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They've Got Game: Media Companies Paying Big Money for Live Sports

Live sports on television is scoring better than ever among viewers and advertisers, with professional and college sports generating ratings on both broadcast and cable networks higher than they have been in decades.

And it seems everyone now wants in on the action. Huge returns are no longer just the net gain of pro leagues and the International Olympic Committee; the college athletic conferences are jumping on the TV rights bandwagon as well, seeking parity with their professional-league brethren.

This high tide of popularity has led to an increasing demand by the professional and college sports leagues to seek larger rights fees from the networks to televise their games.

True to the phrase, this rising tide is lifting all boats— even the NHL, which has never been very seaworthy, comparatively speaking, when it comes to ratings. The hockey league got an eyebrow-raising 10-year, $200 million annual deal on April 19 from NBC and Versus. Under its recently expired deal with those two networks, Versus was paying just north of $75 million per year and NBC was paying nothing. And the richer new deal came despite the fact that NHL games on Versus, while up in ratings this past regular season, averaged only about 350,000 viewers per telecast.

NHL Commissioner Gary Bettman called it “the most significant media deal that this league has ever been able to participate in.” And Dick Ebersol, NBC Sports Group chairman, acknowledged “our free time is over” and that NBC will now be paying “a substantial part of the rights fee. Not the majority, but a substantial part.”

One TV network sports chief, commenting on the NHL deal, says, “I think it shows how valuable sports programming is. ESPN was willing to overpay to get the rights, but NBC/Versus was willing to overpay more.”

The NHL deal is part of a perfect storm for live sports on TV, with more bidders, more money, more options and more at stake. Imagine Cliff Lee, C.C. Sabathia, Justin Morneau, Albert Pujols and a few other stars all in the same free agent class—with all of the major league teams having the Yankees’ payroll budget.

And when the current " urry of sports rights spending is done, the Olympics may be the biggest benefactor. Because, despite claims among sports media chiefs about the need—now more than ever—to structure deals that do not lose money for their networks, overspending remains the norm when a major property comes up to bat. And the lineup will now be stellar.

As John Skipper, executive VP of content at ESPN, says of the new sports rights-fee landscape: “Right now, there’s something of a feeding frenzy.”

Know Your Rights

The generous NHL/NBC-Versus deal overshadowed somewhat the Pac 12 conference’s current contract talks. The conference, whose $70 million a year deal with Fox Sports recently ended, is seeking a $220 million annual deal in open bidding; if the Pac 12 gets a 10-year pact, it would be cumulatively higher even than the NHL number.

These two deals, and the coming Olympics negotiations for rights to the 2014 and 2016 Games, are taking place around the same time, making this an historic period for TV sports. And there’s a distinct possibility that once the NFL labor dispute is settled, the league may approach its TV rights holders based on the new collective bargaining agreement with the players to extend the current deal, which expires at the end of the 2013-14 season.

The same could hold true for the NBA, which may be heading toward its own work stoppage, and could also seek to extend TV deals before the current rights contracts are up after the 2015-16 season.

Needless to say, the dance card is full for the heads of the broadcast and cable network sports divisions, a time when pressure is high to craft profitable deals despite escalating demands of the respective leagues.

The emergence of college conferences as bold new players in the TV rights arena should not be a surprise, according to the network sports chiefs.

“College sports has been undervalued for many years,” says David Levy, president of sales, distribution and sports for Turner Broadcasting.

Sean McManus, CBS Sports chairman, adds: “A lot of this frenzy is happening because the college conferences rights deals are all coming up for renewal close together, and the conferences are now taking more publicly aggressive stances. In the past, most college TV rights deals were done more quietly. In addition, there is clearly more of an appetite by all the networks now to make these deals.”

All this comes in a year when 27.3 million viewers watched the BCS college football championship game on ESPN, the most viewers in cable history; and though regional over-saturation and the proliferation of bowl games dropped some college football numbers for a loss, big-time league games—the Southeastern Conference (SEC), for example— drew big numbers on CBS.

These coming college conference deals—and the one for the NHL—prove the urgency of the “you cannot win if you do not play” philosophy of sports rights deal-making.

“I don’t think the NHL deal is that far out of whack,” says one network sports president. “It seems like it can be monetized. And what would the cost be to Versus if it had not done the deal?”

While Versus has been trying to make its mark as an all-sports net, the NHL is the only major sport the channel has in its portfolio, having in recent years chosen to pass on doing business with the NFL and MLB. But Comcast’s acquisition of NBCUniversal, and NBCU sharing in the costs, could change the negotiating mindset for Versus. In fact, Comcast is planning to change the name of Versus (itself rebranded only a few years ago, from Outdoor Life Network) by mid-July to give it a stronger sports identity tied in to NBC. “I can tell you it will have somehow a strong utilization of the word NBC in the title,” says Ebersol.

