European broadcasters were crunching numbers last week ahead of bid deadlines for big batches of football rights that have become available.
England's Football League, responsible for the three divisions beneath the Premier League, is expecting competition from ESPN for rights held jointly by the BBC and Sky. Uefa's Champions League and Europa League have bids on offer for the German, Swiss and Austrian markets. Serie B rights in Italy are up for grabs following the liquidation in January of Dahlia, a pay-per-view network.
Football is the dominant game in a European sports market that now matches that of North America. In 2009, Europe, the Middle East and Africa made up 43 per cent of the global sports market, compared with 40 per cent in North America, says A.T. Kearney, a consultancy. "The days when the US was way ahead were 20 years ago," says Michael Payne, former marketing director of the International Olympic Committee. "Europe is as aggressive in sport property rights as the US."
Such toughness has transformed Uefa, European football's governing body. Broadcasting income, which makes up 72 per cent of Uefa's revenues, leapt to €1.09 billion (Dh5.55 billion) in 2009-10 from €680 million in 2008-09. Gone are the days when Europe's top clubs challenged the authority of footballing managers with threats of a breakaway league. Manchester United's media rights income, at £104.8 million (Dh639 million) in 2009-10, makes up 37 per cent of turnover and exceeds its match day revenues. Deloitte, another consultancy, says that for the top 20 European football clubs by revenue, broadcast income adds up to €1.9 billion, or 44 per cent of total revenue.
These numbers rise each time a new three- or four-year cycle for the sale of rights comes around under deals conducted by competition organisers on behalf of clubs. Uefa this week got all 53 of Europe's national football associations to pool media rights talks for their World Cup and European Championship qualification matches.
In Spain, Real Madrid and Barcelona sell their television rights individually, to the financial and competitive detriment of their rivals in La Liga, the country's top football league. Stronger sports rights can sell market by market, such as for the Premier League, whose media rights outside Europe are worth £1.4 billion over three years. But the boom in values for some sports contrasts with stagnation in others.
"At the top end, it's clearly more of a poker game," says Payne, putting in that camp football, Formula One and the Olympics. "At the other end, the World Athletics Championships frankly are struggling."
Frank Dunne of TV Sports Markets, a European website, says competition in the pay television market, which 10-15 years ago benefited most sports rights holders, has cooled in recent years. Telecommunications companies such as France Telecom, Deutsche Telekom and BT positioned themselves to challenge broadcasters for rights, but have in the main retrenched.
The Super Bowl has always been the high point of the US sports calendar, but this year's game was of a different order. The battle of football's Green Bay Packers — a team many thought had seen its best years — against the Pittsburgh Steelers was the most watched, and most expensive, event in US television history. By the time the whistle blew on a brutal game, the Packers had seen off their Pennsylvanian rivals 31 to 25, returning the coveted Lombardi trophy to Wisconsin and a faded team to glory.
An off-field revival was also under way. News Corp's Fox, which broadcast the game, provided an example of how live sports programming is driving a remarkable comeback for embattled free-to-air television networks. Having bought the rights to broadcast the game as part of a record $712.5 million (Dh2.61 billion) per year, seven-year deal with the National Football League, Fox delivered more than 111 million US viewers, America's largest ever TV audience, to advertisers paying $3 million — yet another all-time high — for each 30-second slot.
From France to Mexico, televised sporting events are drawing unprecedented audiences, transforming the fortunes of networks that have sports rights. In the US, where the economic downturn and growing digital competition were weighing on viewing figures and advertising revenues just a year ago, this drove double-digit growth in networks' profits in the fourth quarter.
"Broadcasting right now ... is about event television, live television, sports events," Jeff Zucker, former chief executive of NBC Universal, the US network owner, told the Financial Times digital media conference last month. "That's what is really attracting . . . the real eyeballs and the real advertising dollars."
Yet, even as sports boost networks in an increasingly competitive media marketplace, the rising cost of securing rights to broadcast live events is threatening the basic economics of the industry.
It is on the four US broadcast networks, which traditionally relied solely on advertising, that the impact is the most stark. Rising ratings, thanks to sports, have enabled them to begin following the model of pay-TV cable networks such as ESPN, demanding fees from cable and satellite operators such as Comcast in the US that carry their signals.
Zucker warns that, for networks, sports rights could be growing too costly. Media revenues now account for 35 per cent, or €16 billion (Dh81.6 billion), of a €45-billion global sports market that has averaged 6 per cent annual growth since 2005, according to Lagardère, the French media group. "The biggest fear I have is that those new fees [paid by cable and satellite operators to networks] will be taken in and just given to the sports leagues, and that kind of defeats the purpose," he says.
Major sports events have long provided broadcasters with valuable "appointment viewing", drawing in football fanatics in Rio favelas and cricket addicts in the English home counties. However, as viewers increasingly "time shift" scripted shows using digital video recorders that allow them to skip adverts, and watch Hollywood blockbusters via online video services such as Netflix or Lovefilm, the scarcity value of properties that guarantee advertisers a large live TV audience has grown.
"The Olympics is not something you can time shift and watch next week," says Richard Carrión, chairman of the International Olympic Committee's finance commission. "You want to watch it while it's happening."
The 2010 football World Cup fin-al in South Africa was the most watched match of all time, attracting more than 700 million viewers. In the US, eight of the top 10 broadcasts last year were sports related. National Hockey League ratings are up 25 per cent over five years, and NFL ratings are up 20 per cent, according to Nielsen.
