SBJ/February 16 - 22, 2004/SBJ In Depth

On the air and on a roll

In the fall of 2002, John Lynch, several years removed from a successful career as a radio executive in San Diego, got a call from some former partners who were interested in getting back into the business. Lynch, who had turned San Diego's XTRA 690 AM into a sports radio powerhouse before selling it to Clear Channel Communications in the mid-1990s, said he had little interest in getting back into the business.

Sid Rosenberg (left) and Jody "Mac" McDonald host their mid-morning/early afternoon talk show at WFAN Sports Radio’s studio in Queens, N.Y.
Then Clear Channel, seeking to devote its Southern California radio resources to the more lucrative Los Angeles advertising market, announced it was moving nearly its entire XTRA operation 100 miles north and bundling it in with its XTRA-1150 operation, thus leaving a void in a city accustomed to getting a daily fix of Padres and Chargers talk on the radio.

Lynch pounced, forming Broadcast Company of the Americas, signing a long-term lease with an option to buy an existing 50,000-watt AM station, and hiring many of the personalities left jobless following XTRA's move.

XPRS, "The Mighty 1090," went on the air on March 4 of last year. Since then, it acquired the broadcast rights to San Diego State University football and basketball, and took a huge risk in paying $18 million over four years for the broadcast rights to the Padres.

The station has climbed steadily in the ratings to a 0.8 in Arbitron's fall book, good for 27th in the market and tied with the bundled XTRA, which can still be heard in San Diego but focuses on the Los Angeles sports scene.

On the eve of the Padres' first season on 1090, Lynch said he expects the station to generate more than $10 million in ad revenue in 2004 and ultimately to surpass news station KOGO as the top-billing station in town. Lynch is taking a serious financial risk, especially considering that billing $5 million to make a profit on the Padres admittedly will be difficult.

Sports talk radio station ownership
Owner Stations* Market share
Clear Channel 18 24.7%
Viacom 10 13.7%
ABC 5 6.8%
Entercom 3 4.1%
Rose City 3 4.1%
Susquehanna 3 4.1%
Citadel 2 2.7%
Jefferson-Pilot 2 2.7%
Salem 2 2.7%
Other (single-station owner) 25 34.2%
 
* Number of stations in markets that are home to an MLB, NBA, NFL or NHL team
Source: SportsBusiness Journal research
"Sports is probably the only format where you could do what we're doing as an independent station," Lynch said, noting that 1090 has to do battle in the market with 12 Clear Channel-owned stations and five owned by Viacom. "It's insanity."

Insanity was also the popular theory when Emmis Communications' Jeff Smulyan in the mid-1980s purchased New York country music station WHN and converted it to the first all sports station in the United States. "Everyone thought I was nuts," said Smulyan, who in 1996 sold WFAN 660-AM to CBS' Infinity Broadcasting subsidiary for $70 million. WFAN is now worth at least four times that, industry sources estimate.

"This one worked out," said Smulyan.

So have a few others. Today, there are nearly 400 U.S. sports stations, according to Arbitron. More than a dozen stations in the major markets each generate more than $10 million in annual advertising revenue. These stations are so deeply entrenched that people take it for granted that middle-aged men who scream for hours every day about sports are bigger celebrities in their markets than any television personality.

By mixing so-called guy talk to capture an elusive audience of young men, and by treating themselves as much like sports marketing companies as radio stations, sports stations are managing to meet their audiences' and advertisers' every need at a time when no other traditional medium seems capable of holding people's attention.

Dale Arnold (left) and Bob Neumier of Boston’s WEEI chat with Lynn Swann during a live broadcast from Houston prior to the Super Bowl.
Skyrocketing programming costs and a crowded landscape are making profitability an increasingly complicated task for even the most powerful sports stations. But as advertisers continue to embrace the surprisingly highbrow audience that sports radio reaches, more stations are switching to the format. How many are making money is
Lynch
a matter of speculation, but an overwhelming amount of positive data makes it hard to fault people like Lynch for taking a chance.

