AT&T Spins Off DirecTV to Set Stage for an NFL Sunday Ticket Shakeup

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AT&T has initialized the long-rumored sale of a 30% stake in DirecTV to the private equity firm TPG Capital, in a transaction that will see the telecommunications spin off the pay-TV asset.

Under terms of the deal, TPG will pay AT&T $1.8 billion in cash for its stake in the subscription-video unit, which includes DirecTV, AT&T TV and U-verse. The implied enterprise value for the new spinoff entity is $16.3 billion, well shy of the $48.5 billion AT&T originally paid for DirecTV back in 2015.

According to a release issued by both parties, the DirecTV valuation includes debt and the “elimination of up to $2.5 billion in NFL Sunday Ticket net losses.” The new DirecTV will continue to honor the legacy contract with the NFL through its expiration at the end of the 2022 season.

The deal is expected to close in the latter half of 2021.

Prior to this afternoon’s announcement, it was widely assumed that AT&T would pass on renewing the out-of-home NFL package, for which it pays a staggering $1.5 billion per year. AT&T, which closed out 2020 with a net debt balance of $147.5 billion, has been actively searching for ways to reduce that burden—which is where TPG comes in.

Amazon is arguably the best fit for Sunday Ticket, given its vast resources and relevant experience on the streaming front. Since 2017, when it unseated Twitter as the official streaming partner of Thursday Night Football, Amazon has re-upped with the NFL twice. Last April’s three-year extension gave the company a crack at an exclusive Saturday afternoon window on Dec. 26, when it carried a Saturday afternoon 49ers-Cardinals game produced by CBS.

Also very much working in Amazon’s favor is its reach, as its Prime service boasts more than 150 million paid subscribers worldwide, of whom north of 50 million are in the U.S. By comparison, AT&T’s total video connections number 17.2 million subs, and that number is swiftly contracting. Compared to the year-ago period, AT&T’s pay-TV subscriptions are down 16%. All told, the telco lost 3.26 million video customers in 2020.

If Amazon is the perceived frontrunner to succeed DirecTV as the home of Sunday Ticket, the online retailer may have to fend off an equally interested Disney. In May 2019, then-CEO Bob Iger told investors that he had begun kicking the tires on a scheme to acquire Sunday Ticket for the ESPN+ over-the-top platform.

“We are very bullish about the relationship ESPN has with the NFL, and I think we all believe that there are opportunities to strengthen our relationship with them,” Iger said during that spring earnings call.

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