Rethinking the Model

Sep 8, 2003  •  Post A Comment

Someday in the very near future, the commissioners of big league baseball, hockey, basketball and football may look back on the turn of the 21st century as halcyon days, a time when the networks battled each other for the privilege of airing games and the leagues raked in vast profits.

Network largesse for the big four sports-$5.8 billion on broadcast rights next year alone, or as much as they spend on prime-time scripted programming-soon could be a memory. Many observers believe that with shrinking ratings, skyrocketing payouts will no longer be justified, forcing the networks and leagues to rethink their strategies.Competition will continue among broadcast and cable networks for sports programming, but it seems unlikely that it will be as heated as in the past. “I don’t accept we are seeing escalations in prices-but I still think we’ll be seeing competition for broadcast rights,” said Neal Pilson, president of Pilson Communications, a sports marketing consulting firm.

Mr. Pilson, who has represented NASCAR and the International Olympic Committee in separate negotiations for U.S. television rights, said the next big sports package up for grabs is the National Hockey League, the contract for which is up after next year. Following those negotiations, the NFL contracts expire the year after that. Major League Baseball follows the NFL.

The networks are expected to take a much more disciplined approach than in the past after some huge write-offs. News Corp.’s Fox took a write-down of almost $1 billion because of overpaying for rights to the NFL, MLB and NASCAR in a falling TV ad sports market.

“The glory days of rights fees for the four big American sports are over,” said Rich Hanley, professor of communications at Quinnipiac University in Hamden, Conn. “All the broadcasters will look more carefully at these contracts because they can’t bleed money forever. The excuse that they’ve always used [is] that they’ll use the games to promote other parts of the schedule. But if not enough people are watching that argument no longer is valid. You’re paying more and more money to promote to fewer and fewer people. That doesn’t work.”

Karen McCallum, media supervisor at the McKee, Wallwork Henderson advertising agency, agreed that the networks are going to re-examine the big money payouts, but for other reasons.

Networks vs. Leagues

“When the NFL last negotiated their deals, for instance, there was a `sumo’ mentality. Fox was trying to knock its rivals out of the game. They didn’t care what it cost them. They were willing to take that loss,” she said. “Now they’ve quantified how far-reaching that loss is. … In the next negotiation, you’re going to see networks looking to other networks as collaborators. They’ll view the leagues or franchises as their rivals.”

Recent deals for NASCAR and the NBA bear Ms. McCallum out. “NASCAR was split by NBC and Fox, so they spread the risk and … have a better shot at increasing the revenue streams,” she said.

Ms. McCallum also noted “a sea change in terms of network coverage of the big four sports.” The disconnect is both economic and social. Fans cannot relate to the salaries being paid to major sports figures, such as LeBron James, a high school basketball phenom who is entering the NBA as a rookie with a $90 million endorsement deal from Nike.

“When you see LeBron, who’s an untested person, commanding ridiculous salaries and signing bonuses, and when you see millionaire baseball players threatening to strike, it’s a turnoff. Joe Viewer can’t relate to spoiled people demanding benefits that the average person will never have.”

The NBA is banking on Mr. James as the next big superstar to carry its sport. The game needs the kind of popularity it once enjoyed when Michael Jordan ruled the court. Mr. Jordan’s prowess as a player and a promoter of the game is legendary. When NBC dumped the NBA rights in 2002 the network blamed a ratings drop of 37 percent over the term of the four-year deal. The plunge coincided with Mr. Jordan’s retirement.

Until recently Los Angeles Lakers star Kobe Bryant was seen as Mr. Jordan’s heir apparent. However, with a sexual assault charge pending against him, an admission of adultery and a sullied image, Mr. Bryant now looks like a poster boy for what’s wrong with professional sports figures.

Ms. McCallum suggested Mr. Bryant’s legal problems are a sign of the NBA’s social disconnect. “Here’s someone who seemed without a flaw, but even he has fallen from that pedestal,” she said. “American viewers can’t look to professional ballplayers as heroes any longer.”

Of course, Mr. Bryant isn’t alone in falling from grace. In the NFL, Baltimore Ravens star Ray Lewis was involved in-but later cleared of-double homicide.

Among the big four, hockey is the least attractive to broadcasters, but it’s baseball that’s most troubled as a TV product. “Baseball is in a secular decline because of structural flaws,” said Mr. Hanley. “It’s a great game, but it’s meant to be played quicker. In the television business, the Achilles’ heel of baseball is that it doesn’t have a clock. You can’t commit to an open-ended time in this society.

Marketing isn’t the only reason the NFL is the strongest network performer. The ratings have remained constant and it’s attempting to reach a younger demographic in the way it is broadcasting the games. Innovations such as the helmet-cam, which gives fans a view from right in the middle of the action, apes youth-oriented video games.

While baseball is troubled by labor strife, the game length and financial woes, hockey struggles to hold its own. Even though NHL viewers tend to be affluent, male and well-educated, and index well in terms of household income, the ratings are low.

“The ratings are PBS-like,” Mr. Hanley said. “ABC’s deal was really to get programming for ESPN. They can also build a constellation of programs around it like `NHL Tonight.’ But they’ll never get great ratings for hockey.”

The traditional four are no longer the only games in town. Golf, auto racing, tennis and the Olympics vie for audience share and new sports continue to crop up. Extreme sports in particular have been wildly popular with younger viewers.

But sports is still important to many people, so if they don’t necessarily stay home glued to their couches to watch games, they still want to know the score. According to Sean Bratches, executive VP, affiliate sales and marketing, ESPN, “As technology evolves and as the sports fan’s appetite to consume technology and information [changes], our ability to reach that fan will expand-just as it has in the past 10 to 20 years with the Internet and wireless devices and so on.”

He predicts fans will want personalized experiences. As wireless phones and PDAs proliferate, sports information can be customized there too.

“With pressure on the networks [to create] nontraditional revenue streams, you’re going to see more reliance on streaming video on the Internet, and then you can manage it on your own time,” Mr. Bratches said. “Then it truly becomes customized to your schedule, your life.”