Is ESPN Charging a Tax on Every American Household?

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Is ESPN Charging a Tax on Every American Household?The next time you find yourself bellyaching over your expanding monthly cable bill, don't blame your provider. Blame Tim Tebow! Curse LeBron James. Hate on Tiger Woods. You're a bum, A-Rod!

Even though your cable, satellite, or broadband television provider may be despised for completely legitimate reasons, when it comes to your ever-rising bill, the providers are mostly just passing along the scaling programming costs of networks.

Taxing Sports

ESPN is perhaps the biggest offender when it comes to basic cable. Media tracker SNL Kagan estimates that ESPN alone sets distributors back $4.69 a month for every subscriber.

You can expect that figure to continue to inch higher, and some in the industry are more than a bit concerned.
Speaking at a media conference earlier this month, Liberty Media (LMCA) CEO Greg Maffei suggested that there will come a point when ESPN's escalating fees will become a "tax on every American household."

We may already be there.

Fumbling the Handoff

Your cable provider points to Disney's (DIS) ESPN, but the original 24/7 sports network doesn't want to take the fall. See, it too is passing on the costs of larger sums of money that it has to shell out to sporting leagues with every passing year.

The NFL is reportedly on the verge of finalizing an eight-year programming extension with Fox, CBS (CBS), and Comcast's (CMCSA) NBC that would keep pro football on the air of the major networks through 2021. The league wants a deal that averages a combined $3.2 billion a year, and that's a sharp 60% increase from the current contract.

The only silver lining there for consumers is that Fox, CBS, and NBC are free over-the-air channels. You can kick your pay-TV provider to the curb and get a cheap HD antenna to catch all three networks for free. Advertisers will likely pick up most of the bill, and the broadcasters will eat the rest.

However, this doesn't mean that other networks are paying through the nose for pigskin rights. ESPN and NFL Sunday Ticket home DIRECTV (DTV) recently inked extensions that also dramatically marked up their licensing fees.

So the next time you hear someone claim that overpaid athletes aren't your problem, show them your cable bill.

Bundling Is the Bomb

I'm paying $4.69 a month for ESPN, apparently, and I don't mind. I get enough entertainment out of the sports network to make it worthwhile. Maybe you feel the same way. Maybe you don't. However, my aunt -- who doesn't know the gridiron from a baseball diamond -- can't be too happy subsidizing our sports viewing just so she can watch Mad Men on AMC.

Then again, I have no need for The Weather Channel or QVC. C-SPAN? Hallmark Channel? Please. Why can't I cherry-pick the channels that I am presumably paying for? Why do folks pay for both MSNBC and Fox News when really they will only watch one or the other?

Here is where the fingers point right back at the cable companies. They're the ones with loosely bundled packages that find couch potatoes paying for hundreds of channels, 90% of which they will never watch.

The downside to customized options, beyond the logistics of making it happen, is that cable bills wouldn't necessarily get any cheaper. If ESPN loses half of its subscribers, it would have little choice but to double its rates. These are companies with set expenses to cover. The denominator doesn't change, even if the numerator contracts.

You don't have to like it, but you can vote with your feet.

Pass Interference

No one is demanding an ESPN tax out of you. Comcast -- the country's largest cable provider -- offers a "digital economy" package that sidesteps the costly sports programming. Smaller providers have similar packages.

However, that value-priced bundle doesn't have many basic cable staples, including CNBC, FX, and Nickelodeon. If you want a regular dose of Jim Cramer, American Horror Story, or SpongeBob, you're going to have to take ESPN with that.

The future may very well change that. Whether it's out of economic need or inspired by the notion of liberating freedom, more and more "cord cutters" are cancelling their cable subscriptions and opting for streaming options. Smart televisions are making it easier to connect to Web-served programming on demand, putting consumers back in control.

"No taxation without representation" was the slogan of one revolution a couple of centuries ago. It may be time for another go, only this time on a much smaller scale and for a much different playing field.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Disney and Liberty Media. Motley Fool newsletter services have recommended buying shares of Disney.




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13 Comments

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tsimpson2333

Most people won't complain they need their sports. This is why sports teams get away with so much including players. Tell me who in the world is worht $25 million dollars a year? Unless you have a cure for cancer I think you are worth that kind of money yet the public is in favor of players being paid excessive salaries. Team owners are also included in this group. Things just got out of hand "top to bottom.'

