NFL Lockout a ‘Strong Possibility’ Next Year

An NFL work stoppage next year is “a strong possibility,” but the major TV networks with NFL program rights, and the entertainment companies that own them, won’t hurt financially if next season doesn’t take place, Barclays Capital analyst Anthony DiClemente said in a report Thursday.

“While a locked-out season may be a major disappointment to fans everywhere, we believe media shareholders need not share in the disappointment,” he said, arguing that networks bear few financial risks in case of a player lockout.

“Rights fees will have no profit and loss [statement] impact, profits from advertising could be replaced by higher-margin substitute programming, and NFL broadcast revenues do not represent a substantial portion of the networks’ profits to begin with.”

DiClemente’s report came ahead of Thursday night’s NFL season opener between Super Bowl champions New Orleans Saints and the Minnesota Vikings and a day after NFL Players Association chief DeMaurice Smith had warned of the possibility of an NFL work stoppage in March.

A potential lockout is an issue for media giants, such as Walt Disney, which carries football on ABC and ESPN, CBS Corp., Fox owner News Corp. and NBC Universal’s NBC. Collectively, they pay the NFL more than $3 billion in annual rights fees under the terms of eight-year rights deals that will need to be renegotiated in 2013 or, in the case of Disney, in 2014, according to DiClemente.

The annual rights fees are recoverable by the networks in future years in the event of a lockout, even though near-term free cash flow would be reduced until they are recouped, he highlighted.