"There are a lot of radio station owners who are much happier since the advent of sports radio," said George Hyde, executive director of the Radio Advertising Bureau. "It's proven to be not only a viable format, but also an economically rewarding format."

Holding ground

Despite the format's rapid ascension from outcast to media darling among advertisers, it's important to note that sports talk stations have not been immune to the steady outflow of young men that in recent months had traditional media properties demanding a recount. A closer look at the numbers, however, shows that the format is more than holding its own in the fight against media fragmentation.

Since the winter of 1999, the portion of sports talk listeners in three coveted demographics has declined, according to figures from Arbitron.

The biggest drop has been among men 18-24, which has declined 20 percent over the last five years. The portion of male listeners 25-34 declined 9.1 percent, while the portion between 35 and 44 fell 8.3 percent.

During that time the industry saw gains in the portion of its male listeners 35-64 (4.1 percent), 50-54 (14.3 percent) and 55-64 (37.5 percent).

But even the most popular sports programming has fallen victim to the trend of smaller viewer percentages among young men. Television ratings for the NFL, NASCAR and college football all dropped in 2003 for men 18-34.

While the demographics of radio listeners may be shifting, the share of listeners that tunes in to sports talk radio is on the rise. Since the summer of 1999, sports talk radio has increased its share of overall listenership from 2 to 2.5 percent, a 25 percent increase, according to Arbitron. Among all English-speaking formats, sports trails only urban and religious stations in terms of growth rates.

In contrast, mainstream formats such as adult contemporary, country, oldies and rock all have lost market share, according to Arbitron.

Furthermore, radio industry executives have joined the television industry in criticizing the method of calculating ratings. Specifically, industry executives argue that the Arbitron ratings, which rely on listener diaries, understate their ratings because their primary target — young males — are the least likely to fill out diaries. Getting young men to complete surveys is a formidable task for all researchers, according to Thom Mocarsky, Arbitron's vice president of communications.

"Young men are a challenge," Mocarsky said, "but we devote extra effort to get them into our diary surveys, which includes additional phone calls and additional money."

Feeling the power

Hosts Steve Mason (left) and Bill Werndl help lead the charge at San Diego’s Mighty 1090.
The true strength of sports radio, however, is reflected not in the ratings, but in the power ratio, which is a station's share of the advertising revenue from a market divided by its share of the listening audience.

Industry gold standard WFAN, for example, captured a 2.3 share of the market in Arbitron's fall ratings, good for 19th in New York. But WFAN, which in 2002 generated $52.3 million in ad revenue, has long been among the highest-billing radio stations in the country.

While no other sports station approaches WFAN in terms of ad revenue, the same trend holds true across the category. In 2002, the power ratio for sports radio was 1.46, not far behind the most powerful advertising format, news, at 1.7, according to figures from Miller Kaplan Associates, an accounting firm that tracks the radio industry.

"Most sports radio stations are not big ratings stories," said Andrew Saltzman, president and general manager of WQXI 790 "The Zone" in Atlanta. "But if they're good, they can sell much, much higher than their ratings suggest."

The reason is that no format homes in with such intensity on men 25-54, which like the rest of the media environment remains the most coveted group for advertisers.

"As evolved as our world has become, a great deal of our decision-makers are still men 35-54 years of age," said Rich Zirkel, general manager of San Francisco's KNBR, which generated $30 million in ad revenue in 2002, according to BIA Financial Network. "It gives us a significant advantage over music radio, because you just don't have that mass appeal."

Indeed, the sports format virtually eliminates half of the population. According to Arbitron's American Radio Listening Trends, 85 percent of the sports radio audience is male.

"I don't think sports talk radio in this country is ever going to be a huge ratings play," said Greg Ashlock, general manager of XTRA in Los Angeles, "but it offers a very viable targeted group that anyone wanting to reach that audience can reach without a lot of spillage. It's the one format where you know you're getting 90 percent male."

