SBJ/May 9-15, 2011/MediaPrint All
The IOC plans to hold bidding June 6-7 in Lausanne, Switzerland, for the U.S. TV rights package to the 2014 Sochi Winter Olympics and 2016 Rio de Janeiro Summer Games.
The organization recently provided networks with those dates, according to sources familiar with the IOC’s plans.
NBC paid $2 billion for rights to the 2010 Vancouver and 2012 London Games, and IOC leaders have said they expect to match or exceed that for the 2014 and 2016 Olympics.
Bidding networks will agree to contractual terms with the IOC in advance of traveling to Lausanne. Once there, they will be given two hours to make a presentation illustrating how they will present the 2014 and 2016 Games. Then they will submit a sealed bid containing what they are willing to pay for the rights.
The IOC will determine who wins the rights based on the presentations and the size of the bids. NBC, ESPN and Fox are considered the most serious bidders. CBS and Turner have met with the IOC but not shown the same level of interest in the rights to date.
Facing the prospect of Comcast/NBC establishing a foothold in college football, ESPN and Fox established one of the most unlikely unions in U.S. sports media history to win the Pac-10's media rights.
It all started with an April 25 phone call from ESPN's John Skipper to Fox's Randy Freer.
Prior to that call, executives from ESPN and Fox were resigned to losing the Pac-10's media rights to Comcast, which had told the conference weeks earlier that it would bid $225 million per year to pick up the rights for Versus and NBC. Neither of the current partners, ESPN nor Fox, had the shelf space to bid that much individually.
In early April, NBC Sports executives, led by Chairman Dick Ebersol, gave a presentation in New York, according to conference sources. Pac-10 officials left the meeting believing that Comcast viewed the Pac-10 as an important piece of its plans to build NBC Sports and Versus. Steve Burke, CEO of NBC Universal, also was present to meet and greet Pac-10 executives, but he left before the meeting started.
Despite the strong bid, the conference recognized its long relationship with the two incumbents. The Pac-10's media consultant, Evolution Media's Chris Bevilacqua, proposed an idea to Skipper: What if the two media giants joined forces and combined their bid?
Initially, the concept seemed preposterous. ESPN and News Corp. partner internationally on ESPN Star Sports in Asia, for example. The two, however, are often bitter rivals in the U.S., especially in the college football space where they dominate the market.
However, Skipper, ESPN's executive vice president of content, was intrigued. Not only would a joint effort increase the bid, it would keep Comcast from picking up rights to a BCS conference. It had just bid $187 million per year to win the NHL rights and wanted to add to that with a Pac-10 acquisition. ESPN and Fox wanted to stop that momentum.
So Skipper called Freer to talk about a joint bid. Freer, Fox Sports' co-president, was interested. Other than CBS's deal with the SEC, Fox and ESPN control the football rights to every BCS conference, and a familiarity was there.
"We have historically worked with ESPN on sublicensing games and events to them and from them," Freer said. "This was done at the conference's request to see if more value could be created for the conference."
They agreed to meet on April 28, when Skipper and John Wildhack, ESPN executive vice president, flew across the country to meet at the Fox lot in Los Angeles. The ESPN duo met with Freer, Fox Sports COO Larry Jones and Karen Brodkin, senior vice president at Fox Cable Networks.
"Neither side looked at this as a way to try and do a land grab," Wildhack said. "Fairly quickly, both of us found that we had a lot more in common than not."
Over a seven-hour meeting that day, they came up with a bid that would split the rights — 22 football games each — and pay the Pac-10 a whopping $3 billion over 12 years, or $250 million a year. The deal would blow past Comcast's best effort, which eventually rose to $235 million. Last week, Comcast's Brian Roberts told CNBC that his company did not land rights to the Pac-10's TV package because it was "financially disciplined."
After the long meeting, the executives from both networks hurried to the Los Angeles airport and grabbed a red-eye flight to New York. They knew the next day would be a long one, as they jointly engaged in negotiations with the Pac-10.
ALEX GORT SR. / GORT PRODUCTIONS
An 18-month plan paid off for Pac-10 Commissioner Larry Scott.
One night earlier, on April 27, Pac-10 Commissioner Larry Scott was leaving New Orleans, where he had spent the past two days at BCS meetings. On his drive to the airport to fly home to San Francisco, Scott received a call from Bevilacqua, who briefed him on the brewing Fox-ESPN partnership.
Until that point, Comcast had been the overwhelming leader, but the new energy around Fox and ESPN was palpable.
"I think it became clear that they weren't going to be able to prevail separately, so they came up with the idea of going it together," Scott said. "Normally, if you're a content owner, you'd be opposed to reducing the field of competitive bidders. But knowing the strength of this opportunity, we embraced it. We thought it could be the best of all worlds."
