Warner Bros. Discovery's next move will determine the NBA's selection of its next TV partners.

• The NBA and Warner Bros. Discovery are in talks to strike a new broadcast agreement.
• If the NBA signs a deal with NBCUniversal for a package of games, Warner Bros. Discovery will have matching rights.
• If Warner Bros. Discovery matches NBCUniversal's bid, it's uncertain if the league has the power to reject the matched offer, according to sources.

Breaking up a 40-year partnership, whether it's a marriage or a company and a sports league, is not an easy task.

The partnership between the National Basketball Association and Turner Sports, which has been in existence for nearly four decades, is now at risk as NBCUniversal is trying to lure away its package of games with a $2.5 billion per-year offer, as previously reported by CNBC.

The league has ended its exclusive window to renew its deal with Disney and Warner Bros. Discovery on April 22. Since then, the league has established a framework to renew with Disney, bring in Amazon as a new third partner, and sell its other package to either Warner Bros. Discovery or NBCUniversal. As a result, the league is expected to triple the total aggregate dollars of a new deal from approximately $24 billion to $76 billion or more.

According to sources, Warner Bros. Discovery is in discussions with the NBA about retaining the rights, although it's unlikely that the league will renew with its current partner, said two people who requested anonymity due to the confidential nature of the talks.

It is likely that the league will sign a deal with NBCUniversal, which will give Warner Bros. Discovery the option to match the offer.

This is where things might get thorny.

The NBA and Warner Bros. Discovery are currently reviewing legal language to determine if the league can reject a potential match, according to sources. The contractual language is ambiguous, and it is uncertain if the NBA has the power to reject Warner Bros. Discovery's bid if it matches the offer, said the sources.

If Warner Bros. Discovery matches and the NBA selects NBCUniversal's offer, the two sides may face a lawsuit. Warner Bros. Discovery believes it is protected by the contractual language, a source said.

It's possible that Warner Bros. Discovery won't match NBCUniversal's bid, which would prevent any potential conflict.

Some league officials are concerned that Warner Bros. Discovery's balance sheet may not be able to sustain spending $2.5 billion annually on the NBA, according to sources. The company has a market valuation of approximately $20 billion and an enterprise value of about $60 billion, including $43.2 billion of gross debt, as of the end of the first quarter. The company's leverage ratio (net debt to adjusted earnings before interest, taxes, depreciation, and amortization) is 4.1.

David Zaslav, the Chief Executive Officer of Warner Bros. Discovery, has emphasized the significance of financial prudence for the company in both public and private statements.

Comcast's market capitalization is approximately $154 billion, while its enterprise value is roughly $244 billion. Its leverage ratio is around 2.5.

NBA officials are more comfortable with Comcast paying more than double the previous price for the package, even though the new package includes fewer games than the current one because the NBA is likely to introduce a third partner, most likely to be Disney.

Spokespeople for Warner Bros. Discovery and the NBA declined to comment.

The fate of Venu

The new sports streaming platform, Venu, announced by Warner Bros. Discovery and ESPN, takes inspiration from where live sports are played. The joint venture, owned one-third by each media company, will offer a bundle of sports networks and ESPN+ at a lower price than traditional cable. CNBC reported earlier this year that the price could be around $45 or $50 a month. The service will debut in the fall.

The three companies have not yet signed paperwork on the venture, as they are waiting for regulatory approval. If Warner Bros. Discovery loses the NBA, it will decrease the value of the service for consumers, as NBCUniversal and Amazon are not partners in the product.

Warner Bros. Discovery has acquired the rights to various sports, including Major League Baseball, the National Hockey League, and the National Collegiate Athletic Association's March Madness. Additionally, the company will have the NBA next year, as the new rights deal won't take effect until the end of the 2024-25 season.

If Warner Bros. Discovery loses the NBA, there has been no discussion about shutting down the venture before it launches. However, without the NBA, Disney and Fox would contribute the majority of sports content for the service while still owning a one-third stake in the venture. Disney's ESPN and Fox own both college football and NFL packages, unlike Warner Bros. Discovery.

Instead of acquiring NBA rights, Warner Bros. Discovery could allocate the saved funds towards other sports, such as additional MLB games or participating in UFC renewal discussions with media companies in early 2025.

In the fall of 2025, ESPN will introduce its own flagship streaming service.

Disclosure: Comcast's NBCUniversal is the parent company of CNBC.

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