 ESPN currently pays the NFL $1.1 billion per year for eight years for the right to exclusively televise Monday Night Football. What is the net present value of this investment  if the parent Disney Company has an opportunity interest rate equal to its cost of capital of 9 percent. Fox and CBS agreed to pay $712 million and $622 million respectively  for six years to televise Sunday afternoon NFC games. What was that worth?

To calculate the net present value (NPV) of the contracts for ESPN, Fox, and CBS, we use the **Present Value of Annuities** formula. The formula for the present value of an annuity is:

\[
PV = C \times \left(1 - (1 + r)^{-t}\right) / r
\]

Where:
- $ PV $ = Present Value
- $ C $ = Cash flow per period (in this case, the payment made annually)
- $ r $ = Opportunity interest rate (cost of capital)
- $ t $ = Number of periods (years)

### For ESPN:
- $ C = 1.1 $ billion dollars per year
- $ r = 9\% = 0.09 $
- $ t = 8 $ years

The present value (PV) of ESPN's contract can be calculated as follows:

\[
PV_{\text{ESPN}} = 1.1 \times \left(1 - (1 + 0.09)^{-8}\right) / 0.09
\]

### For Fox:
- $ C = 712 $ million dollars per year
- $ r = 9\% = 0.09 $
- $ t = 6 $ years

The present value (PV) of Fox's contract is:

\[
PV_{\text{Fox}} = 712 \times \left(1 - (1 + 0.09)^{-6}\right) / 0.09
\]

### For CBS:
- $ C = 622 $ million dollars per year
- $ r = 9\% = 0.09 $
- $ t = 6 $ years

The present value (PV) of CBS's contract is:

\[
PV_{\text{CBS}} = 622 \times \left(1 - (1 + 0.09)^{-6}\right) / 0.09
\]

Now, I will calculate each NPV.### Net Present Value (NPV) of the contracts:

1. **ESPN**: The NPV of ESPN's contract to televise Monday Night Football is approximately **$6.09 billion**.
2. **Fox**: The NPV of Fox's contract to televise Sunday afternoon NFC games is approximately **$3.19 billion**.
3. **CBS**: The NPV of CBS's contract to televise Sunday afternoon NFC games is approximately **$2.79 billion**.

These values account for the time value of money, given Disney's opportunity interest rate of 9%.

Do you want further details or have any questions?

Here are 5 related questions to explore:
1. How would changes in the interest rate affect the NPV of these contracts?
2. What would happen to the NPV if the contracts were for a shorter or longer duration?
3. How is NPV different from the Internal Rate of Return (IRR)?
4. How could ESPN justify this investment compared to Fox and CBS based on their NPVs?
5. What other financial metrics could be used to evaluate the profitability of these deals?

**Tip**: NPV calculations are sensitive to both the interest rate and the time period, so small changes in either can have a significant impact.

ESPN currently pays the NFL $1.1 billion per year for eight years for the right to exclusively televise Monday Night Football. What is the net present value of this investment if the parent Disney Company has an opportunity interest rate equal to its cost of capital of 9 percent. Fox and CBS agreed to pay $712 million and $622 million respectively for six years to televise Sunday afternoon NFC games. What was that worth?

Learn how to calculate the Net Present Value (NPV) of ESPN's $1.1 billion Monday Night Football contract and the Fox and CBS Sunday NFC game contracts. Discover the impact of Disney's 9% cost of capital on these major NFL broadcasting deals using the Present Value of Annuities formula. Suitable for finance students and professionals.

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