Welcome back to The Varsity, my private email about all of the media business—both the sports leagues and teams that you love, and the ones you love to hate. I am currently preparing for a weekend in Philly as I take in WrestleMania for the first time. My Puck partner Tina Nguyen, our company’s resident WWE expert, tells me that The Rock has turned into a heel and will be returning to the squared circle for the first time in a decade. I can’t wait to see your face paint at the Linc…

Let’s start off with a hearty congratulations to Jeremy Lasich, a Varsity subscriber from bucolic Clifton, Virginia, who is now the proud owner of a Puck-branded foam finger. Jeremy had the closest viewership prediction for Monday night’s LSU-Iowa Elite Eight game—and, frankly, his guess wasn’t particularly close. The Caitlin Clark-Angel Reese rematch drew 12.3 million viewers, shattering the record for most watched women’s college basketball game. Jeremy’s guess—10.65 million—was the highest one I received.

Of note: Puck’s must-read fashion expert Lauren Sherman has a preview of the luxury retail business’s plans for this summer’s Olympics, which will be held in Paris. LVMH has already spent $160 million to sponsor the Games. “The amount of money LVMH will invest in marketing, advertising, and promotion around the two-week-long event will be far greater, of course, adding hundreds of millions of dollars to the actual spend,” Sherman writes in her excellent private email, Line Sheet. Sign up here. You’ll absolutely love it.

As always, if this email was forwarded to you, sign up here to get your very own subscription to The Varsity. (Soon enough, Frank Thomas and Doug Flutie will explain how a Varsity sub is the key to eternal health and wisdom.) And for those of you who continue to forward this email, we will subscribe you to Marchand’s fashion private email!

Let’s get to it…

It’s too early to declare a trend, but it seems notable that Hunt’s defeat came in the wake of the Virginia government rejecting Ted Leonsis’s proposal to move the Wizards and Caps to the Old Dominion state. Once upon a time, cities viewed their ball clubs as public domains. But these days taxpayers seem more cognizant of the extraordinary value that pro sports teams generate. They know the owners can afford the upgrades on their own.

1. Spulu’s D.C. talks: Over the past few weeks, cable executives have descended on the Justice Department to complain about Spulu, the sports streaming joint venture that Disney, Fox, and Warner Bros. Discovery plan to launch this fall. Of course, their gripes are familiar to readers of this newsletter: They feel hamstrung having to pay retransmission consent fees to broadcasters, and they’re also pissed that Disney/Fox/WBD are offering a skinny bundle that they would never make available to any cable or satellite operator.

   Perhaps the cable operators are realizing that the D.O.J. doesn’t have the jurisdiction to satisfy any of those complaints—it literally would take an act of Congress to modify the 1992 Cable Act (which, by the way, was the only George H. W. Bush veto that Congress overrode). Alas, today’s legislators seem incapable of passing anything, much less a complicated communications bill. But cable operator complaints about bundling and retransmission fees have reached at least a few sympathetic ears among Biden administration lawyers, according to executives who have been part of these meetings.

   Naturally, one focus of the D.O.J. is whether Disney/Fox/WBD’s move to bypass distributors will exacerbate competition issues. Some cable operators are suggesting that the D.O.J. should mandate that the triumvirate continue paying distributors a fee. “There’s a lot of people that invested billions of dollars to create this internet distribution mechanism,” one executive told me. “They’re not paying for that. They get that for free.”

   There’s still a long way to go before any of these issues are decided. But these are some of the problems that the networks’ high-priced lobbyists will have to address in the coming weeks.

2. Diamond’s first step: The long-term deal that Diamond signed with Charter on Wednesday was a necessary first step as the R.S.N. owner looks to emerge from bankruptcy. But Diamond is far from exiting its current stage of existential distress. Over the next couple of weeks, the company needs to sign essential, long-term contracts with Comcast and DirecTV to ensure it has the revenues to cover its fees to the teams.

