What huge sports rights deals mean for the networks that obtain them.
Estimates vary, but it is reported that ESPN will spend over $600 million a year for the rights to the brand new college football playoff, which will guarantee the network seven post season games when it starts in 2014.
Given the fact that they pay just $125 million annually for the current Bowl Championship Series games (Rose, Fiesta, Orange and Sugar Bowls), one might think that ESPN has made bad business decision. Recent history would go against that school of thought, however. In this post, I will outline two notable examples of large, and, some would say, risky sports rights deals that paid dividends for the companies that acquired them.
In 1987, a small network with quirky shows, known as Fox, made what most considered to be an insane offer. The rights to the NFL’s Monday night game were up, and Fox bid against long time Monday Night Football stalwart ABC to get the rights. Their offer of $1.3 billion was rejected because, among other reasons, Fox hadn’t established itself as a major network. In 1993, six years after Fox’s Monday night bid was rejected, the contract for CBS’s rights to the NFL’s National Football Conference ran out, and Fox was poised to make a bid yet again. Fox’s bid of $1.58 billion was $100 million more than CBS’s bid, and gave Fox the rights to the NFL for the first time in the network’s existence.
The real genius of the move, however, was in the way the network used it to expand their sphere of influence within the television industry. Because they were literally the only game in town for those who wanted to watch their favorite NFC team, they could use this rights deal to advertise and promote the other shows they had on their station. This led to audience flow from those NFL games to shows like Married… With Children and The Simpsons, among others. The effect of having the NFL rights was that Fox gained a firm foothold as the fourth major network, a spot which they still hold to this day.
Moving forward to a more recent example, in 2012, NBC bought the rights to the London Olympics. Critics claimed that the deal was going to result in a $200 million loss for the network, but NBC broke even. And, like Fox, they leveraged a captive Olympic audience to promote new programs such as Go On, Revolution and Chicago Fire. Because, where else are you going to watch the Olympics when it’s only on one family of networks? Despite the fact that Go On didn’t have much success (the show was cancelled after just one season), Revolution and Chicago Fire have gotten solid ratings and were renewed for second seasons. Revolution, in particular, got huge numbers in the series premier, with nearly 12 million viewers tuning in. Even though the network just barely broke even on the Olympic Games, it is paying dividends for them in the long run.
It is within this broader context that we need to evaluate the large amount that ESPN paid for the rights to the college football playoffs. As history has shown us, it is actually a pretty safe bet. Deals like these, no matter how huge, may make complete sense. There are a lot of people who watch sporting events, and this creates a captive audience, that is very likely to flow from the sporting events to regular programming, thus making the network that much more money. So, what do you think? Are the amounts that the networks are paying for sports rights getting out of hand, or will they pay off in the end?
– Matt Bless