thursday Night rights will be announced by the Super Bowl.

This article was originally published a few days ago in my Tech & Media Email Newsletter. To sign up, go here.