December 18 2011 at 12:23 PM Report abuse rate up rate down Reply
Brandon

I have limited basic cable I only get 7 channels but's it only cost my 9.95 per month.

December 15 2011 at 5:22 PM Report abuse rate up rate down Reply
Robert & Lisa

I for one can do without ESPN. Take it out of the mix Directv

December 14 2011 at 7:28 PM Report abuse rate up rate down Reply
voicecraft

I hope the writer means standard cable and not basic, because I have basic, which does not include ESPN,
at least in my viewing area. So, if i'm being charged for something I don't get, there is a class action lawsuit
in the fabric of this dilemma.

December 12 2011 at 12:35 PM Report abuse rate up rate down Reply
Tony

CABLE COMPANIES as well as Verizon puts it to its customers at every chance they get....If you call cable and threaten to cancel they could care less...and have you looked at your phone bill lately.....My basis charge for my cell phone is $39.95 but with the charges and taxes and what not....it comes to over $51 a month...MORE CRAP FROM BIG BUSINES to screw the customer....And they could not care less if your a senior on a fixed income....NO ONE CARES ABOUT ANYTHING EXCEPT THE ALMIGHTY $$$$

December 12 2011 at 11:28 AM Report abuse rate up rate down Reply
1 reply to Tony's comment
Robert & Lisa

Don't subscribe.

December 15 2011 at 6:19 AM Report abuse rate up rate down Reply
BUFFALO

This is why cable providers should have ala cart cable. I don't need or watch 200+ channels and could easily live with a about a tenth of channels I have now?? Don't blame the cable providers???? I can thank you!

December 12 2011 at 9:34 AM Report abuse +2 rate up rate down Reply
bonnied5555

Big business is just ******* it out of us -Greed has taken over and it is profit , profit , profit , Exxon Mobil reported quarterly earnings of $10.3 billion on Thursday, a surge of 41% from a year earlier. It was on OUR backs people . Same concept here .

December 10 2011 at 4:33 PM Report abuse +1 rate up rate down Reply
Sebastian

Well, mostly in Europe you have to pay an extra fee for most of the Sports channels. For example, in a basic package in England, France, Germany or Poland you can only get Eurosport channels ( Eurosport, Eurosport2 and Eurosport news) for free. But if you want to watch more sports events like NFL, Basketball or football, you have to pay at least $15 - $20 per month. So all in all it is not that bad to pay $4.69

December 09 2011 at 6:49 PM Report abuse -1 rate up rate down Reply
bcopleyjigs

4.95/month is mild compared to everyone else's thumb that is in that pie. Just look at the local BS charges on your cable bill and see what they add up to.

December 09 2011 at 2:20 PM Report abuse +2 rate up rate down Reply
mdunnjr

Article like this are actually beginning to make me sick! First of all people have choices--they could chose not to watch or subscribe to ESPN but more importantly why is it such a crime or a headline for a business to charge for a service. What is the point of an article like this? Is it to undermine the free economic system--similar to the strategy of the current President. Long term who pays the taxes to support all the entitlements if companies and people aren't allowed to make a fair return on an investment. Whether it comes in the form of wages--dividends--corporate profits whatever.

What is the long term strategy / view of America as a socialist country? Who assume the lead role in the world?

Seriously I know I am of course but the the underlying "I got you" media mentality is slowly taking this country down. When did it become a crime to be successful?

December 09 2011 at 10:08 AM Report abuse -3 rate up rate down Reply
2 replies to mdunnjr's comment
Nick

I think the report correctly states that most who do not ever watch ESPN still haveto pay for it. It is in a bundle. Most cable companies only offer bundle choices, not individual selections.

December 09 2011 at 10:23 AM Report abuse +3 rate up rate down Reply
Earthling

The part about choosing not to subscribe to ESPN is not true! My family does not watch any sports at all, ever, but we do like the discovery channel and stuff like that. And we can't get it unless we also sign up for all the sports channels. It's more than just ESPN--there are a lot of channels devoted to sports that we don't want but have to pay for. I would much prefer an a la carte plan but knowing the cable companies, they would just overcharge on a per channel basis, and we'd end up paying more.

December 13 2011 at 9:12 AM Report abuse +1 rate up rate down Reply