Sometimes it's hard to pin down NHL Commissioner Gary Bettman on any pointed question, and it's even harder to get him to make a prediction. But when it comes to the league's next television deal, he doesn't mince words. When asked if the league's next deal would match the value of the current five-year, $600 million deal with ABC and ESPN, he gives an unequivocal "yes."
Renewal talks are expected to begin this summer. When they do, the networks will have a 60-day exclusive negotiating window. If they can't work out a deal, then NHL rights will go out to market.
"My expectation is that we'll continue to maximize the exposure that we're getting nationally, and that we'll be paid fairly for it," Bettman said. "I am quite confident that we will have a continued presence on national television, not dissimilar to the way we have it now."
His assuredness notwithstanding, should Bettman and the NHL snare a new television deal that comes even close to the financial value of the current one, he will have pulled off what many experts say is a stunning upset.
"It's going to be a struggle," said sports television veteran Mike Trager. "They're going to have to be as creative as they can be to even come close to maintaining the level they're at now."
Since the deal was negotiated in 1998, regular-season cable ratings are down 31 percent (see chart) on ESPN and 38 percent on ESPN2. Broadcast ratings for the regular season have fallen 21 percent over the same span, to a 1.1. This year's 2.9 average for the Stanley Cup Finals on ABC was off 12 percent and would have taken a larger hit had the series not gone seven games, generating a record-high rating for the deciding game.
The current deal was negotiated at a time when ESPN2 was rapidly expanding its distribution base and the market for all sports programming was near its zenith. Since then, ESPN and other networks have vowed not to overspend on sports rights fees.
"He got such an extraordinary deal the last time that even if ratings had stayed the same it would have been hard to replicate," said Tracy Dolgin, the former president of Fox Sports Net and now a managing director at the investment banking firm Houlihan Lokey Howard & Zukin. He called Bettman a "genius" and a "master salesman" but said that this time around it will take more than just inspiring words to get ESPN to open up its checkbook.
"To get anything approaching the price he's gotten in the past, he's going to have to create competition, and that's going to be a very hard thing to do," Dolgin said. "Who is out there besides ESPN that on a national basis really wants those rights?"
The league has made overtures to Turner Sports' TNT and Viacom's TNN (to be renamed Spike TV), but senior executives at both networks have said they do not expect to pursue the NHL.
ESPN officials have clearly stated they want to keep the league, but the question is one of price and what exactly the NHL will deliver in a new rights package.
"It's been a very tough deal to try to make work economically," said Mark Quenzel, senior vice president of production and programming at ESPN. "That's one of the things we'll talk about when we sit down with them. We still want the NHL, but it has been a difficult economic road."
He said the league's labor situation, with a work stoppage possible as soon as a new deal would begin in the fall of 2004, would not have an impact on the negotiations, but the declining ratings most certainly will.
Trying to make money
When the five-year deal was announced back in 1998, Steve Bornstein, then president of both ESPN and ABC Sports, led off the press conference by declaring, "We're going to make money on the NHL."
He vowed that profitability would come from "rate increases and ratings increases."
The advertising market did indeed strengthen over the last five years, but the unforeseen decline in ratings put a strain on revenue.
According to Competitive Media Reporting, advertiser spending on national NHL telecasts peaked at $146 million during the 1999-2000 season and fell to $103 million a year later. CMR data is calculated off network rate cards and generally is considered to be high. ABC and ESPN dispute the figures.
ESPN and ESPN2 have pulled back from doing as many as 130 regular-season games a year between the two networks at the beginning of the contract to only about 71 this past season. That decision will surely come up in contract talks to justify a lower rights fee.
The highlights show "NHL 2Night" was scaled back from five days a week to airing only after ESPN2 games. The cross-marketing between ABC and ESPN waned over the last five years.
Quenzel indicated that to make the next deal work better financially, the ESPN networks will look for more exclusivity, adding to the eight games per team that ABC and ESPN can each televise exclusively each season. (ABC airs NHL games under a time-buy agreement with ESPN.)
Another thing ESPN may seek is an exclusive night, Quenzel said, similar to what ESPN has with Major League Baseball on Sunday nights, or TNT has with the NBA on Thursdays.
A new deal also could see ESPN gain rights to sell dasherboard advertising for games it televises, or bring some exclusivity to games on ESPN2, which are currently blacked out in teams' home markets.
Handing over such a package might seem like an easy solution, just as the NBA granted more rights to ESPN and TNT in its new television deal. But the economics of the NHL are quite different, as the majority of team revenue comes from regional television and in-arena spending. Many clubs would rather take a hit on the $4 million they each currently get from U.S. national television rights than cut into their far more lucrative local television deals and arena advertising.
That leaves Bettman and his lieutenants caught between two competing agendas — teams' desire to preserve their traditional revenue streams, and the league's desire to bolster national revenue and avoid the embarrassment of taking a smaller television deal.
Getting creative
Some predict that the next NHL television deal will have a face-saving revenue-sharing component. While the guaranteed dollars would be lower, there would be an upside that could actually take the value above that of the previous contract should advertising sales reach a certain threshold. Another possibility is a deal that includes a ratings guarantee, something that would shield a network from losses should audience size not grow.
The league has indicated that one way it may sweeten the pot is by possibly packaging a wide array of new media rights in with the television package. The NHL currently produces and markets its Web site in-house, but those functions could easily be transferred to ESPN. High-definition, broadband and video-on-demand are other rights that will likely be part of the next television contract.
"We've demonstrated that we're an asset to ESPN, and you need to view all of that in the context of where network and cable television is today," said Jon Litner, the NHL's executive vice president and chief operating officer. "If you look at where ESPN is investing their dollars, in HD facilities, dot.com, [video-on-demand], pay-per-view, that's where they see the future. We believe we're well positioned to provide valuable resources [in those areas]."
If the league has an ace in the hole, experts say, it's that the NHL provides a pillar of programming to ESPN2, which aired 50 regular-season games last season and another 29 in the playoffs.
During the last 10 years, the NHL has helped build the distribution of ESPN2 from nothing to 84 million. It commands a licensing fee of 40 to 45 cents per subscriber per month, or more than $400 million a year. The rate hikes have not been as aggressive as those for the main ESPN network, which commands a 20 percent annual increase. But cable operators were recently asked to accept a hike in ESPN2's licensing fee of close to 10 percent.
If ESPN2 were to lose the NHL, it would be difficult to justify any rate increase at all.
"We should not lose track of the fact that the NHL has contributed to the growth of ESPN2," said Neal Pilson, who has represented NASCAR, the Arena Football League and the International Olympic Committee in television rights negotiations. "Do you know what ESPN2 would be worth if ESPN tried to sell it?" he asked rhetorically. "I think they owe something to the NHL."
Try telling that to Mark Shapiro, ESPN's brash young head of programming who will likely be the point man on the contract talks, and who is known for seeking definitive wins at the next bargaining table.
Few experts think Bettman has the upper hand. They say unless he can convince a network that a plan is in place that will grow ratings over the long term, the NHL simply won't deliver the sort of revenue that would justify a $120 million-a-year rights fee.
"The owners are going to have to make an investment and dig into their pockets to create stars that kids can relate to," Dolgin said. "Gary is going to have to come up with some very creative solutions and do some very radical things."
