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SBJ/20100426/This Week's News
NCAA’s money-making matchup
Published April 26, 2010
Last October, Sean McManus looked at the numbers and shook his head. Even if CBS sold a record amount of advertising, there was no way the network could show a profit from the last three years of its NCAA men’s basketball tournament deal, which required a total of $2.13 billion in rights fees.
McManus, the president of CBS News and CBS Sports, knew that the NCAA would likely opt out of those final three years, which it eventually did. And he knew that others with deeper pockets would show interest, namely ESPN. But McManus placed great importance on keeping an event that had a 29-year association with CBS.
The network’s identity is defined by its long-term relationships with sports properties. It has had associations with the NFL and the Masters that go back more than 50 years and with broadcast tennis and college sports more than 40. CBS has broadcast the NCAA tournament since the early 1980s and didn’t want to lose it.
“That’s when we started talking to Turner,” McManus said.
Turner was among the networks to first show an interest in the tournament when the NCAA issued a request for proposal last fall, and CBS, knowing it had to have another network to share in the expenses, saw Turner as a viable partner. The two networks also knew that the NCAA was open to a split-rights agreement because that model was outlined in the request for proposal.
Over the next several months, CBS and Turner worked out the details that resulted in the 14-year, $10.8 billion deal for television, online, wireless and corporate marketing rights that was formally accepted by the NCAA last week. The other finalist, ESPN, also based its bid on a deal through 2024, but it would have kept CBS on the hook for the final three years of the current deal.
Both CBS/Turner and ESPN submitted bids based on 68- and 96-team tournament fields. The NCAA’s basketball committee recommended expansion to 68 teams, which is expected to be approved this week.
The agreement keeps a significant amount of games on CBS, while benefiting from Turner’s dual revenue stream of advertising and cable subscriber fees. Turner will pay the bulk of the rights fee, industry sources said, and is expected to charge cable and satellite operators much higher license fees when it begins carrying the Final Four in 2016. The two networks will also increase their ad inventory because all of the games will be televised nationally.
“We are immediately turning around our financial situation,” McManus said. “It immediately becomes a profitable event for CBS.”
It wasn’t until earlier this month that CBS/Turner emerged as the NCAA’s preferred broadcaster and exclusive negotiations began. As many as five bidders had moved in and out of talks over the last several months and ESPN was the last challenger against the CBS/Turner joint bid. Industry sources said the bidding between CBS/Turner and ESPN stayed close, within 2 percent of each other throughout the process.
“We told CBS up front that we were exploring tournament expansion and we asked them to think broadly, without the traditional parameters of the agreements we’ve had in the past,” said Greg Shaheen, the NCAA’s senior vice president of basketball and business strategies. “Sean put extraordinary energy into this, and in a single meeting with [Turner President] David Levy, you could feel the energy and eagerness to figure out this puzzle. Right away, we knew they were a solid, viable option.”
Once the bid from CBS/Turner was selected, executives from the two networks met the NCAA in Charlotte on April 15 to begin the final stage of talks.
“It was time to get face to face and see if we could work this out,” Shaheen said. “We had a broad sense of the agreement and we had to work out the details.”
For about four days, including a full weekend, top executives, including CBS’s McManus, the NCAA’s Shaheen and Turner’s Levy, hammered out deal terms in the law offices of Robinson, Bradshaw & Hinson in downtown Charlotte. That same law firm represented the SEC when it did its media deals with CBS and ESPN in 2008.
By the early morning hours of Monday, April 19, about 3:15 a.m., everyone slogged out of the firm’s Charlotte conference room with the deal all but done. At times, as many as 25 executives were in the conference room, representing the two networks, the NCAA and all of their consultants.
The outcome was a deal that will average $771 million over the 14 years of the new arrangement, representing a 61.1 percent increase over what CBS paid during the last eight years of the old contract. Turner and CBS will share revenue and expenses in the joint venture, the networks said.
Other areas in which deals are still to be made, such as radio, international television and licensing rights, are expected to push the NCAA’s haul over the life of the contract to more than $11 billion in total and close to $800 million annually.
The first three years of the new deal are expected to be comparable to what was outlined in the old deal: $657 million in 2011; $710 million in 2012; and $764 million in 2013. The final 11 years of the contract will average $790 million.
CBS will provide coverage of the regional finals and the Final Four through 2015. Beginning in 2016, coverage of the regional finals will be split by CBS and Turner, with the Final Four games alternating each year between CBS and TBS. Turner will also use its other networks, TNT and truTV, to broadcast early-round games nationally.
“On all major sports deals over the next few years, there will have to be a major cable component,” said sports media consultant Neal Pilson, a former president of CBS Sports. “That’s where the money is.”
Not included in the CBS/Turner contract are licensing, international TV rights and radio rights. Collegiate Licensing Co. is the NCAA’s licensing agent, while the radio rights must be negotiated. Westwood One is the incumbent.
Shaheen said he expects IMG to continue running the NCAA’s ancillary events, as well as its sales relationship with CBS on the corporate marketing program.