Once Scott arrived at the airport, he went to the counter and changed his plans. Instead of flying to San Francisco, Scott bought a ticket for the next day to New York's LaGuardia Airport.
Scott and Deputy Commissioner Kevin Weiberg arrived in New York on April 28 and joined talks the next day with ESPN and Fox executives at the Times Square offices of Proskauer, the attorneys representing the conference.
Scott, Weiberg and the conference's general counsel, Woody Dixon, were at the table. Proskauer's Joe Leccese, chairman of the firm and co-head of its sports law group, represented the conference as well.
Discussions advanced quickly, but throughout the talks there were several negotiating points on which the Pac-10 would not waver.
• The Pac-10 had to retain enough games to create its own channel, and the channel would receive the first pick of football games periodically through the season. That was a tough one for the networks because they've always had first choice in their conference deals.
• The conference had to have its football games on national over-the-air broadcast networks and fully distributed cable channels.
• Digital rights had to stay in the hands of the conference.
"Money was important, without question, but there had to be a commitment to the platforms and exposure," Scott said.
ESPN and Fox mapped out their strategy before the meeting. It was a unique situation to see executives from the rival networks negotiate as one with the Pac-10.
By the end of a long day April 29 — five days since the union between ESPN and Fox had been initiated — Scott got exactly what he wanted, an enormous financial windfall for the conference and more national exposure than it has ever had.
With a signed contract in his briefcase last Monday morning, Scott boarded a plane for Phoenix to attend the Pac-10's annual spring meetings. He didn't anticipate the negotiations moving so quickly and didn't dream that he'd be delivering the news of a deal at these meetings of presidents, athletic directors and coaches.
"Originally, I thought the process would conclude sometime during the summer," Scott said. "It was a very dynamic and competitive negotiation."
Running parallel to the talks for the Pac-10 rights were the conference's efforts to find a partner for a conference channel.
The key for the conference was to break the two pieces apart, holding one set of negotiations for the rights and a separate set of talks for the channel.
As soon as the conference's exclusive negotiating window with Fox ended April 2, the conference found that it had interest from ESPN, Fox, Comcast/NBC and Turner in the TV rights; interest from brand-name private equity companies in the channel; and interest from companies such as Google in digital rights.
"Once we got to the open market, the level of interest exceeded our expectations," said Evolution Media's Bevilacqua. "Everyone is trying to figure out a business model for the digital part of this, resulting in a lot of interest in that area."
Scott had kept the conference's presidents abreast as the talks culminated over the weekend. He planned to tell the ADs last Tuesday morning, but he was upstaged by a few hours when SportsBusiness Daily, sister publication to SportsBusiness Journal, revealed the Pac-10's partners would be two familiar names, Fox and ESPN, the same two networks with which the conference had been partners.
Only this time, the deal was worth $250 million a year instead of the $54 million the conference had been taking in annually.
The new contract means a windfall of new revenue and unprecedented exposure on two over-the-air networks, ABC and Fox, ESPN's multiple platforms and Fox's FX and FSN.
Some schools project that their annual revenue from the conference's media contract will leap from $5.5 million a year to around $15 million a year, and escalate from there.
"The exposure is the beauty of it for us," said Rob Mullens, Oregon's athletic director. "We have an innovative and creative partner in Fox, which has a long history with the conference, and ESPN, which is so critical in the football space and now delivers for us tremendous basketball exposure."
The Pac-10's celebratory announcement last week in Phoenix culminated a nearly two-year process for the commissioner. All of the changes he has made since taking office on July 1, 2009, were intended to increase the league's media value, and they worked.
"Before I took the job, I asked to see the existing TV contracts," said Scott, who came to the Pac-10 from his position as CEO of the Sony Ericsson WTA Tour. "I felt like I'd have the opportunity to use my background to be successful, but I didn't want to get into a situation where I couldn't be successful."
Knowing that the next TV contracts would be pivotal to the league's future, Scott mapped out what he called an "18-month runway" to set the table for negotiations.
During those 18 months, he repositioned the conference's brand with a new logo, a media tour to the East Coast and a grand marketing plan to enhance the league's image.
Scott also pooled all of the school's media rights into one package, giving the conference the additional game inventory it needed to create a channel, just as the Big Ten did when it started its network. Previously, the Pac-10's schools retained their local TV rights, which gave them the ability to broadcast one or two football games a season and a handful of basketball games.
Finally, the conference expanded by two, adding Colorado and Utah.
Even though his grand vision to create a Pac-16 with Texas, Oklahoma and others from the Big 12 fell through, Scott says Colorado and Utah significantly enhanced the league's marketability by adding two new states and giving the conference the 12 teams necessary to play a football championship game.
The Pac-10's timing worked out perfectly, too. TV networks are battling it out for sports rights these days. And the Pac-10 is among the last of the BCS conferences to negotiate its media rights for several years; the Big East's ESPN deal ends in 2013.
