SBJ/February 25-March 3, 2013/MediaPrint All
When the head of Showtime Network’s sports division took his first run at the most-watched, highest-paid fighter in the world a year ago, he quickly realized that a nudge of the numbers wouldn’t be enough to land him.
Barely a month into his new job, Stephen Espinoza presented Floyd Mayweather Jr. and his representatives with an offer that would wrest his May 2012 pay-per-view bout against Miguel Cotto from HBO, the network that has aired his fights for the last 15 years.
Mayweather declined. But Espinoza came away convinced of an opportunity.
“There were certain assumptions about which side traditionally pays what costs and what rights are given where, which didn’t bear any necessary relationship to logic,” Espinoza said last week in the wake of signing Mayweather to an exclusive deal that could yield as many as six fights in 30 months, kicking off with a May 4 pay-per-view against Robert Guerrero.
“They were remnants of some structure that someone came up with long ago. Marketing has been completely redefined in the last eight to 10 years. Delivery of content is changing on a monthly basis. So rethinking the model on everything from allocation of costs to methods of marketing and distribution to grants of rights was long overdue.”
The most surprising aspect of Mayweather’s jump lies in the fact that his previous deals with HBO seemingly left Showtime with little to improve on. Mayweather received a guarantee for each fight from promoter Golden Boy — a record $32 million from the Cotto fight — based largely on conservative expectations of HBO pay-per-view sales, plus an upside on all sales above the guarantee. That delivered Mayweather “very close to 100 percent” of the promoter’s proceeds from the pay-per-view, Golden Boy CEO Richard Schaefer said.
Pay-per-views are structured so distributors get about half of the revenue. The producer — HBO or Showtime — takes 5 to 10 percent. Mayweather got almost all that remained after expenses were paid, according to Schaefer and other sources familiar with the deal.
“The only way to get Floyd more than he had in that model was to rethink the model,” Schaefer said. “Showtime and CBS were willing to put everything on the table. The result was such that what came out at the end was a totally different model, one which gives a tremendous additional financial benefit and potential to the fighter.”
Espinoza, Schaefer and Mayweather Promotions CEO Leonard Ellerbe all have declined to discuss financials, citing confidentiality. But Espinoza and Schaefer said the shifts that mattered most came in three areas:
■ Additional promotional assets from across CBS Corp., including on the flagship network during high-profile sporting events such as the Final Four and in prime time, as well as support from CBS’s radio, outdoor advertising, interactive and consumer product divisions.
■ Greater guaranteed payments, or a higher revenue share, for Mayweather from ancillary streams from the fight, including the rebroadcast on Showtime.
■ A shift in the way some promotional expenses were handled, leaving more money for Mayweather.
“When you’re talking about having a $150 million night, if you add 10 percent between these three things, that’s $15 million,” Schaefer said. “Do that six times and you’re talking about a difference of almost $100 million.”
Schaefer’s expectation of $150 million as a benchmark is optimistic, and perhaps unrealistic. Mayweather’s fight against Cotto brought in about $92 million in domestic pay-per-view revenue and a $12 million gate. Only his record-shattering performance against Oscar De La Hoya in 2007, which sold about 2.5 million pay-per-views, eclipsed $150 million. No other Mayweather fight has generated more than $100 million.
Still, Mayweather unquestionably delivers more than any fighter on the planet. He also will raise Showtime’s boxing profile, as Mike Tyson did when he jumped there from HBO in 1990.
“We know the pie is almost entirely Floyd’s,” Espinoza said. “The pitch to them was … how we can make that pie bigger so we all share in the success.”
ESPN President John Skipper was not in Daytona last week for the biggest race on the NASCAR circuit. Neither was David Levy, Turner’s president of sales, distribution and sports.
Even though ESPN and Turner’s exclusive negotiating windows for NASCAR’s media rights expire in late summer, the networks still are months away from serious talks, according to several sources. The exclusive window formally starts in early summer, but networks and leagues frequently start negotiations well before that time.
The fact that ESPN and Turner’s top executives were not in Daytona last week is a sign that the networks are opting to wait and see how well NASCAR’s TV ratings and ad sales perform during the early part of the season.
Publicly, ESPN and Turner executives say they are happy with NASCAR and want to keep the packages.
“There’s no secret we want to continue that conversation with these guys,” said Julie Sobieski, ESPN’s vice president of programming and acquisitions. “Our negotiating window doesn’t begin until later this year. So right now we’re excited about the start of the season and we’re putting all of our efforts toward that.”
Privately, network executives last week expressed concern about NASCAR’s TV performance, which last season posted its lowest viewership numbers for its current deals. The 2012 races averaged 5.79 million viewers, which was down 10 percent from the previous year. ESPN is less concerned with the Nationwide Series, which draws fewer viewers (an average of 1.99 million watched 32 races last season), but has been growing.
