There's still gold in Olympics
At a time TV sports contracts are bloated, NBC expects cold hard cash in Salt Lake City
By Steve McClellan -- Broadcasting & Cable, 2/3/2002 7:00:00 PM
Pro baseball, football and basketball were once known as the crown jewels of network-TV sports rights. Lately, though, if profit is the guide, sports has lost its luster.
So who wants the Olympics?
NBC Sports Chairman Dick Ebersol, that's who. In the past three years, NBC has said hasta la vista to Major League Baseball, the National Football League, and, just last month, its decade-long partner, the National Basketball Association.
But the Olympics are a different story.
Last week, NBC Network Television President Randy Falco reported that the network expects to make as much as $75 million in operating profit on the Winter Games, which run Feb. 8-24.
The profits from Salt Lake City would more than offset one of NBC's (and Ebersol's) biggest miscalculations. Almost exactly a year ago, Ebersol was touting XFL football (Remember the New York/New Jersey Hitmen?), a joint venture with the WWF. A few months later, the league was gone, and NBC had wasted $50 million (which, in TV sports terms, has become spare change).
That's not going to happen with these Olympics. For one thing, the "smash-mouth" football fans of 2001 have been replaced by millions more flag-waving, bin Laden-loathing Americans who will have more reason than ever to cheer the red, white and blue. And, at a time Americans are getting all sentimental for vintage television, NBC is even bringing back ABC's Olympic veteran Jim McKay as a special commentator. In short, NBC likes its odds for these games.
NBC isn't disclosing what it thinks the average prime time rating for the Salt Lake City games will be, but competitors believe it will be around 18.5 household rating. That's a significant number: NBC promised advertisers between 17.5 and 18.5 Nielsen ratings for the 2000 Summer Games from Sydney and, especially in the first few days in mid-September, fell far below that. Sports experts blamed it on the tape delayed coverage. Whatever, NBC had to add advertising positions to make up the ratings shortfall.
As of about a week ago, NBC had sold roughly $706 million in advertising for the Salt Lake City Olympics and is very close to reaching its sell-out goal of $720 million, Falco said. That will be the highest take for any single set of Olympic games, he said, and 40% higher than the last Winter Olympics, in Nagano, Japan, in 1998.
Falco says NBC expects the Salt Lake games to be "slightly more profitable," than the network's two most recent Olympic telecasts, in Sydney in 2000 and Atlanta in 1996, both of which had an operating profit of between $60 million and $65 million.
Meanwhile, sources at News Corp. confirmed that it's all but certain it will report an NFL write-down when it issues its second-quarter earnings results Feb 12. Several analysts predicted the move last week. "It's pretty clear there's going to be some kind of write-down," says a Fox source.
And Credit Lyonnais's Richard Read says it's "fairly logical" to assume that all the NFL rights holders will take write-downs in the future, given the huge price tags and the poor ad-sales market. There are strategic reasons networks go after the packages, including network brand reinforcement and pursuit of young male viewers, he says. From a pure economic standpoint, though, "they don't make a lot of sense."
That's true as well for the latest NBA package, which Read estimates puts twice as much product on the air despite a 30% decline in the ratings since Michael Jordan retired from the Chicago Bulls. NBC is said to have lost $300 million in the last two years of its NBC pact.
Disney issued its first-quarter financial results last week and took no NFL write-down. But financial types stress that all the big rights holders evaluate the need to take a write-down, or not, every quarter. Indeed, they said, Disney could decide to write down some part of the NFL contract next quarter or next year or at any time up to the expiration of the deal.
Disney Chief Financial Officer Thomas Staggs said through a spokesman that, if the company felt it was appropriate to take a write-down now, it would have been announced last week.
Viacom says CBS is making money on the NFL. But sources say that's because CBS paid lower fees in the earlier years of the current contract. One source says a balloon payment coming up will probably wipe out CBS's profits on the NFL. A Viacom spokesman didn't return calls.
So far, Ebersol isn't saying, "I told you so." But that's what he has to be thinking about the sports environment. Here's what he did say: "I think, as an attraction, sports is clearly strong. Sports in general is a healthy business, except as a [broadcast] business. Right now, outside of the Olympics, it is very difficult to sell.
"We've looked at huge losses for all the major networks in the last couple of years," he continued. "I pray that will turn around, but my sense is we're moving more to a cable world when it comes to sport on television because they've got the sub fees."
Spencer Wang, media and entertainment analyst for ABN Amro, agrees. Under the new NBA deal, 90% of the games will be on cable, marking "the first time that cable will control the TV rights for a major sport." And given broadcast's lack of a second revenue stream and seeming inability to turn sports-rights investments into profits, Wang says, the era of big-time sports on the Big Four "may be on the wane."
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