   The Comcast deal, in particular, is shaping up to be critical in determining Diamond’s future. Comcast has forced smaller, independent R.S.N.s (like Root Sports, SportsNet Pittsburgh, and MASN) onto digital tiers—a downgrade that has essentially cut their revenue by about one-third, I’m told. Given Diamond’s perilous financial situation, it can’t afford to move to Comcast’s digital tier… at least not immediately. I’m told that Diamond has been negotiating for a longer “step-down,” which would give the company a reprieve of several years before its R.S.N.s are moved to a digital tier. That’s basically how it structured its deal with Charter. (Who says the sports media business isn’t relationship-based…)

   All sides are talking, and I’m hearing that they’re making progress. The next bankruptcy court hearing is April 17, and Diamond needs to have something to show the judge by then.

3. Ladies and Gentlemen, your Sacramento A’s: Just because the A’s are moving from the country’s 10th-largest media market (San Francisco/Oakland/San Jose) to its 20th (Sacramento/Stockton/Modesto) en route to their final stop in Vegas, don’t expect any changes to the team’s TV contract with NBC Sports California. Remember, cable coverage markets are different from media markets. Sacramento was already considered a primary market for the A’s when they were in Oakland (Zone 1, as they say in the biz). Plus, the R.S.N. still carries games from Sacramento’s NBA team, the Kings.

   The nearly $70 million rights fee that NBC pays the team per year won’t be reduced. It also helps that Comcast is the dominant cable provider in both Oakland and Sacramento, which makes those negotiations easier. The situation would have been much different if the A’s had announced a temporary move to a town much farther away, say, Salt Lake City. This is one reason why it’s unlikely NBC Sports will bid for the team’s media rights when it eventually moves to Las Vegas—a market where Cox operates the biggest cable system.

4. Iger speaks: I know everyone is focused on Bob Iger’s big win last night during Disney’s shareholder vote. But I was more interested in the comments he made regarding ESPN during an appearance on CNBC’s Squawk on the Street this morning:
1. Iger reiterated that launching Spulu this fall will have zero effect on ESPN’s plans to take its flagship channel direct-to-consumer next year. If sports fans who don’t subscribe to a multichannel service want to buy Spulu, they have that option, Iger said. “If they’re not interested in that and they just want ESPN, … they’ll be able to get that, too.” Indeed, one of Iger’s best qualities as a C.E.O. is his ability to make a complex industry seem simple. One wonders, however, if consumers will have such a simple time appraising the various value propositions provided by two new sports streamers hitting the market within a narrow window.
2. ESPN’s flagship D.T.C. service will have more features, like integrated fantasy sports and sports betting, to attract consumers. “There'll be significantly more consumer engagement and interaction, interactive capabilities,” Iger said. And as my Puck partner Julia Alexander noted this week in an excellent piece, Iger and ESPN C.E.O. Jimmy Pitaro seem to intuitively recognize that these extra capabilities can help turn the service into a so-called “command center” in sports streaming—a first-stop checkpoint in the sports streaming universe. (Spoiler alert: Apple and Amazon are considering this strategy, too.)
3. Iger is still talking to potential strategic partners for ESPN. “We don’t need an investor,” he said. “We’ve had ongoing discussions. Nothing more to add. … It’s complicated” (Ed note: Very complicated…)
4. He also offered a full-throated defense of ESPN, which has suffered through cord-cutting, and highlighted the 12.3 million viewers that watched the Iowa-LSU Elite Eight game. “That, to me, speaks volumes about ESPN as a brand and as a business,” Iger said. “ESPN is still highly profitable. Their ratings have been up the last couple of years, their operating income has been up the last couple of years. We’re engaged in basically positioning ESPN well for its future.” (Ed note: Does this public endorsement mean that Pitaro is creeping up the leaderboard in the Disney succession games?)
5. Fox’s basketball bid: Most reports about Fox Sports and AEG’s plan to create a 16-team postseason college basketball tournament focused on how the move would affect the forlorn National Invitational Tournament. (My take: It’s a death knell for the NIT.) But what fascinates me even more is the ongoing trend wherein TV networks are looking to own their own content. For instance, Fox Sports owns half of the United Football League, which kicked off its new season last weekend. And now the network is pushing to own a postseason college basketball tournament with AEG—with Fox handling media rights and ad sales and AEG overseeing sponsorships and commercial sales. For what it’s worth, we saw this trend in the earliest days of the streaming industry—a time when legacy media companies all created their walled gardens with their own vertically integrated content systems. In the intervening years, though, that strategy has been reversed. It’ll be interesting to see if that happens here, too.

