TheChek News Flow

Advanced talks with NBC, Amazon and ESPN spotlight the staggering value of sports rights and could portend industry changes

The National Basketball Association entered its first TV negotiations in a decade with a problem: Its main business partners seemed to be on shaky footing.

TNT parent Warner Bros. Discovery WBD 0.73%increase; green up pointing triangle was saddled with more than $40 billion in debt, while ESPN parent Disney DIS -1.77%decrease; red down pointing triangle was battling a Wall Street activist over its slumping stock. Each company was reluctant to pony up the full premium the league wanted. But the NBA had quietly laid the groundwork with two other potential partners, Amazon AMZN 1.08%increase; green up pointing triangle and NBC, which pounced as soon as they got the chance.

Now, with negotiations progressing as the Boston Celtics and Dallas Mavericks prepare to face off in the NBA Finals, the league is on track to score big: It is closing in on deals with NBC, ESPN and Amazon that would bring in about $76 billion in media revenue over 11 years, people familiar with the discussions said.

The NBA sweepstakes has turned into a defining moment for the TV industry, highlighting the anxieties of traditional media companies about the collapse of cable and their uncertain financial futures in the streaming world. It has put front and center the paradox that sports content is outrageously expensive but also critical to own in an industry in which it is one of the few reliable ways to draw in audiences.

“Entertainment is a swamp, and sports is the only firm ground,” said former Fox Sports chief David Hill.

NBC is near an accord with the league to pay an average of $2.5 billion a year, people familiar with the deal talks said. It would show around 100 games per season, with about half airing exclusively on the Peacock streaming service, reflecting a major bet on the future of streaming. Games would air on NBC on Tuesdays and Sundays when there isn’t a conflict with NBC’s “Sunday Night Football.”

Amazon’s $1.8 billion-a-year package would include regular-season and playoff games, the new NBA in-season tournament, and the “play-in” games in which teams compete for the final playoff spots. It also would have a share of the conference finals, which the media partners would split in a rotation, the people familiar with the terms said.

Disney would retain an NBA package and would continue to air the NBA Finals, with payments averaging about $2.6 billion a year, people familiar with the terms say, up from $1.5 billion under the current deal. Disney would get fewer games than under its current deal. ESPN’s deal will allow the company to air games on its direct-to-consumer streaming service, which is set to launch in 2025.

Warner, led by Chief Executive David Zaslav, still has a right to match a rival package, and the league could always carve out a new package for the company in the final stretch, but its options are limited.

The deals would go into effect after the 2024-2025 season and would include rights to WNBA telecasts, as that league grows in popularity with the rise of rookie sensation Caitlin Clark. Owners must approve the deals, and any announcement could still be a few weeks away.

The deals are clarifying the media industry’s pecking order and could set the table for big mergers down the road. For the league, the deals would translate into a windfall that would help fund blockbuster contracts for stars such as Jayson Tatum and Luka Doncic in the coming years.

The NBA is on track to increase its annual fees by more than 2.5 times under the new deal, to an average of nearly $7 billion. The NFL roughly doubled its fees under its last deal to around $10 billion a year. The NBA has much lower average ratings than the NFL, but it has more games and a young audience that is important to advertisers. It is very popular abroad, which is a big motivator for Amazon’s Prime Video.

“Yes, there’s risk at these fee levels given recent ratings, but they are also looking at the downside of the games being on competing services. Which is worse?” said Brent Magid, CEO of media consulting firm Magid.

Bringing in Amazon

TNT and ESPN each had a chance to renew their NBA deals in a monthslong negotiating period that ended April 22. Though the negotiations during that time were supposed to be exclusive, the NBA had the networks’ blessing to reach out to Amazon to put together a streaming package, people familiar with the talks said.

Adding a streamer to the mix, and shifting some games out of the TV packages, was an obvious way to hold down costs for ESPN and TNT. And for streamers, just like TV networks, sports have become an anchor to help bring in subscribers.

By the time Disney CEO Bob Iger met NBA Commissioner Adam Silver at a mid-April event hosted by veteran media mogul Jeffrey Katzenberg in Montecito, Calif., the two sides were each clear that ESPN would wind up remaining a league partner, people familiar with the situation said.

The situation was different at Warner. The company had a chance to commit around $2.2 billion a year for a deal but walked away, unhappy with the price relative to the value of the package, say people close to the talks.

In Warner’s view, the league has taken too much valuable content, including playoff games and the play-in tournament, out of its potential package to put in Amazon’s.

When the April 22 deadline passed, Amazon already had the outlines of its deal in place. Comcast’s NBCUniversal, meanwhile, had long ago signaled that it was interested. The company quickly submitted a $2.5 billion-a-year bid for the other TV package.