And "spillage," or the part of the audience that's less desirable, applies not only to women, but also to men 18-34, according to Shaunagh Guinness, vice president and director of research and marketing for the Katz Radio Group, which sells national advertising for hundreds of stations in a variety of formats nationwide.

Sports talk stations in major markets fill most of their day with locally produced programming, something that can be enormously expensive. Paying local on-air personalities such as WFAN’s Jody McDonald (above) is just the beginning of the costs.
Guinness said that because advertisers focus almost exclusively on the male 25-54 demographic, and rock music stations skew younger than that, sports in the last five years has become the best alternative for advertisers trying to counterbalance the largely female top-40 radio listening audience.

Another reason for sports' growing attractiveness among advertisers is the socioeconomic makeup of listeners, an area that research indicates gives sports radio a big advantage.

Simmons Market Research Bureau for 2003 gave the sports format an index of 174 for adults who make more than $100,000 a year. That number is obtained by taking the percentage of sports radio-listening men who make more than $100,000 a year and dividing it by the percentage of total adult men in the same category, multiplied by 100. So the proportion of $100,000-plus-earning men who listen to sports talk radio is 74 percent greater than the proportion of those people in the general population. The index is even higher, at 212, for men who hold managerial positions, according to Simmons' data.

Baseball play-by-play broadcasts index similarly high, at 182 for adult men who take more than three business trips a year. That compares with a 135 for people who watch baseball on television.

"[Sports radio] has this audience out there that has this very high propensity to be trend setters, to help shape tastes and consumption habits," said the Radio Advertising Bureau's Hyde.

Several intangible factors make sports radio a relatively attractive buy, most notably the format's ability to engage the listener. Unlike music, which for most people is background noise, sports radio is the purest example of what those in the industry call "foreground programming," demanding more of the listener's attention. Furthermore, advertisers recognize that sports radio listeners are less likely to switch stations during commercial breaks because of a combination of hosts' tendency to tease upcoming information, and because unlike with music, commercials blend in with the programming.

"People are paying attention," Hyde said. "It's not like you've got the TV on in the background or in the other part of the room. That creates a faster impact on the consumer, and the ability to build advertising frequency faster."

No collar to white collar

Hosts at Boston’s 1510 "The Zone" have fun at the station’s "Hot Dog Safari" charity event.
So has the evidence in sports radio's favor been glaring enough to change long-held perceptions of the format's listeners in the advertising community? Most industry experts feel the last five years has seen a substantial warming to a format whose core audience typically is characterized as jobless twenty-somethings living in their mom's basement.

"The misunderstanding about this format is that there are some people who think it's all sports bars and gentlemen's clubs," said Dan Bennett, vice president and general manager of Susquehanna Radio Corp.'s four Dallas radio stations, which include market leader KTCK-AM ("The Ticket"). "That couldn't be further from the truth. We have captured the mainstream advertisers in a big way."

Indeed, WFAN's advertiser lineup would make any media property envious, with the likes of Jaguar, the New York Stock Exchange and Mercedes-Benz among the many high-end advertisers filling breaks in the "Mike and the Mad Dog" program or Mets broadcasts.

And while sports radio listeners across the country still get their fill of sports bars and gentlemen's clubs, the A-list advertisers aren't exclusive to powerhouses like WFAN and Boston's WEEI. The demographics are consistently attractive from the smallest to the largest markets, research indicates.

"There's no question we're still breaking down some old stereotypes," said Bruce Gilbert, general manager of the ESPN Radio Network, which has more than 700 affiliates and 200 owned-and-operated stations and, fittingly, just moved into new, state-of-the-art, multimillion-dollar facility in Bristol, Conn. "Some of the advertising agencies are starting to understand that." The burden is still on sports talk stations to prove the value of their audience to advertisers, said Julie Kahn, general manager of WEEI.

