Sports, TV & Money: An Explosion Without End : When Money Talks, NBA Is Ready to Listen

It’s the game of sports television rights, and any billionaire can play.

Up for grabs at the moment are an estimated $2.7 billion in new network contracts with the National Football League, the National Basketball Assn., the National Collegiate Athletic Assn. basketball tournament, the College Football Assn. and Big Ten/Pac-10 football and the domestic rights to the 1994 Winter Olympic Games in Lillehammer, Norway.

The rules are simple. Learn what the sports leagues and organizations selling the rights are looking for from television, then come to the negotiating table with the checkbook.

“The bottom line is the bottom line is dollars,” said Arthur Watson, former president of NBC Sports. Watson, succeeded last month in the top spot at NBC Sports by Dick Ebersol, has become an NBC executive vice president, handling negotiations with sports rights holders. “You have to build relationships with the rights holders. But mostly, you have to be competitive with the amount of your check.”

Who wins or loses, however, depends on whether the company that successfully obtains the rights can make money on them. With an offering of $309 million in 1985, ABC beat NBC in a ruinous bidding war for the 1988 Winter Games in Calgary. Despite ratings that lifted the network from third place to No. 2 ahead of CBS in February, 1988, Capital Cities/ABC lost about $65 million on the deal.

“We’ve made ourselves marginally profitable,” said ABC Sports president Dennis Swanson. “We sat out on the last two bids for the Olympics because we’ve been unable to find terms that are acceptable to us. We want to be in business in the 1990s. I’m not going to want to have spent the last three years scratching my way out of debt only to give it all away again in 15 minutes at the negotiating table.”

This month and next, the rights games begin with the bidding process on the 1994 Lillehammer Games; the networks will also receive preliminary TV contract visits from NCAA executive director Dick Schultz; they will explore the International Football League proposed for the spring of 1990; and they will enter discussions with NBA Commissioner David Stern toward a contract that network and sports officials believe could be one of the most intriguing negotiations of all. By early 1990, network sports budgets for the next three years will be virtually spent out.

“Commissioner Stern’s timing is going to be most fortuitous,” said Robert Wussler, senior executive vice president at Turner Broadcasting System, which is in the first year of a two-year, $50-million contract for national cable rights to the NBA. “He’s got a proven, excellent product, a wide number of bidders and many different options.”

Stern, who negotiated contracts worth $248 million with CBS and TBS over the last four years, could double that amount over the next contract term, according to television, cable and advertising executives. The current CBS deal is for $173 million over four years through the 1990 playoffs, with $75 million coming in from TBS during the same time.

The NBA enters television contract talks this summer with more leverage than ever before, partly because CBS has exclusive rights to baseball after this year (it won the four-year contract for a cost of $1.06 billion). As a result, NBC and ABC are in need of springtime sports shows.

“Of all the properties coming up for negotiation during the next year, the NBA has become the jewel,” said an advertising agency media executive who buys more than $40 million in commercial time during sports telecasts.

“Stern’s genius and CBS getting baseball are the reasons for that,” the executive said.

The NBA’s relationships with incumbents CBS and TBS are said to be very strong, and both networks have a right-of-first-refusal clause written into their contracts that gives them a measure of preemptive protection against competing networks. After bids are in, CBS and TBS can match or top the high figure from competitors. The NBA can go once more to the highest bidding competitor for a final bid that could top the CBS and TBS offers and win away the rights.

“The negotiations themselves will be a fairly simple process,” said Stern. “We’ll come up with a figure we think NBA rights are worth, and if CBS and TBS agree with that figure, the process will be over.”

In October, Stern and NBA executive vice president Russell Granik will step up the pace of negotiations with CBS and TBS during an exclusive negotiating time period. Once that period elapses, if no deal is struck, the NBA is free to test the competitive waters. “We’ve had a very, very good relationship with CBS and TBS,” said Stern. “All things being equal, we would be very happy if they both stepped up and met what we ask (from) them.”

Still, Stern, regarded as the most astute sports television negotiator in the business, is not likely to cut a deal without letting supply and demand economics play a part in his strategy. NBC and ABC, needing programming to bolster sports schedules weakened by the loss of baseball, have made no secret of their intentions to vie aggressively for the NBA prize.

The game once was simpler, and many sports television executives rue the complexity of today’s high-stakes bargaining. “I was 41 when I took this job,” said Pilson. “Now it’s eight years later and I’m 60.”

He recalls the spring of 1979, when CBS officials went to Dallas to negotiate with Field Stovell, the crusty granddaddy of the Cotton Bowl, to renew its contract to carry the event. Frank Smith, then CBS Sports president, was accompanied by Pilson, who was CBS Sports’ head of business affairs at the time, and then-director of program acquisitions Kevin O’Malley--currently TBS vice president for sports programming. Smith read aloud a three-page, legal-ese document, ending with CBS’s offer for each of the following three years.