Every time we think we’ve reached the apex value of NFL rights, it seems, we have yet further to climb. The league, after all, operates on measured scarcity—there are 17 regular season games (with an 18th likely coming, as I’ve reported), three rounds of playoffs, and one Super Bowl. And yet the NFL completely dominates at least one full media day each week for more than five months. From an investing perspective, it’s a phenomenal asset. It’s also perhaps the final ballast for linear television, as readers of The Varsity know all too well. In 2023, for example, NFL games accounted for 93 of the 100 most-watched programs on television.

Still, despite the NFL’s popularity on TV, the league’s most recent round of media rights deals appeared to be a high-water mark. When television executives signed these deals, they privately spoke about how they viewed the NFL as a loss-leader to promote other parts of their schedules. Nevertheless, the fear of living without football caused CBS, Fox, and NBC to double the amount of money they paid the league each year. ESPN negotiated a smaller increase, percentage-wise, but it still pays more per year than the other networks.

CBS’s deal, in particular, looked like an albatross due to the financial problems of its corporate parent, Paramount Global. With 10 years left on its deal, CBS owes the NFL $21 billion—which is almost three times the market capitalization of the entire company. (Paramount’s enterprise value, its debt plus equity, is about $22 billion. Anyway, you get the point…) The situation has looked so tenuous for Paramount that top NFL executive Brian Rolapp was asked recently what would happen if CBS couldn’t make its payments. (Rolapp’s statesman-like answer: “We’re not worried about any insolvency risk.”)

This week, the Redstone family entered into exclusive talks to sell National Amusements Inc., the holding company that controls 80 percent of Paramount’s voting rights, to Skydance Media. And the presence of that NFL deal—the one where CBS is on the hook for $2.1 billion annually—is making the broadcast network more attractive to suitors. David Ellison may be most interested in the Hollywood studio, and I.P. that he views as underutilized. But I’m told that he also sees value in the broadcast network, thanks mainly to that NFL deal.

After all, by locking down a decade’s worth of NFL rights, Paramount’s new owners will have much more flexibility while navigating the inevitable transition to streaming and figuring out what in the world to do with its subprime pay TV brands. The NFL also will allow a Paramount/NAI buyer to play a role in the broader advertising business.

Rather than the NFL contract being an albatross tied to Paramount’s financials, several well-placed sources have told me that the company would be in much worse shape without it. And those sources bluntly suggested that the sale price would be considerably lower without a long-term NFL deal in place as part of the value proposition.

Look, it’s no secret that the television business, including CBS, is declining. But broadcast TV is not going away tomorrow, and sports leagues still rely on its reach to get their games in front of the biggest possible audience. (This is why the NBA is likely to make Disney, WBD, and perhaps NBCU its main broadcast partners, before selling some supplemental rights to various streamers.) Broadcast networks still reach a massive audience, and many in the industry expect that to remain the case for at least a decade—or until Netflix catches up with them. So perhaps, that’s also how long Ellison has to figure this thing out.

“There was one big under-the-radar Caitlin Clark story last week: She was named to the preliminary 14-player USA Basketball Olympic roster. How many henchmen will NBCU be sending over to the USA Basketball offices to make sure Caitlin gets selected for the final 12-player roster? If she gets picked, she could end up being the most popular U.S. athlete at the Paris Olympics this summer.” —A tech industry executive

“I’m on the treadmill thinking about how ESPN’s investment in women’s sports through the years is really paying off right now. The athletes deserve the credit. But ESPN does, too. It invested in this tournament and many other sports when Clark and [Paige] Bueckers were little girls. Systematically and strategically. It’s true.” —A former ESPN executive

“I love all of the Marchand references in your columns. They’re very funny.” —The same former ESPN executive

“I don’t play golf, or follow it, or really even watch it at all. But I do live in Atlanta and know a number of Augusta members and their children. It’s always been my understanding that the TV deal is on terms as you described. Another interesting piece of it is the limited (in terms of length and partner) advertising regime.” —A Puck subscriber