There is one big reason why ESPN and Turner may try to do deals before their exclusive negotiating windows end: NBC is waiting in the wings and has made no secret of its desire to partner with the racing circuit. NBC Sports Group Chairman Mark Lazarus has a long history with NASCAR, having worked with the group during stints at Turner Sports and CSE. Sources said NASCAR also is warming to the idea of working with NBC.
The biggest question deals with the number of packages NASCAR plans to sell. Currently, Fox has 13 races, Turner has six and ESPN has 17. There’s a chance NASCAR may combine the Turner and ESPN packages, sources say.
Still, ESPN and Turner are not feeling pressure to lock down rights early.
Norby Williamson, ESPN’s executive vice president of programming and acquisitions, was the highest-ranking ESPN executive in Daytona. Jon Diament, Turner’s executive vice president of ad sales and marketing, was the highest-ranking Turner Sports executive there.
The lack of senior-level conversations last week stood in stark contrast to a year ago when Fox jump-started its negotiation with NASCAR at Daytona, ending up with a deal in October. Fox renewed its deal for eight years, paying $2.4 billion, a jump from its previous eight-year, $1.76 billion deal.
ESPN Deportes is hiring former Miami Marlins manager Ozzie Guillen to be a guest analyst for its coverage of the World Baseball Classic.
The outspoken Guillen has served in guest analyst stints for baseball coverage on both Fox Sports and ESPN. This latest assignment does not carry any commitments toward future work with ESPN.
“We anticipate Ozzie will bring a real spark to the telecast,” said Lino Garcia, ESPN Deportes general manager. “We expect this to be a lot of fun.”
— Eric Fisher
The number sounded so ridiculously high — a full $100 million more than incumbent Fox was offering — that we hesitated publishing it, even though we had multiple confirmations.
That figure — an average of $124 million per year — sounds quaint now, especially considering that late last year, ESPN agreed to pay an average of $500 million per year just to renew it.
As has been the case with every big media rights deal over the past decade, the initial BCS announcement in 2008 prompted some to speculate that sports rights finally had hit a ceiling — that ESPN’s bid was so massive that either the government would get involved to protect consumers or the market would correct itself.
Today, the same situation is happening in Los Angeles, where Time Warner Cable’s recent Dodgers deal — $8 billion over 25 years — has brought out the same speculation. How can sports rights go any higher?
Network and league executives privately say that we are still nowhere close to a rights ceiling, and they believe rights fees will continue to climb for the foreseeable future. Taking a look at the TV market as a whole, it’s difficult to argue with them.
■ Entertainment TV is a disaster.
Even with rights fees now in the billions of dollars, sports is nowhere near as risky as entertainment programming. A quick look at the current TV season shows why.
With new shows such as CBS’s “The Job” getting the ax quickly, broadcasters see sports as a safer bet.
Even if a series finds a home on a TV network, it has an awful success rate. When CBS canceled “The Job” after two episodes last week, it brought the number of new series canceled this season to 10. That is not the kind of environment where people want to invest.
It’s certainly cheaper to fund a pilot and a series. But network executives have no idea what will be popular and lack the patience to stick with shows that don’t start strong.
Sports, on the other hand, is relatively stable, even after a year where the biggest leagues saw viewership drops. NFL viewership was down on CBS, ESPN, Fox and NBC this season. NBA viewership on ESPN, NBA TV and TNT is down so far this season. MLB games were down on ESPN, Fox and TBS in 2012.
But those ratings dips do not concern network executives. NBC’s “Sunday Night Football” may have been down this season, but without it, NBC’s prime-time performance has tanked. Network executives know — within a few ratings points — what kind of numbers sports will bring. TV executives would rather invest in established sports brands and stars than take a flier on a series like “The Job.”
■ More networks are bidding for the rights.
Much has been made of the new national sports networks — CBS Sports Network, Fox Sports 1 and NBC Sports Network — that are bidding up rights. But the most competition these days is at the local level. Fox Sports, Comcast, DirecTV and Time Warner Cable own multiple RSNs. Teams are continuing to look into setting up their own networks. The competition to pick up local rights is increasing, which means media deals at the local level will continue to escalate at a big clip.
■ Consumers are still paying.
Cable operators and satellite companies increase prices every year, and consumers keep coming back. While more options for Internet video exist than ever before, network chiefs and distribution executives insist that consumers so far have been unwilling to cut the cord. This is the area I’ve been watching the closest. If prices get so high that consumers decide to drop their subscriptions, changes will be made and costs will have to come down. But that’s not likely to happen any time soon.
John Ourand can be reached at email@example.com. Follow him on Twitter @Ourand_SBJ.