2005: Business - Networks can suffer losses on some sports, but not golf
Monday, September 19, 2011
Certain sports, such as golf, can make television executives cry more than others. It has nothing to do with their affinity for a particular game and everything to do with money.
Which explains why broadcasters moan about unprofitable PGA Tour telecasts, but fret little about hemorrhaging cash after paying hundreds of millions of dollars for NFL games or the Olympics.
The difference? Some sports can afford to lose money and others can’t.
As a general rule, according to TV executives, there are two distinct types of sports properties: Those that must pay for themselves, and others whose true value can’t be divined without considering their ancillary benefits.
PGA Tour events fall into the first category, which is why the networks are so eager to strike a better deal.
The latter group includes the NFL and Olympics, whose immense ratings and popularity elevate their value beyond bottom-line equations. These events can provide their networks with crucial platforms to promote lucrative prime-time programming and ensure high ratings in critical “sweeps” periods that help determine future advertising rates. Furthermore, the prestige and brand-building opportunities they bring their carriers are of immeasurable value.
Just how potent are these sports properties?
When CBS briefly dropped the NFL in 1994, its prime-time programming slumped into last place among the major networks. But not long after resuming football coverage in 1998, its prime-time lineup became No. 1. The turnaround is more than coincidence, TV analysts say, and explains NBC’s return to the NFL in 2006. That network, which held the top position in prime time for years, fell to fourth place after dropping football. To help mount a comeback, NBC recently agreed to pay $600 million per year for an NFL package.
What may seem exorbitant is justified by the advertising gains achieved elsewhere.
For example, if a network runs three minutes of promotions for its prime-time programs during an AFC or NFC Championship game, it can reach perhaps 40 million viewers. Such a move – roughly $5 million of advertising time – is an efficient and cost-effective way of bull-horning a company’s latest sitcom or soap opera. NBC’s recent NFL deal even includes innovative cross-promotions not just for the network, but for its parent company GE. Among them: marketing initiatives for GE’s new stadium security and on-site medical technology, plus a light bulb deal for the league’s stadiums.
Major sports programming also can be of immense value during “sweeps.”
“The Olympics can help you win a season, which is one of the main reasons why we bought the Winter Games when I ran CBS,” says Neal Pilson, who now leads his own consulting firm, Pilson Communications. “The ratings counted for prime time, and the Games brought viewers to the network that might otherwise not tune in.”
(Golf’s majors, which are not part of the Tour’s TV deal, are regarded as better programming entities because they occasionally draw NFL-like ratings. But their shorter duration and afternoon broadcasts, as opposed to prime-time showings, limit their use and value as a marketing platform.)
Though it is difficult to quantify precisely what a property such as the NFL means to a network, there’s no doubt that the benefits are huge, as evidenced by recent contract negotiations. Even though sources estimate Fox is losing $50 million annually on its NFL games, it just extended its deal with the league another six years for $712.5 million per season. ESPN agreed to pay $1.1 billion for an eight-year deal beginning in 2006 for “Monday Night Football” – nearly twice the amount sister network ABC had paid for the aging program whose ratings have fallen steadily.
Such economics, however, do not apply to PGA Tour golf.
Until its current contract, Tour broadcasts had been a reliable profit center for networks. The events were regarded as recession-proof, and thanks to title sponsors and equipment manufacturers, they had roughly half their advertising inventory sold before account executives placed a single sales call. Ratings were steady, and the sport was regarded as an attractive product that reached a highly desirable demographic group.
But much of this scenario has changed. Networks struggled to persuade advertisers to spend as heavily in the post-9/11 era, especially among businesses such as financial services, insurance and accounting that were some of the networks’ biggest golf customers. Golf equipment advertisers dwindled, too, as they struggled in a flat industry and found themselves unable to afford escalating ad rates.
For the networks, too, Tour golf is mostly about profits and losses. Which is why they now are clamoring for relief.