It all came to a head with last Wednesday's 9 a.m., Pacific time, announcement of the landmark media contract, which will put the soon-to-be Pac-12 — the conference's name changes on July 1 — at the head of the class among conference TV deals.
By 7 p.m. that night, Scott was back at the Phoenix airport preparing to fly home to San Francisco. This time, there were no last-minute changes.
Also in this issue, why media rights fees are continuing to double and triple.
Conference TV Deals
Once each respective deal kicks in, these are the estimated average annual values of college sports’ most lucrative conference media rights deals:
CONFERENCE AVG. ANNUAL VALUE CONTRACT YEARS NETWORK(S) ACC $155 million 2011 through 2022-23 ESPN/ABC Big 12 $90 million 2012 through 2024-25 Fox $60 million 2008 through 2015-16 ESPN/ABC Big East $36 million 2007 through 2013 ESPN/ABC Big Ten $232 million 2007 through 2031-32 The Big Ten Network* $20 million 2006 through 2015-16 CBS Conference USA $15.6-16.1 million 2011 through 2015-16 CBS College Sports Mountain West $11.7 million 2007 through 2013-14 CBS College Sports Pac-12** $250 million 2011 through 2022-23 ESPN and Fox SEC $150 million 2009 through 2023-24 ESPN/ABC $55 million 2009 through 2023-24 CBS College Sports
** The conference becomes the Pac-12 on July 1 when Colorado and Utah formally join. Source: SportsBusiness Journal research
The Big East deal is the next one being negotiated. I’ll be shocked if the conference doesn’t at least triple its media rights haul.
I never thought the Olympics would be able to come close to the $2 billion NBC and GE paid for the 2010 and 2012 Games. Now, I’m not so sure. I still think the International Olympic Committee will have a hard time matching that number for the 2014 and 2016 Games, which will be awarded in June.
Can rights fees increase after NBC reported a loss of $200 million on the Vancouver Games? After reporting on the NHL and Pac-10’s media deals in the last few weeks, I wouldn’t be surprised.
With the new Pac-10 deal, the media rights run-up continues.
Every deal this year has seen TV networks shell out at least two times more — on an annual average — than previous deals. It doesn’t seem to matter what the sport is or whether rights are local or national. TV networks clearly want sports on their schedules and are prepared to pay for them.
In the last three months, for example:
• Time Warner Cable agreed to pay an average of $200 million a year for the local media rights to the Lakers, according to published reports. That’s more than three times the $60 million a year the team gets from its current deals with Fox Sports Net and KCAL9.
• Fox Soccer tripled the annual average it will pay to MLS this year, increasing its rights fee from $2 million to $6.75 million for this season.
• Fox agreed to pay the Big 12 an average of $90 million annually, an increase of 350 percent from the current deal, which is worth $20 million a year.
• NBC and Versus nearly tripled the average annual amount they’ll pay for NHL rights, from $78 million to $187 million.
• Now ESPN and Fox are going to pay an annual average of $250 million for the Pac-10’s rights, a figure that’s more than four times higher than the average payout of the current deal of $58 million.
Comparing the average annual costs of these deals is somewhat misleading. Because annual increases are built into the contracts, the final season of the old deal and the first season of the new deal are much closer than these numbers indicate. But even with that caveat, the market is scalding hot, and TV executives typically cite three reasons.
First, competition is intense, with ESPN, Fox, NBC and Turner battling for rights. More bidders means higher rights fees. NBC wants to bring more sports to Versus; Turner wants to bring more sports to truTV; and Fox wants to bring more sports to FX. And don’t forget distributors, like Comcast and Time Warner Cable, that have been at the negotiating table for several deals.
Second, TV network executives have said that college sports rights, in particular, have been undervalued. They believe we’re in the middle of a market correction.
Five years ago, the Big East signed a deal with an average annual payout — $36 million — that seems laughably low by today’s standards. It’s no surprise that the conference is negotiating an increase that would see it get more than $130 million a year.
Third, live events rate. It’s not just sports, but all live events. ESPN research says that 99 of the 100 highest-rated TV telecasts last year were live (sports, “American Idol,” awards shows) in the 18-49 demographic that advertisers covet.
Because advertisers want to reach that demo, competition to pick up these rights is as intense as ever. Viewers watch these events live. They generally don’t DVR them. Those are the types of shows that advertisers want to buy.
This market, where annual rights fees double and triple, will slow down eventually. It has to, doesn’t it? The market will find its ceiling at some point.
Until then, leagues and conferences will continue to be the biggest beneficiaries of the wildest marketplace I’ve ever seen.
John Ourand can be reached at email@example.com. Follow him on Twitter @Ourand_SBJ.