In their new deal, NBC and Versus will not only get to televise 90 exclusive NHL regular-season games per year, up from 50, but they will also get to televise every NHL playoff game exclusively from the second round on, and have all exclusive game-streaming rights. Ebersol says playoff games will even be shown on other NBCU cable channels. Even the local teams’ regional sports networks will be shut out. The monetizing will all come down to ad sales and ratings, but now, there is a lot more potential advertising availability for NBC and Versus to sell.

The pressure will continue to be on the networks to offer live sports programming. “Sports are a safe haven within the TV marketplace,” says Dave Campanelli, VP and director of national television at media agency Horizon Media, which has clients including Geico, Corona and Buffalo Wild Wings advertising in TV sports. “Ratings are stable or in many cases growing, while the rest of TV viewership is declining. There is a comfort level among advertisers about live sports telecasts. And it’s no longer all-male. Money continues to move out of entertainment television and into TV sports to reach women as well as men.”

Turner’s Levy agrees. “TV sports is destination-viewing for audiences, and it drives advertising dollars to a network and opens up new cross-platform opportunities. If you look at all the new cell phone apps today, sports apps seem to dominate.”

Levy also believes that one reason why TV sports are growing in popularity is social media. “Athletes are communicating more directly with fans via tweets and the Internet,” he notes.

Olympic Proportions

This leaves the timing perfect for the International Olympic Committee, which in mid-June will hear presentations from at least four networks—including incumbent NBC—for rights to the 2014 and 2016 Games.

The IOC deliberately postponed the official bidding from last summer to this year in hopes that the economy would improve—and it has. So there is talk that the IOC may be eyeing a bid of as much as $3 billion for the two Games. NBC is expected to aggressively bid, even with new owner Comcast overseeing, but the other networks say they will not submit bids that preclude making a profit. NBC lost $223 million on the 2010 Olympics, and none of the other networks want to be in that position going forward.

“No one really knows yet how much money can be made on the Olympics under a new deal, but we are running all the numbers now,” says ESPN’s Skipper. “As we see it, the Olympics bid has to come down from the last rights fee [an average $1.1 billion per Games], or no one will be able to make money on it.”

Adds CBS’ McManus: “With the [2014] Winter Games in Sochi, Russia [which has a sizable time-zone difference from the U.S.], there will be few live events to show. If we get involved, it would have to make sense financially and from a programming sense. We’ve reached a point where we won’t overbid for sports properties. This Olympics could be the ! rst TV sports rights deal to get less money than the previous deal.”

Eric Shanks, president of Fox Sports, agrees. “You can no longer buy TV rights for prestige,” says Shanks. “The fees are just too high. That’s why the broadcast networks are pushing for more retransmission dollars [from affiliated stations]. That will make it easier to monetize some of these deals. And make it easier to compete with ESPN in the sports arena.”

One way to control rising rights fees is to do long-term deals that lock in rates. Last July, ESPN did a 12-year deal with the Atlantic Coast Conference to televise football and basketball games for $150 million per year. Fox Sports recently signed a 13-year deal with the Big 12 conference for $90 million a year. Both ESPN and CBS in 2009 signed 15-year agreements to televise SEC games, while CBS extended its deal in January to televise golf’s PGA Championship through 2019.

“We have figured out a way to keep some very good sports programming on CBS for many years to come, and make money on those deals,” McManus says. As far as inter-network partnerships go in bidding on TV rights together, as CBS and Turner did with the new NCAA men’s basketball championship rights deal, while most network sports head don’t rule it out in the future, they stress that it has to make financial sense. Most networks still would rather control the rights on their own.

“In the case of CBS, they would not have been able to pay the escalating rights fees on the NCAA tournament alone and neither would Turner, so a partnership worked,” says one network sports exec. CBS and Turner’s TBS, TNT and truTV combined drew an average of 10.2 million viewers per March Madness game, up 7 percent from 2010, and combining for the largest average since 2005

Fox’s Shanks seems to sum up the feeling of most of the network sports chiefs when he says, “Ideally, every network would like to control all of the rights—from an ad perspective, a programming perspective and a digital perspective, and be able to monetize it to the max. Outside partnerships are a last resort. If a broadcast network doesn’t have cable properties to help balance the rights fees and offer other platforms, then it might look for an outside partner.”

The network sports chiefs will continue to spend their time grappling with these issues; meanwhile, regardless of what happens withe the NFL, the sports fan can sit back and know that there is going to be plenty to watch going forward.

“Clearly this is the best it’s ever been for the fan,” says ESPN’s Skipper. “They have so much choice, not only on television but on all platforms. Wherever and whenever they want to watch games or other sports programming, they can.”