YouTube (GOOGL) has won the exclusive rights to NFL Sunday Ticket — but don't expect the package to be profitable, one analyst warned.
"They're not making money on this — this is a loss leader," Michael Pachter, managing director of equity research at Wedbush, told Yahoo Finance Live, referencing YouTube TV's current price point of $64.99. "I don't think they make a penny at that level."
Sunday Ticket, which makes out-of-market games available to fans nationwide, will be available as an add-on package on YouTube TV and standalone a-la-carte on YouTube Primetime Channels starting with the 2023 NFL season. Terms of the deal were not disclosed.
A recent report from the New York Times, however, suggested YouTube was willing to pay as much as $2.5 billion to acquire the rights — $1 billion more than former rights holder DirecTV paid for the package.
The report noted the NFL could receive additional payments depending on the number of YouTube subscribers added to the service, along with other performance benchmarks.
"It's an extremely expensive package of content," Tim Nollen, analyst at Macquarie Group, previously told Yahoo Finance Live, noting the Sunday Ticket package was not a profitable service for DirecTV.
The cable provider previously boasted 1.5 million to 2 million Sunday Ticket subscribers with each user paying about $300 per season. YouTube TV has more than 5 million subscribers and trial users as of July.
"Five million subscribers is just not enough," Pachter stressed. "Even if all 5 million pay the $400 bucks a year...they're going to barely cover their costs."
Still, despite the lack of profitability and sky-high price tag, Pachter noted YouTube might be best positioned to take advantage of the package, especially as the demand for live sports escalates.
"I think they can be smart about how they carve up the content," Pachter said, suggesting the platform could more easily sell games to bars and restaurants. "There's opportunity for them to exploit this better than DirecTV has because of the nature of YouTube being over-the-top. Anyone with an internet connection can get it, so ultimately it probably does pay off."
'There is so much money in sports'
According to PwC's biannual U.S. Deals Outlook, demand for live sports, including sports-adjacent industries like sports gambling, will likely drive future M&A activity in the media space.
"There is so much money in sports, and getting live sports onto the streaming platforms is an area that is still not completely tapped," Jon Christian, EVP of digital media supply chain at Qvest, the largest media & entertainment-focused consulting company, previously told Yahoo Finance.
"The question there is: Can they put a pencil to it? Because the price is so high for the content. Are they now going to be able to get the subscribers necessary to be profitable in that business?"
Nollen agreed the "math is difficult" due to the high costs, although it might be a necessary step forward for companies hoping to survive the streaming wars.
"Linear subscribers are falling by the wayside," Nollen said. "Streaming subscribers are still growing. It's competitive, but they're still growing, and over time more sports could help to attract more users to those platforms."
"How they'll make enough money to justify double or whatever the price increase is? You'd think they'd have to double the price for the streaming services," Nollen said.
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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