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Volume 21 No. 1
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Comcast/NBC may have overbid, but it had its reasons

John Ourand
The prevailing opinion at the Cable Show last week was that Comcast/NBC vastly overpaid for the Olympics. Any time a company bids nearly $1 billion more than the next highest bidder, it leaves itself open to that accusation.

I think Comcast/NBC overbid. It seems clear it could have secured the Games for a much lower price. Comcast and NBC executives had to be kicking themselves once they learned how much lower Fox’s bid really was.

But the deal doesn’t seem as out of whack as many suggest, especially considering the market for sports rights, where such properties as the Pac-10 and NHL have secured huge rights fee increases.

Comcast’s payout for the 2014 and 2016 Games essentially is flat, which is notable after the Pac-10 signed a deal that was nearly five times higher than its current deal and the NHL signed a deal that more than doubled its current deal.

NBC paid $2 billion for the 2010 and 2012 Games; Comcast will pay $2.001 billion for the 2014 and 2016 Games. That’s an increase of just .05 percent.

Comcast committed $2.380 billion for the 2018 and 2020 Games, which is an increase of 19 percent from 2010 and 2012. That means that Comcast/NBC has secured an important sports property through the end of the decade at a manageable increase.

“It’s a flat number when a lot of properties are seeing increases,” said David Bank, managing director of global media and Internet research for RBC Capital Markets. “In the context of sports cost inflation, that seems attractive.”

But this is where so many media executives have a problem with Comcast’s bid. Comcast agreed to a flat rights fee on a deal that lost $223 million on the 2010 Vancouver Games alone. Sources say it is expected to lose money on the 2012 London Games, too.

Taking into account those losses, the value of the deal drops to $1.6 billion or so. Fox said it would have made a small profit on the 2014 and 2016 Olympics if its $1.5 billion bid had been accepted; ESPN projected a slight loss at $1.4 billion.

But the reported losses don’t show how the Olympics have helped, and will help, other parts of Comcast’s business.
Look at Comcast’s sports channels. Versus is in 76 million homes at 30 cents a subscriber a month; and Golf Channel is in 84 million homes at 30 cents, meaning that they both have room to grow.

“You have to figure out a way to drive affiliate fees up, and sports is your best shot,” Bank said. “The value of sports content is ridiculously important to TV networks.”

The Olympics should help Versus, in particular. It will add high-value sports programming to a channel that’s been trying to add more sports content to supplement its NHL deal first signed in 2005. With only the NHL, Versus hasn’t been taken all that seriously as a sports network. Guaranteeing that it will feature Olympic programming through 2020 gives it a legitimacy that IndyCar and mixed martial arts bouts couldn’t provide.

If properties didn’t realize it before, the Olympic deal puts Versus front and center when the next round of big media rights fees come due. Rich Greenfield, a financial analyst at BTIG, said Comcast/NBC will look to add more high-profile content to Versus in the next few years. “My top takeaway is that Versus now is certain to bid on the NFL,” Greenfield said.

The Olympics also have helped ad sales across all of NBC’s sports properties. During an Olympic year, NBC treats the Olympics like a Super Bowl, wrapping NFL and NHL ad sales into a larger buy across all of its properties. And ad rates for a nonsports property, like the “Today” show, also skyrocket during the Olympics.

Chatter in media circles is that NBC needed to keep the Olympics. It operates three 24-hour sports channels in Versus, Golf Channel and Universal Sports. It lost the chance to add Pac-10 programming to those channels last month, when Fox and ESPN outbid it.

Industry executives say NBC had to keep the Olympics to send a message to other sports properties that it wants to be a serious player in sports programming. Having big-time sports like the Olympics and NHL on Versus makes it easier for other properties to entertain the idea of being on the channel.

“Comcast had an extra need to keep the property,” said Kevin O’Malley, an independent media consultant. “Did they bid too much? When they need to keep something, that will affect their bid.”

Wall Street also showed a sign that Comcast’s bid was not as fiscally risky as some suggest. In the week since it won the Olympics, Comcast’s stock has mirrored the Dow, staying flat.

BTIG’s Greenfield said it will be impossible to judge the deal for several years, saying TV viewing habits could continue to change, migrating more to mobile and broadband service. The business of television almost certainly will change by 2020, in the same way it’s changed since 2002.

“Did Comcast overpay? You’re asking about Olympic Games in 2014 and 2016,” Greenfield said. “I have no clue. Nobody does.”

John Ourand can be reached at Follow him on Twitter @Ourand_SBJ.