Sports leagues, as a result, are able to flex their muscles, demanding rapidly rising sums for television rights. The IOC's revenues from this source have risen 50 per cent in 10 years, totalling $3 billion from the 2008 Beijing summer Games and the 2010 winter Games in Vancouver.
In Brazil, broadcasters paid $170 million for the rights to the 2014 Russian winter Games and 2016 summer Games in Rio de Janeiro, nearly triple the $60 million paid for Brazilian rights for the 2010 and 2012 Games.
In Europe, especially in the UK, France, Spain and Italy, soccer is driving the growth of pay TV. Networks in France now pay more than €660 million a year to carry Ligue 1, the top French soccer league. The global sports market is growing two to four times faster than gross domestic product in developed countries, according to AT Kearney, the US consultancy.
In the US, which accounts for 40 per cent of the global sports market's revenues, huge contracts for American broadcast rights for the 2014 and 2016 Olympics, the National Hockey League, and the Pac-10 college football games are up for grabs in the next quarter. Executives and analysts say bidding by media companies - notably Disney's ESPN, Fox, CBS and Comcast's newly acquired NBC Universal — is likely to set records.
There is a risk networks will overpay. Already, "sports is a loss leader for some networks", notes Rino Scanzoni, chief investment officer for GroupM, which buys advertising space for large companies. "They're balancing [high prices] against the ability to promote their other shows and the need for high ratings." NBC took a loss of $223 million on last year's Winter Olympics even after heavy spending on advertising by General Electric, its former parent.
To compensate, there is a chance networks will push for higher fees from advertisers and cable and satellite operators. "On a pure basis of ad revenues versus costs, the NFL is a big money loser for ESPN," says Michael Nathanson of Nomura, the Japanese bank. "However, when you factor in the high monthly affiliate fee that ESPN gets, due in part to NFL, it is a very good deal."
With advertising already rebounding, it would not take much to tip the balance back in the networks' favour. Indeed, sport looks like the solution to their biggest problems: audience fragmentation across hundreds of traditional channels; digital distractions such as social networks and mobile video games; ad-skipping; and "cord-cutting", severing cable or satellite connections and opting instead for internet services such as Google TV, Hulu and YouTube.
Sports officials say their content is worth the soaring prices broadcasters pay. Highly rated live sports events allow networks to broadcast advertising to a large, affluent audience, including hard-to-reach young men. They also allow them to promote other programmes. Networks in the US and UK have sought to recreate the success of sport events with live talent programmes such as The X Factor, Britain's Got Talent and American Idol.
Furthermore, the basic law of supply and demand is a factor. "The sports industry has relatively finite product," says Andrew Zimbalist of Smith College, Massachusetts. "There's only one World Series, only one Super Bowl." Leagues and networks have been careful not to stream live games online for free. Instead, some leagues offer pay plans that allow fans to watch live games online.
Networks preparing their bidding for the 2014 and 2016 Olympics, the NHL, and the Pac-10 football games are torn between two fears. They fear that they will bid too much and face heavy losses or bid too little and let the rights go to a rival.
ESPN, the family of sports cable networks, is expected to bid aggressively. With ESPN's ratings up 40 per cent over the past year, George Bodenheimer, president, says: "We're interested in everything. We'll be active in all these negotiations." NBC, the largest US cable operator, is also seen as newly emboldened. "This Comcast NBC deal is a game changer," says a senior sports executive. "They're extremely hungry for premium rights."
CBS Sports last year struck a partnership with Time Warner's Turner cable networks to carry the National Collegiate Athletic Association's basketball championship for $10.8 billion over 14 years, a 40 per cent premium over the previous deal. Fox also remains eager. "Everything else in this business is a very shaky swamp," says David Hill, Fox Sports CEO. "Sports rights are the one rock on which you can build a media edifice." Sport's role in television's revival has gone hand in hand with a fundamental change in the networks' business model, whereby the likes of CBS and NBC demand fees from cable and satellite operators that carry their signals. This dual revenue stream gives broadcasters more cash with which to compete for sports rights. Directly or indirectly, it also means "the couch potatoes are paying for all this" through higher cable and satellite bills, one economist notes.
Negotiations for the Olympics are starting now, and the IOC hopes to have a deal by July. The Pac-10 makes about $60 million a year from broadcast rights, but hopes to get closer to $200 million in its next contract. And, while hockey ratings are not as strong, the NHL contract is likely to attract all four major bidders.
In each negotiation, networks risk what Alan Sugar, former chairman of the UK's Tottenham Hotspur Premiership soccer team, calls "the prune juice effect" - whereby money coming in from fees and advertising goes straight out to leagues, players and their agents.
Sustained sports rights inflation is predicated on three factors: networks accepting sports as a loss leader; advertisers paying up for a young, male and wealthy audience; and cable and satellite subscribers absorbing increases in their monthly bills. All three could be vulnerable in future economic downturns. For now though, "everybody keeps making the investment", says the IOC's Carrión.
A high-profile labour dispute could soon reveal just how interdependent sports and television have become. NFL owners and players are engaged in a contract dispute, and a season of America's most popular sport is in jeopardy. It is the networks with the most at stake. Without the NFL, network ratings would slump, leading to lost advertising dollars, while other programming would suffer without strong promotion. "You cannot replace the NFL, point blank," says Kevin Collins of National Broadcast for Initiative US, a media buyer.
All of which raises the question of whether broadcasters and advertisers have become too dependent on a few sports franchises. If that is the case, TV's recovery may prove more fragile than it seems.