"We have a saying here that 'Men are adults, too,'" she said, "and adults 25-54 is the primary buying demo. Give us credit for delivering more of them than anybody."

Saltzman estimated that the format has achieved about 90 percent legitimacy in the eyes of advertisers, and said those who still harbor old notions about its listeners cannot afford not to take notice.

"You can't reach [men 25-54] many other places," Saltzman said. "The reality is they're not watching TV and they're not reading the newspaper, but they are driving to lunch listening to 'The Zone,' and they are driving home listening to 'The Zone.' How else are you going to sell a BMW?"

Moneymakers?

While listener data and the growing number of stations would suggest that sports is a cash machine for station owners, the task of achieving profitability presents a unique set of challenges that are more daunting than the popularity of the format suggests.

Industry experts divide the sports format into three rough categories, which include the top-ranking stations in the 10 to 15 largest media markets, those in markets 15-50, and those in markets 50 and up.

The top stations in the top 10-15 markets rely almost exclusively on locally produced programming Monday through Friday from 6 a.m. to 7 p.m. Nights during the spring, summer and part of the fall typically are filled with play-by-play broadcasts of the local major league team and shoulder programming (pre- and postgame shows).

Filling that time has become extraordinarily expensive. The success of these stations hinges on having the best talent, and it is becoming increasingly costly to acquire and keep that talent happy. Many in the industry estimate that at least a dozen local sports radio personalities earn well over $500,000 a year, and paying the on-air talent is just the beginning.

A music station on the FM dial in a major market can fill five or six hours of programming with one disc jockey who does virtually everything, including operating the board, taking calls and producing the show, all for about $50,000 a year. Meanwhile, that station's sports counterpart on the AM dial has to fill the same time period with programming that requires two or more highly paid hosts, each of whom has his own producer, board operator, update person and phone screener.

"The margins in sports radio are not good," Saltzman said. "It is a cost-intensive format, and the great sports radio stations are live and local."

Play-by-play rights represent another enormous but often-necessary expense for sports stations, as important as talent in providing a station a foothold in a major market. WFAN executives say the station would not have succeeded as it did without the high profile that the Mets' broadcast rights gave it in the station's early days. In a clear sign of the importance of play-by-play rights, ESPN Radio's New York affiliate recently pried away from WFAN the rights to the Knicks and the Rangers by offering the two teams a deal that will cost them nothing.

The two teams reportedly had been paying WFAN several hundred thousand dollars each to put their games on the station, while retaining the advertising inventory. Under the new deal, the teams still control the advertising inventory but owe ESPN nothing for the air.

Banking on baseball

As valuable as even the time buys are for stations struggling to break into a big market, basketball and hockey place well behind baseball and, to a lesser extent, football in terms of their importance to a sports radio station.

"In the shopping center business, if Saks Fifth Avenue or Target is the anchor tenant, Major League Baseball is the anchor tenant of sports radio," Smulyan said.

Stations generally pay $5 million to $7 million or more a year for MLB radio rights, and perhaps slightly less for NFL radio rights, which are estimated to cost anywhere from $3 million to $7 million. Their value is hard to quantify, because the teams bring so much more to the stations than the ability to charge high rates during broadcasts. Pre- and postgame shows offer huge sponsorship opportunities, and game days offer opportunities for remote broadcasts from the stadium or from local bars and restaurants, which gives a station a huge marketing boost.

"The Red Sox are our marketing budget," said Kahn, who added that on-air talent and play-by-play rights probably account for 80 percent of WEEI's annual budget.

"WEEI is a very expensive station to run," Kahn said. "The Red Sox rights are expensive, we have no syndicated programming, and we don't skimp on expenses. We are forced to create a lot of revenue in order to return a decent bottom line. In our case, we spend big and we bill big."

As much value as these broadcast rights bring, there is ample evidence that station owners are re-examining the economic value of baseball, which is often a loss leader if the team isn't competitive.

