Warner Bros. Discovery NBA Deal 'Best Case Scenario': Analyst Says Renewal Structure Could Boost Annual Profit
Analysts praised the agreement reached this week between Warner Bros. Discovery (NASDAQ:WBD) and the National Basketball Association (NBA) that will see an extension of the two companies’ partnership for 11 years.
As part of the deal, TNT Sports will be licensed to other companies and Warner Bros. will get exclusive rights to NBA games in some international markets. The deal will also see ESPN, a unit of The Walt Disney Company (NYSE:DIS), partner with Warner Bros. to license the popular basketball studio show "Inside the NBA."
The Analyst Takeaways: "This appears to be as positive of an outcome as investors could have hoped for, considering loss of domestic distribution," Bank of America’s Jessica Reif Ehrlich said in a Monday analyst note.
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Ehrlich, calling the deal "a best case scenario," reiterated a Buy rating on Warner Bros. Discovery with a $12 price target.
Warner Bros. Discovery avoids having to pay expensive sports rights fees while still getting global rights to some hit shows, she explained.
The company will also receive licensing revenue from Disney for "Inside the NBA."
"In totality, we estimate today's announcements could yield a healthy annual profit for the company,” Ehrlich added.
Ehrlich said Warner Bros. Discovery will now televise exclusive Big 12 football and men's basketball games starting in the 2025 season.
"WBD continues to add sports rights to its portfolio which in the aggregate, should help partially offset the loss of the domestic NBA distribution."
Outside of the NBA deal, Ehrlich also sees Warner Bros. Discovery's upcoming renewal with Comcast Corporation (NASDAQ:CMCSA) as a potential future catalyst.
A recent renewal with Charter saw Warner Bros. Discovery still net a strong rate for TNT carriage fees, despite losing future NBA rights, the analyst added.
"If these terms can be more broadly replicated in the upcoming CMCSA renewal, that would go a long way in assuaging any remaining concerns."
Price Action: Warner Bros. Discovery stock is up 0.32% to $9.50 at last check Tuesday versus a 52-week trading range of $6.64 to $12.68.
The company’s stock is down 19% year-to-date in 2024, but shares have risen over 25% in the last month.
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