Why Netflix Will Lose in Sports
Netflix shareholders may be a happy bunch right now, after the bonanza year the video-streaming stock has enjoyed. Though its revenue is growing at a decent but unspectacular clip—15% in the third quarter—its shares have so far risen 87% this year to above $900 a share. Since their low point in mid-2022, during a freakout about Netflix’s subscriber stall, the stock has soared more than 440%. Given how badly every other streamer is doing, investors seem to regard Netflix as the only streaming stock worth buying.
Shareholders shouldn’t get too comfortable. Today’s news that Netflix has won the rights to exclusively stream the FIFA Women’s World Cup in 2027 and 2031 is a bearish sign for the stock. It’s further evidence—on top of next week’s NFL games streaming on Netflix—that the company has abandoned the admirable discipline that kept it out of live sports and is charging into that morass. That should worry anyone who owns shares in the company.
Buying the TV rights to live sports is a ticket to lose a boatload of money. Traditional TV networks feel they have little choice because it’s the only way left for them to draw lots of viewers and the ad dollars that follow. It doesn’t seem to matter to them that, given how much sports rights have risen in cost, the networks (aside from Disney’s ESPN) may not make money from sports programs.
Sure, the TV executives may not be wrong. Witness the impact of Warner Bros. Discovery’s loss of the NBA rights to companies willing to pay more: The future of its cable channels is in doubt.
But Netflix isn’t in that unenviable situation. It has a global lead in subscribers, giving it the resources to spend enough on programming to maintain its lead. It’s making a bundle of money—$5.5 billion in free cash flow in the first nine months of 2024, nearly three times as much as Warner Bros. Discovery, which has slightly more revenue.
True, Netflix isn’t growing fast anymore. To remedy that, it’s introduced an advertising tier, which in turn is why it is turning to sports. The flaw with this strategy is that all sports will do is pit Netflix against every other TV network and streaming service for both ad dollars and streaming rights. The only winners are the sports leagues, who rake in the money.
Bulls will argue that Netflix’s sports deals so far haven’t been exorbitant. That’s true—but its sports investment won’t end there. If it wants to really use sports to draw a significant amount of advertising dollars, it will have to spend a lot more money buying more rights. It’s a no-win situation that Netflix would be better off avoiding.