NFL Lockout Outlook: Little Pain for Networks

As the NFL season kicks off tonight, the league’s TV partners are concerned that unless a new labor agreement is reached with the players, a lockout looms that could cancel games in 2011.  It’s especially worrisome for the NBC, CBS, Fox and ESPN because, under their current contracts,  they’ll have to pay $3 billion in rights fees whether the teams knock helmets or not.
But Anthony DiClemente, who follows entertainment stocks at Barclays Capital, says surprisingly the financial impact on the media companies of losing some of their most popular programming would be minimal.
DiClemente says that while the networks would have to pay rights fees if no games are played in 2011,  the league ensures that they will recoup the funds, plus interest, in the years following the lockout season.
That will affect advertising revenue and cash flow in the short term, according to DiClemente, but “adjusted 2011 profits would not suffer very much at all” because “NFL broadcasts are a very cost-intensive, low-margin business and replacement content in a locked-out season could actually improve profitability, depending on ratings and content costs for substitute programming.”
DiClemente concludes that a lockout in 2011 is a “strong possibility” but while a fall and winter without pro football “may be a major disappointment to fans everywhere, we believe media shareholders need not share in the disappointment.”