The parties spent weeks haggling over details—NBC wanted the Finals but fell short.

NBC’s coming cuts

Executives inside NBCUniversal differ over the wisdom of the deal, with some saying spending so much on the NBA is a bad idea and others saying it will supercharge NBC’s streaming business. The long-term value of NBA rights will hinge partly on how many subscribers Peacock is able to sign up.

Pricing is also a factor: NBC would likely raise prices for Peacock once it has the NBA, a person familiar with the planning said, to boost revenue as sports costs grow.

NBC entertainment executives are bracing for significant budget cuts. NBC won’t need as much prime-time entertainment content, with the NBA taking that real estate a few days a week, and Peacock’s original content budget will likely be reduced significantly, entertainment executives said.

Other potential areas to mine for savings include Peacock’s content deals for movies and TV shows with the Universal studio.

The potential deal has created some tensions between the units overseen by Mark Lazarus, chairman of the NBCUniversal Media Group, which is leading the NBA charge, and Donna Langley, who oversees movie and television entertainment in her role as chairman of NBCUniversal Studio Group and chief content officer, people familiar with the situation said.

The company envisions that the NBA will ultimately help Peacock, which lost $639 million in the most recent quarter, on its path to profitability.

Beyond the financial benefits, taking the NBA away from TNT would weaken an NBC competitor and, in so doing, deal a blow to Venu Sports, a sports-streaming venture being planned by Warner, Fox and Disney.

‘They screwed this thing up’

Warner’s Zaslav, whose rocky tenure has been marked by steep cost cuts and a sliding stock price, faced a quandary in the NBA talks.

Without those broadcasts, the company’s TNT network, which has counted on basketball to drive ratings and revenue since 1988, could take a major hit. Cable distributors likely wouldn’t be willing to pay as much to offer TNT. When The Wall Street Journal first reported NBC’s $2.5 billion-a-year bid on April 29, Warner’s shares fell about 10%.

But Zaslav and his top lieutenants calculated that the ratings performance of the NBA on TNT didn’t justify a major increase in fees for a smaller package of games, say people close to the company.

Zaslav maintains that Warner can match either NBC’s or Amazon’s deal. Enforcing those rights might require a legal battle, and Warner might wind up paying a higher sum than it passed up in April.

“Turner decided they wanted to take a risk with an auction,” said Patrick Crakes, a sports media consultant and former senior executive at Fox Sports. “That made the rights more expensive.”

Warner is already plotting how to use the potential savings from not being an NBA partner to buy other sports content. It recently cut a deal with Disney’s ESPN to sublicense some college football playoff games. Warner executives note that TNT also has rights to Nascar, the National Hockey League, Major League Baseball and the March Madness college basketball tournament.

Warner would relish the opportunity to acquire CBS from Paramount Global as that company explores a sale that could eventually result in asset sales, say people familiar with the situation. That would help Warner consolidate ownership of March Madness, which it now splits with CBS, and it would make Warner a partner of the NFL.

The departure of the NBA would be a huge blow to the people involved in producing the games for TNT and the content that surrounds it, including the acclaimed show “Inside the NBA,” which features retired stars Charles Barkley, Shaquille O’Neal and Kenny Smith.

“These people I work with—they screwed this thing up, clearly,” Barkley said on “The Dan Patrick Show,” referring to company leaders involved in the NBA talks as “clowns.”

He criticized Zaslav’s remark at an investor conference in November 2022 that the company didn’t need the NBA to prosper. “Well, he don’t need it. But the rest of the people…who work here, we need it,” Barkley said.

BlackRock and Citadel Securities have backed a bourse hoping to challenge Nasdaq and NYSE for listings

A new Texas stock exchange’s bid to break New York’s dominance of US equity markets has met with scepticism from rivals, traders and investor advocates in spite of backing from BlackRock and Citadel Securities.

TXSE, the Dallas-based group behind the planned Texas Stock Exchange, said on Wednesday it would apply for approval from the US Securities and Exchange Commission to become a new hub for listed companies and the $8.6tn exchange traded funds industry.

It has raised $120mn from investors including the two investment heavyweights to meet the needs of companies and other issuers that were “demanding more stability and predictability around listing standards and associated costs”. 

James Lee, its founder and chief executive, added that TXSE would ultimately “create more competition around quote activity, liquidity and transparency, resulting in more consistent and reliable markets” to benefit of investors, issuers and liquidity providers.

The exchange talked up the attractions of Texas, noting that the Lone Star State has more Fortune 500 companies than any other US state. Its comments on listings were interpreted by many as a plan to offer standards less onerous than those required by the New York Stock Exchange or its rival Nasdaq. But market participants questioned TXSE’s ability to make headway in a crowded market.

