SFX Sports has agreed to pay $85 million to market the international TV rights to the U.S. Open Tennis Championships for four years, a 52 percent increase over the previous contract. The U.S. Tennis Association, which owns the Open, plans to announce the deal Wednesday morning.
The agreement includes domestic radio rights and virtual advertising, marking one of the first times a major sports TV package has allowed broadcasters to insert virtual corporate logos into a telecast.
SFX, which will launch the Open's first radio network, will also expand the entertainment at the National Tennis Center. This year, for example, there will be a concert on the second Friday of the Open.
SFX will begin the entertainment and radio assignments right away, while the TV duties will not begin until 2001, when the current contract with German company ISPR expires.
A leading concert promoter, SFX is being bought by Clear Channel Communications, one of the top radio-station owners in the country. Sports business consultant Neal Pilson sees the U.S. Open deal as an indication that Clear Channel may be more interested in incorporating SFX's sports assets than in spinning them off, as many observers had speculated.
It's also a coup for the tennis organization, Pilson said.
"It is a stunning deal for the USTA," he said. "It maximizes their overseas revenues and reflects the strength of tennis in the international marketplace. That is a huge number for international distribution."
Last year, the Open broadcast 29,082 hours in 161 countries.
Mike Trager, SFX's president of TV and entertainment, would not disclose the size of the rights fee but said it would compare favorably to other U.S. sports leagues' international deals.
SFX fended off several rivals to secure the deal. ISPR, Octagon, IMG, Eurosport and ISL all were interested in or bid on the new package, which the USTA negotiated during the French Open last month.
But the tennis governing body said it was impressed that SFX could deliver entertainment options as well as radio and TV.
"You have a company that has the infrastructure that is in every area we want to be involved in," said the USTA's chief executive of professional tennis, Arlen Kantarian, whom the association hired in March to expand the Open.
ISPR paid $56 million for the international TV rights for four years beginning in 1997. That excluded Australia and Japan. TBS will retain its rights to Japan, while Australia will be included in the new SFX deal.
SFX can sell virtual advertising, but it has no concrete plans yet. Most of the U.S. Open's 21 sponsors have global rights, so any virtual deal would have to accommodate these interests.
"At no time would we sell signage to a competitor of one of our sponsors," said Pierce O'Neil, the USTA's chief marketing officer.
Few domestic sporting events have used virtual ads. The only major ones include ESPN's Sunday night baseball telecasts and the Indy Racing Northern Light Series.
This year, the Open is expected to earn $91 million pre-tax on revenue of at least $133 million. Broadcast revenue of $57 million represents the biggest slice.
The USTA has never broken down broadcast revenue, but assuming that an average of $14 million came from the expiring ISPR package, the remaining $43 million would then derive from domestic contracts with CBS Sports and USA Network.
O'Neil said last year that CBS pays roughly $30 million a year, meaning the remaining $13 million would come from USA. CBS' deal expires in 2003 and USA's in 2002, both with an option to extend for another year.
Next year the international contribution will jump to, on average, $21 million. Because TBS' Japanese rights are likely worth several million dollars, that would mean on average another $7 million to $8 million should fall to the Open's bottom line.
The U.S. Open will run from Aug. 28 to Sept. 10.
