WBD asserts Paramount’s ‘above-market’ sports rights deals leave company on poor financial footing

Early Wednesday morning, Warner Bros. Discovery filed a form with the Securities and Exchange Commission outlining why the company ultimately rejected Paramount’s offer to purchase the company in favor of Netflix’s deal.

WBD set forth numerous reasons why it considered Paramount’s offer the weaker of the two, including uncertainty regarding Paramount’s funding. Risk associated with not going forth with its planned split should it accept Paramount’s offer, but a deal wasn’t ultimately approved by the federal government. Paramount’s poor credit rating. All completely valid reasons why WBD wouldn’t want to sell itself to Paramount.

But there was another interesting point in WBD’s filing on Wednesday that centered on Paramount’s sports rights. In particular, WBD called out what it perceives as Paramount paying “above-market” rates for certain of its media rights deals.

“PSKY has recently entered into multiple programming commitments that may further stress its financial performance. In the short period since the completion of the Paramount/Skydance transaction, PSKY has signed above-market, multi-year programming and sports licensing deals, both domestic and international,” the filing reads. “Despite limited visibility into their long-term performance, PSKY will begin to bear significant fixed financial costs related to these agreements in the future. This, together with potentially higher costs associated with NFL rights given the league’s right to renegotiate early, could create further headwinds to PSKY’s financial profile.”

Since David Ellison and Skydance acquired Paramount earlier this year, the company has entered into a seven-year, $7.7 billion agreement with UFC to stream fights on Paramount+. At the time, the deal was considered well above market rate, and Paramount was not considered a likely bidder until the final moments of the negotiation process.

Then, of course, there’s the uncertainty of Paramount’s ability to renew a deal with the NFL. The NFL has indicated a willingness to renegotiate its current broadcast deals early, even before its 2029 opt-out. Refreshing those deals, which already cost Paramount $2.1 billion per year, would likely result in the company paying significantly more to the league than it already does.

It’s rare that any media company would outright say one of its peers is making poor business deals. Usually, the market speaks for itself on those matters. But this is a unique situation in which WBD is actively trying to convince the federal government that it is acting in the best interest of its shareholders by not combining with Paramount.

Whether WBD’s assessment is correct won’t be apparent until Paramount’s rights deals play out. Maybe the UFC deal will prove a massive success. Or perhaps Paramount will be able to strike a favorable deal with the NFL.

But right now, it’s clear that one of its direct competitors does not believe the company is making sound decisions regarding sports rights.