There are already 24 regulated US securities exchanges — a group that includes options and stock markets — but while all offer trading, the two New York-based bourses dominate the business of listing new companies and maintaining standards for those they already host. A host of others, including IEX, have tried to break the duopoly in the last decade, but to little success.

“We’ve tried it. We’ve done well on the [exchange traded fund] side, but on the corporate listing side, it’s hard,” said Fred Tomczyk, chief executive of Cboe Global Markets, the US’s third-largest stock market. “If you’re going to try to do it on a lighter regulatory touch, I don’t know how you do it because we do have a regulator.”

“Does the world need another competitive listings venue for companies? My answer is probably not, but I wish them luck,” Doug Cifu, CEO and co-founder of Nasdaq-listed market maker Virtu, told Piper Sandler’s annual exchanges conference on Wednesday.

Cifu said he had turned down the chance to invest in TXSE because he was not convinced by its listings push.

“I think Nasdaq and [the] New York [Stock Exchange] do a wonderful job. They’re highly competitive,” he added.

Nasdaq and the NYSE, part of Intercontinental Exchange, declined to comment. One senior New York-based exchange official pointed to the history of failed attempts to break the NYSE-Nasdaq stranglehold, adding: “Most of that regulation isn’t coming from the exchanges; it’s the regulator.”

The San Francisco-based Long Term Stock Exchange launched in 2020 with the aim of attracting buy-and-hold investors and has so far listed two companies. It did not respond to a request for comment.

IEX, which launched trading in 2013 and a listings business in 2017, only attracted a single listing by the time it closed the unit in 2019 to focus on trading. That company, Interactive Brokers, returned to Nasdaq.

“Nasdaq and NYSE ask a lot that isn’t necessarily the best for companies. I understand their intentions are good, but it’s a lot to force people to do,” Thomas Peterffy, Interactive Brokers’ billionaire founder and chair, told the Financial Times on Wednesday.

A 2021 Nasdaq rule requiring board diversity disclosures by companies, and an explanation if their board is not diverse, has come under particular attack. In February, the US Court of Appeals for the Fifth Circuit agreed to rehear a case brought by conservative groups seeking to overturn the rule.

Investor advocates, however, expressed wariness about a new exchange offering more company-friendly listing standards.

“Great companies from around the world list on NYSE and Nasdaq because they know it will help generate investor interest,” said Tyler Gellasch, president of the Healthy Markets Association, who noted that companies had complained about onerous listing standards “for decades.”

“It’s easy to see why companies want lower and friendlier listing standards,” he added, “but why would investors?”

Dennis Kelleher, president of financial reform advocacy group Better Markets, said: “Chief executives already have too many friends tilting the playing field to their favour; investors need more friends if the US is to continue to have the deepest, most liquid markets in the world.”

TXSE declined to comment beyond its press release. Citadel also declined to comment further, while a BlackRock spokesperson said it was “proud to be a founding investor in the Texas Stock Exchange to increase liquidity and improve market efficiency for BlackRock’s clients and other investors in the US capital markets”.

Both Citadel Securities and BlackRock have a history of investing in start-up trading venues, including the 2020 launch of Members Exchange, which trades stocks.

Developers are deploying batteries at a record pace as growing power demand threatens to slow grid decarbonisation

How the US battery boom is shifting the power mix

US developers are deploying batteries at a record pace, extending the limits of renewable generation as growing power demand threatens to slow grid decarbonisation.

On Tuesday, batteries delivered 2GW worth of power on to the Texas grid, the third highest on record, to help meet the peak in evening demand and offset the decline in solar generation when the sun goes down. In California, battery storage regularly supplies a fifth of power in the evening, according to data from GridStatus.io.

“We’re really getting to that hockey stick moment of exponential growth,” said Sergio Dueñas Melendez, the storage sector manager at the California Independent System Operator, the state’s grid operator, which has 9.2GW of storage installed. “Storage has managed to provide energy during the evening ramp . . . at lower cost than some fossil fuel assets.”

The two states are leading the US buildout of battery storage capacity, which is expected to nearly double its footprint this year to just under 30GW, according to the US Energy Information Administration.

“Storage is becoming increasingly significant, helping to stabilise renewable energy output and increase its ability to serve as a reliable base load resource,” said Jason Allen, chief executive of Leeward Renewable Energy, a large developer. On Tuesday, LRE signed an agreement with Pacific Gas & Electric to dispatch power from its Arizona battery project during times of peak demand.

President Biden’s landmark Inflation Reduction Act extended tax credits to battery storage developers for the first time, driving down costs for systems and helping turbocharge deployment to help meet the country’s goal of 100 per cent carbon-free electricity by 2035.

