When pro basketball begins its new season on Oct. 25, the first slam dunk will land atop Disney (DIS - Get Report) and Time Warner (TWX) . The two media giants signed an extension of their contracts with the National Basketball Association in 2014, but the rights to televise the action on the hardwood will come with the largest price hike in the sport's history when the new nine-year $24 billion contract begins this year.
Disney, whose ABC and ESPN outlets will show 100 regular season games, is expected to suffer the biggest hit, with a bill that will more than double from the last deal to as much as $1.4 billion in the first year of the new contract, according to Drexel Hamilton analyst Tony Wible.
Time Warner, whose TNT channel will broadcast 64 games, will pay as much as $885 million, or a 93% increase. The contracts also contain escalators that will hike the annual fees in later years.
"Our analysis of renewals implies the initial step up costs are larger than originally expected," Wible said, estimating the added NBA costs will siphon about 5% from the media companies' operating income.
He downgraded Disney to hold in late September and cut his price target to $102 a share. Disney shares closed at $91.17 a share, a 0.37% increase, on Tuesday. Share were up slightly Wednesday afternoon to $91.51.
Wible raised his target for Time Warner to $87 from $86, citing improved studio performance and a planned Turner over-the-top offering that he said "can offset TV headwinds."
Time Warner shares were up 9 cents Wednesday to $79.60.
A Disney spokeswoman had no comment. A Time Warner representative did not return an email seeking comment.
Under the new contract, the per-viewer price tag for the NBA games is the highest of any sport, according to Marc Ganis, president of SportsCorp and an adviser to sports teams in the past in their contract negotiations. Disney and Time Warner, he figures, will try to make back some of the added costs of the new deal with "shoulder programming," shows that are aired before the game or afterward.
The price hike hits Disney at a time when its ESPN sports behemoth is reeling from subscriber losses from cable and satellite consumers who have "cut the cord" and stream their video instead.
ESPN's NBA tab will hike its programming bill by 6% for Disney's fiscal year, which began Oct. 1, estimated Michael Nathanson, a partner and analyst with MoffettNathanson. Nathanson, who maintains a buy on Disney with a $105 price target, figures those costs will erase any operating profit for Disney's cable unit, its largest single segment.
Profit for Disney's cable operations grew by 1% in the fiscal year that just ended, Nathanson estimated.
The NBA bill "is a slight hiccup for 2017, but we believe ESPN is going to continue to grow, albeit not at the rate that it has grown over the last decade," Disney chairman and CEO Bob Iger told a Goldman Sachs conference in September. "So, it's still a healthy business."
Time Warner may have an advantage that Disney lacks, according to Ganis, because the new deal continues the former's partnership with the NBA under which they jointly manage the league's digital assets, which include NBA.TV, NBA.com, NBA Mobile and NBA League Pass, which sells subscriptions to stream games.
Disney, which has the rights to stream its games across all multimedia platforms, could add other digital distribution to help defray the costs, however. The media company and the NBA negotiated a framework for an over-the-top digital offering, the league said in its 2014 statement announcing the extended TV deal.