Sirius Scores With NFL Deal

By | December 22, 2003 | Feature

Sirius Satellite Radio [Nasdaq: SIRI] is following the marketing game plan of DirecTV by signing a seven-year, $220 million contract with the National Football League for the rights to air all regular season and selected pre-season and post-season games starting in 2004.

DirecTV’s NFL Sunday Ticket has enabled the nation’s largest satellite TV service to exclusively offer all regular season games and to charge lucrative, premium subscription prices, while shutting out rival EchoStar Communications [Nasdaq: DISH]. Sirius appears intent on emulating the same winning formula but, unlike DirecTV, Sirius will offer all of the NFL programming at no additional cost to its subscribers.

Sirius could be helped immensely by the NFL’s marketing muscle, since each team will receive a financial incentive to promote the fledging satellite radio service. With an initial cash payment of only $10 million, Sirius becomes the official satellite radio partner of the NFL, with exclusive rights to use the NFL “shield” logo and collective NFL team trademarks.

The partnership gives NFL teams a direct stake in Sirius’ success through an “earned-equity program,” according to a document filed by Sirius Dec. 16 with the Securities and Exchange Commission (SEC). Under that program, an NFL team can earn the right to acquire Sirius common stock for each subscriber it can demonstrate became a paying Sirius customer through initiatives created and implemented by the team.

Such initiatives may include special events and promotions with consumer electronics retailers and other marketing partners, as well as targeted marketing to season ticket holders, postings on team web sites, and special inserts in game programs. Teams also may earn warrants to buy additional shares if the NFL delivers advertising, marketing and promotional exposure to Sirius, and if the teams produce original content for use on the “NFL Radio Network.”

As part of the agreement, Sirius will create The NFL Radio Network as an around-the-clock exclusive stream of NFL content for its subscribers nationwide. The radio channel will provide news, features, and other programming that highlights the NFL and its teams. The NFL Radio Network will include programs from The NFL Network television channel, a TV network launched in November that is dedicated to the NFL.

NFL Commissioner Paul Tagliabue said that with the Sirius deal football fans nationwide will be able to stay in touch with their favorite teams coast-to-coast. For example, fans of the AFC East-leading New England Patriots would be able to tune in the team’s games and hear every play during the regular season from anywhere in the United States.

The NFL is the “most powerful name” in sports, said Joseph P. Clayton, president and CEO of Sirius. “For the first time ever, football fans will have the opportunity to hear radio play-by-play of their favorite NFL team — called by their favorite local announcers — no matter where they are in North America,” Clayton said. “This agreement represents a major enhancement to our superior programming lineup and it underscores our ongoing commitment to enrich the Sirius subscriber experience.”

The NFL controls the local radio rights to the games in each market and the deal is intended to let Sirius air the games nationwide.

Jim Collins, Sirius’ vice president of corporate communications, estimated that 145 million people watch NFL games on television each season. “That is a huge fan base to tap into,” he said.

Deal’s Details

Under terms of the deal, Sirius has agreed to pay the NFL an aggregate of $188 million in cash over the term of the agreement. Only $10 million of that amount is owed up-front in conjunction with last week’s announcement and the execution of the agreement with the NFL. Sirius committed to deposit $85 million in escrow but will not be required to make further payments to the NFL until Aug. 15, 2009, according to the SEC filing.

The remaining $32 million of the $220 million would go to the NFL in the form of Sirius stock. Shares of Sirius common stock now valued at $32 million will be given to the NFL, along with warrants for the league and its teams to buy 50 million additional shares of stock at an exercise price of $2.50 per share. The shares of common stock will be subject to transfer restrictions that lapse over time. The warrants will vest upon satisfaction of performance criteria.

In total, Sirius will pay the NFL an estimated $220 million in cash and stock to broadcast all the regular season and nearly all playoff games for seven years, starting in 2004. Only the Wild Card and divisional playoff games will be carried among the post-season clashes in 2004, but the conference championship and Super Bowl games will be added starting in 2005.

The agreement, already approved by the owners of the NFL member clubs and Sirius’ board of directors, is expected to be completed by Jan. 31.

Industry observers acknowledged that Sirius is paying a high price for the NFL contract but spoke optimistically about the football programming becoming a compelling reason for prospective subscribers to pay more for Sirius, priced at $12.95 a month, rather than rival XM Satellite Radio [Nasdaq: XMSR] at $9.99 a month.

“That’s a lot of money and it’s a big bet for them to take,” said Armand Musey, a principal with the satellite investment-banking firm NearEarth. “But if it lifts subscriber numbers anything like it did for DirecTV, it will be worth it. It should also help Sirius differentiate itself in the market and justify its premium pricing relative to XM.”

Chuck Hewitt, who formerly was president of the Satellite Broadcasting and Communications Association (SBCA) when DirecTV forged its NFL alliance, said Sirius could gain a “dramatic boost” in 2004 subscriber sales through the deal. The partnership also could help to put satellite radio deeper in the minds of consumers as a “must have” service, he added.

“The Sirius-NFL deal raises the level of satellite-delivered and multichannel-delivered entertainment once again, this time to national delivery of America’s No. 1 sport,” said Jimmy Schaeffler, a satellite broadcasting analyst who heads The Carmel Group, a Carmel-by-the-Sea, Calif., consulting firm. “Once again, satellite earns the award for innovation. That’s very important for Sirius and for the industry, especially with that sports crowd, the innovators, and the early adopters.”

Sirius radios for the car and home, starting at $149, are available at thousands of retailers nationwide. The monthly subscription fee is $12.95, or less with prepaid subscription plans.

The market for satellite radio in the United States is huge, Collins said. It includes 200 million used cars, 15 million to 17 million new cars and light trucks built every year, 100 million U.S. households, three million heavy trucks, four million RVs (recreational vehicles), and three million boats of 20-feet or longer, he explained. –Paul Dykewicz

(Jim Collins, Sirius Satellite Radio, 212/901-6422; Armand Musey, NearEarth, 646/452-9931; Chuck Hewitt, 410/544-4108; Jimmy Schaeffler, The Carmel Group, 831/643-2222)

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