The addition of batteries is generating quick returns for developers while helping mitigate grid reliability concerns over renewable power. Batteries capture excess wind and solar energy and deploy it during parts of the day when generation is low, limiting the use of high-emitting “peaker” plants that deliver power quickly at times of high demand.

“[Developers] are recovering their investments in very short periods of time,” said Juan Arteaga, a senior associate at Enverus, adding that the role battery storage systems play on the grid varies widely depending on the market. While battery storage is making up a large share of generation in California, in Texas, it’s geared towards ancillary services, which covers contingencies and serves the grid during times of mismatch between supply and demand. 

Batteries could play an important role in meeting the surge in electricity demand anticipated from data centres used for the internet and artificial intelligence. Big Tech groups such as Microsoft and Google have made commitments to meet their power consumption with carbon-free sources by 2030, a target that’s difficult to achieve without batteries.

“It is likely that, in the future, batteries will be used not only for back-up power, but also as a buffer, as an energy reservoir, between AI compute and the grid,” said Colin Wessells, founder and co-chief executive of Natron Energy, a start-up developing a new chemistry of batteries known as sodium-ion to serve the data centre market.

But until battery storage systems achieve greater scale, analysts say burgeoning electricity demand will be met by fossil fuels. “There’s going to have to be a mix of generation used for sure,” said George Bilicic, managing director at Lazard. 

“There are certainly enough projects in the pipeline. I’m less sure if there are enough to line up with the timeframe,” said Brian Hayes, chief executive of Key Capture Energy, a battery storage developer. 

Other hurdles facing the battery storage sector are multiyear waiting times for grid connection and regulatory uncertainty. Last month, the Biden administration more than tripled Section 301 tariffs on grid batteries from China to 25 per cent starting in 2026, a move developers say will increase prices due to the lack of a domestic supply chain and China’s grip on the sector.

“When you combine the IRA with the 301 tariffs, you end up with a bit of a mixed bag,” said Andrew Waranch, chief executive of Spearmint Energy, which has battery operations in 11 states. “We would love to buy American, and when quality and price line up we certainly will.”

Data Drill

The US is increasing its production of solar panels. A new report from the Solar Energy Industries Association and Wood Mackenzie found that the US added a record 11GW of solar panel manufacturing in the first quarter. Capacity now exceeds 26GW, more than three times the capacity at the end of 2022.

The milestone comes at a pivotal moment for US solar power, the fastest-growing source of new electricity generation on the grid. Despite the growth in domestic manufacturing, the US is importing panels at record levels, and a group of manufacturers are calling for greater trade protections to safeguard the industry against a flood of cheap imports from Chinese companies, which have a large footprint in south-east Asia, where the US sources most of its supply.

Tomorrow, the US International Trade Commission will decide whether to investigate a petition filed by solar manufacturing giants, including First Solar and Qcells, calling for additional tariffs on south-east Asian solar imports, a move clean energy groups like the American Clean Power Association argue could slow US decarbonisation.

DAX:

MDAX:

SDAX:

Atos ATO -6.68%decrease; red down pointing triangle has pushed its decision on accepting rival rescue packages to early next week as the debt-laden French IT firm negotiates to improve some terms that it received Monday.

Atos said the move comes as the conciliator of the company’s financial restructuring process has also requested for more time to determine which of the two proposals the company’s financial creditors prefer.

“These discussions are part of the ongoing conciliation process and are in the best interest of the company,” Atos said.

The deadline has been pushed to early in the week beginning June 10.

Atos said that its aim of reaching a financial restructuring agreement by July was unchanged.

On Monday, Atos received two rival restructuring bids from a consortium led by Czech billionaire Daniel Kretinsky and another which includes David Layani’s Onepoint, a key Atos shareholder.

Both rescue proposals plan to inject much-needed funds into Atos and address the company’s persistently high debt.

The company has previously said that both plans would result in a massive dilution of the existing shareholders.

The carmaker said its current recall campaign affects the Citroen DS 3 and C3 models produced between 2009 and 2019

Stellantis STLA 2.21%increase; green up pointing triangle said more than half a million cars of its DS and Citroen brands equipped with airbags made by Japanese auto-parts supplier Takata have been included in its latest recall campaign.

The European carmaker said late Wednesday that its current recall campaign affects 530,000 vehicles of the DS 3 and C3 models produced between 2009 and 2019 that had a specific Takata airbags for which risk was identified.

Stellantis said no risk was identified for other models with other components.

The news shows how the effects of the Takata airbag crisis, which began last decade and forced car companies to recall millions of vehicles, continue to affect the industry. Takata filed for bankruptcy in 2017 and automakers set aside billions to cover settlements and replacement costs.