While news broke on Monday of the deal that was announced today between Rogers Communications and the National Hockey League, it's hard to imagine Sportsnet's owners spending more money on a product that didn't return profits on their investment until very recently and didn't make a significant impact on the bottom line over a ten-year period. Yet the deal announced today not only say Rogers Sportsnet commit to another twelve-year deal with the NHL, but they actually spent considerably more money to secure the national broadcast rights in Canada over that period.
Let's jump into the time machine and head back to 2013 when Rogers and the NHL signed a blockbuster 12-year, $5.2-billion deal that put the NHL on Rogers' networks. The two sides have always spoken about that deal in positive terms, but it isn't hard to see through the smokescreen that both sides were building. Rogers
sold French TV rights to TVA Sports in a deal to help curb the losses that were mounting, and they sold off rights to Monday Night Hockey to Amazon in 2024. Finding games was suddenly harder than before.
Despite trying to shore up this deal to help their bottom line, Rogers Communications saw very little return on their investment. According to the
Globe & Mail's Simon Houpt, "The pretax profit for its three Sportsnet services has stayed flat in that period, inching up to $88-million in 2023 from $87-million on 2013" despite earning $92.55 in subscription revenue from customers who subscribed to all three services of Sportsnet, Sportsnet One and Sportsnet 360. That figure was up from $34.10 in 2013, and yet they earned just $1 million more in pretax profit despite subscription costs nearly tripling.
Upon signing the deal today, Rogers' shares "fell 5.9 per cent on Tuesday to close at $36.17 in Toronto, reaching their lowest intraday level since 2012" as
reported by Bloomberg News. Part of that drop was due to the failing Rogers Bank business, but it was also sparked by investors who "are already wary of Rogers' balance sheet and funding headwinds". TD Cowen's Vince Valentini told
Bloomberg News today, "[W]e do not expect this rights renewal to be either a negative for Rogers, nor an overly material event."
None of that paints a particularly good picture of the investment that Rogers made with the NHL, so why did they renew the twelve-year deal for $11 billion ($7.7 billion USD), more than double the value of the original deal they signed with the NHL?
Rogers chief executive officer Tony Staffieri explained the new investment at the press conference today, stating,
"The value of live sports content just continues to appreciate, and it's really rooted in viewership continuing to grow. If you look at our NHL deal over the last decade, viewership grew by 50 per cent.
"And with that kind of growth, what you see is revenue growing at a very steady and healthy pace in terms of advertising revenue, subscription revenue, and in the deal we have now, sub-licensing revenue. And so as we look to the next 12 years, we were very thoughtful in how we thought about the economics."
Aside from the fact that revenue isn't growing exclusively from hockey, Mr. Staffieri's own pretax profit reporting shows that the hockey deal isn't helping Rogers find increased profits nor is there any guarantee for future profits with more and more people cutting the cord. Streaming services may generate more money for Rogers, but the
Globe & Mail's Irene Galea and Simon Houpt noted that "Mr. Staffieri sidestepped a question about whether the company would pass on the added costs to consumers".
One place where Rogers can make up some of the difference is through their licensing deals as they established with TVA Sports and Amazon.
The Canadian Press reported that "Staffieri said Rogers will 'look to opportunities to continue to sub-license where it makes sense'" which means that Rogers' streaming services may carry less games despite promises of fewer blackouts and games from both sides of the border including "up to 10 more games on certain teams".
The only problem is that if they sell off those rights to another streaming service or network, there's an increased chance that people will stop paying for Sportsnet's services. After all, if you have to subscribe to six different services to watch your favorite team, how does that help hockey fans? Hint: it doesn't.
Complicating the process further is that the relationship between Sportsnet and CBC ends with the current rights deal, and there's no extension between the two networks yet. Rogers Sports & Media President
Colette Watson said today, "We like our partnership and we value our partnership with the CBC and over the next 18 months we'll look to see if there's a continued partnership there."
That's an odd statement - "look to see if there's a continued partnership" - when CBC is literally one of a handful of stations that is available on all cable packages from coast to coast to coast. Regardless of Sportsnet's feelings towards CBC, removing hockey from the nation's public broadcaster would be like carving the heart out of the nation's chest.
Hockey Night in Canada is an institution, and Rogers should be working to keep that institution intact. After all, without
Hockey Night in Canada's enduring legacy on CBC, there's no guarantee that Sportsnet owns the broadcast rights for the NHL.
In the end, aside from owning the rights for NHL games, I am baffled why Rogers Communications would sign a new deal for $11 billion that sees Rogers pay the NHL in escalating annual payments. The NHL has continued to profess that it is a valuable asset for anyone to own, but Rogers' balance sheet says otherwise as their adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) show a margin of just 3.4 per cent from media at $84 million. Rogers isn't making money off this deal, and now they doubled their commitment to maintain it? Make that make sense because it financially does not.
I'm not saying that Rogers Communications won't turn a profit on their newest NHL deal that will expire after the 2037-38 season. They can look at innovating and introducing new technology to help make the game better on television, they can have a better presence with quality content, and they can show intriguing matchups, but none of that will matter if the network is losing bags of money.
An $11-billion total bill with escalating annual payments means that the media wing of Rogers Communications will only see margins shrink annually if they can't sell enough ads or sponsored segments. And if margins go to zero or into the negative, expect Rogers to try to erase their losses by selling off more broadcasting rights.
The business of hockey should be its own specialized university degree because it's hard to make sense how hockey fans benefit with this new deal. Especially if it ends up costing fans more money.
Until next time, keep your sticks on the ice!
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