Executives at XTRA in Los Angeles, after the 2002 baseball season, refused to match the $7 million rights fee for the Dodgers that news station KFWB-AM was offering.

According to Ashlock, the station had been generating about $12 million annually in Dodgers billings, but the rights fee, combined with the programming costs, indicated the station, which bid $5.5 million after the team took its Spanish-language broadcast rights in-house, could be even more profitable without the team. "We said, 'You can have it. You don't understand. It's not that profitable,'" Ashlock said.

It turned out to be a smart move, as XTRA's profitability in 2003 increased by more than 100 percent, Ashlock said. Meanwhile, KFWB, which had blown out its drive-time inventory with the expectation that the Dodgers would boost ratings, actually saw its cumulative rating decrease from 1.4 in the summer of 2002 to 1.2 in the summer of 2003.

"I bet you more people are losing money on these rights than actually making it," said Anthony Pepe, director of marketing at Boston's WWZN-AM "The Zone," home of the Celtics.

WFAN's Davis said the rights fees market in recent years foretold this re-examination.

"Rights fees were growing at an exorbitant rate," Davis said. "Companies and radio stations are re-evaluating deals now, and looking at them a little more carefully."

For WFAN and most of the top 10 to 15 billing sports stations, however, broadcast rights still are a worthwhile expense and, despite the growing costs associated with running a station, at least 12 of the top 15 billing stations are profitable, industry sources estimate. WFAN, industry sources say, enjoys profit margins of more than 50 percent.

For second- and third-place stations in the major markets as well as stations in the rest of the top 50 markets, the smaller audiences available to them make it more difficult to justify the costs of going all local, all the time. For those stations, economic realities clash with the widely held reality that radio is a locally oriented format that relies on popular hosts who are closely connected to the community.

Most of those stations thus rely on a smattering of national programming throughout the day in order to keep costs down. Such programming typically comes courtesy of national radio networks like Sporting News, ESPN and Fox Sports Radio (a division of Premiere Radio Networks), which trade national programming for several minutes of advertising inventory per hour.

National personalities such as Premiere's Jim Rome, ESPN's Dan Patrick and Tony Kornheiser, and Sporting News Radio's Tim Brando and James Brown draw solid ratings in hundreds of markets at a minimal cost to the station. (Because such agreements allow the station to take as much or as little national programming as it wants, some national networks buy stations in certain markets to ensure that their brand and personalities get adequate exposure.)

"You've got to try to figure out what's the appropriate blend," said Chris Brennan, president of Sporting News Radio, which he said does not pay to force its programming on certain markets. "We try to leave it up to the local programming director, and they utilize and cherry-pick our product to support and fulfill whatever they're doing locally."

National programming ends up getting plenty of air time out of economic necessity, according to Saltzman.

"If you're a small market, the economics don't work," Saltzman said. "You're better off becoming an ESPN or Fox affiliate."

Not that these aren't fruitful partnerships for everyone. KRDO in Colorado Springs, Colo., which Brennan noted carries Sporting News programming 24 hours a day, got a 1.6 cumulative rating in the Arbitron fall book, making it the market's top-rated sports station and 16th overall.

Personalities like Rome have become so popular that he now makes obvious economic sense even to markets like Denver and Los Angeles, where he has the highest-rated talk show, noted Chris Visser, president of Antero Sports Marketing and a former sports radio executive producer.

"You're better off having six commercial minutes at $300 [each] and a popular show," said Visser, "than you are having 12 commercials at $100 each for a less popular show."

The Mighty 1090 recently built a studio at Petco Park, the Padres' new home starting this season. For all 81 days the team plays at home, the station will broadcast live from the stadium for what Lynch said is the first 24-hour pregame show.

In fact, everywhere the Padres and their fans go this season, 1090 plans to be there. The station's plans illustrate how easily sports stations can and do achieve a ubiquity virtually impossible in any other format.

Whether it pays off will take a few years to determine, but for Lynch, as for a growing number like him across the country, hope abounds.

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