Turning to his lawyer, Stovell said, “That dog won’t hunt.” Smith turned to O’Malley and asked, “What’s he saying?” “That dog won’t hunt,” said O’Malley.

“I know that,” said Smith, “but what’s he saying?” Eventually, Smith got the message. CBS upped the ante and renewed its Cotton Bowl deal.

Today, competing networks and sports leagues have access to volumes of intelligence on ratings research, production expenses, commercial costs and the types of audiences reached by those commercials buying exclusive position by major categories.

“In the early sessions of a negotiation, each party draws up a wish list,” said Pilson. Then network sports programmers plot out a schedule, setting a number of games, selecting teams and slotting in dates and air times. Research and sales departments analyze ratings and develop assumptions on commercial unit costs and look at commercial pods--the number of commercials during each break.

“We come up with a number that reflects what we think the rights are worth and a margin of profit,” said Pilson, referring to CBS’s monumental billion-dollar-plus bid for Major League Baseball.

Finally, networks determine what intangible values a particular property might have to affiliates, advertisers and television audiences and develop a fall-back plan. That might include abandoning the bidding process, or it might mean increasing the bid offer to the point where it becomes a loss leader.

“There is invariably a gap between our number and theirs,” said Pilson. He noted that the gap between what the NBA wants and what CBS and TBS will offer will most likely reflect the competition among networks for the rights, not only in the broadcast arena but also in cable, since both ESPN and SportsChannel America will try to acquire cable rights.

“We’ve never tried to make the NBA out as something that it’s not,” said Stern. “It’s not the Super Bowl and it’s not the World Series. But the NBA Championships rank as the third most important sports event on the calendar, and they’re gaining momentum.”

To participate in the negotiation game is just what Watson and ABC’s Swanson want. NBC and ABC emerged from last year’s rights game minus Major League Baseball rights after 1989, when CBS takes over for four years. ABC and NBC are scrambling not only to fill the void left by baseball, but perhaps even more importantly, to derail CBS in its efforts to corner the big ticket sports marketplace.

“There’s no question that the NBA could fill a good part of the baseball vacancy and college football could fill in six weeks in the fall,” said NBC’s Watson.

In 1990, CBS will carry Super Bowl XXIV, the NCAA Final Four, the NBA playoffs and championships and baseball’s playoffs and World Series. If it can retain its college hoops and football, pro football and NBA franchises beyond 1990, CBS Sports could pull the whole network up from its second consecutive year in the cellar of the Big Three standings.

CBS’s dominant sports posture came at great expense. Last year, it spent $243 million for the 1992 Winter Olympic Games in Albertville and $1.06 billion for a four-year hold on the crown jewels of baseball, prime-time events that should give the entertainment division an early season ratings lead.

Describing CBS’ shift from an aggressive acquisition stance to a defensive formation to retain the network’s prized sports properties, Jay Rosenstein, CBS Sports’ vice president of programming, No. 2 to president Neal Pilson said: “We spent 1988 with Jerry Rice on the field. Now it’s Mike Singletary’s turn.”

Recently, Pilson, Rosenstein and Len DeLuca, director of program acquisitions, all attended the CFA annual meeting in Dallas, working the room full of conference commissioners, athletic directors and coaches from the schools that make up the 63-member CFA. One representative from NBC was present. “Three for us, including Pilson, and one for them,” Rosenstein said. “That’s what I mean by Mike Singletary taking the field.”

With CBS in so intimidating a defensive posture, the notion of keeping rights fees under control has been shattered. Fact is, as recently as last spring the Big Three networks thought they had nipped soaring rights fees in the bud. A goal line stand against the NFL in March, 1987, had worked. The networks struck a three-year, $1.27-billion deal that, while cutting cable into the picture for the first time, held their own costs to less than they were paying for the last year of the previous five-year contract.

“Rights fees certainly have stabilized,” Pilson said a little more than a year ago.

By year-end, those words became the doublespeak of negotiation. “Every time I think that the marketplace has to have peaked out, it comes back and reaches more staggering heights,” said Barry Frank, senior corporate vice president at International Management Group’s Trans World International. Frank said a Lillehammer rights contract with the networks could be negotiated as early as July. CBS and NBC are expected to bid on the games, but network executives say they will not be lulled by ABC’s apparent disinterest.

Rights fees resumed their early ‘80s spiral in May, 1988, with the $243-million bid by CBS for the Albertville Olympics, $43 million more than the Albertville Organizing Committee would have accepted. The spiral continued with the $51 million offered last June by SportsChannel America for national rights to the National Hockey League, a bid that was some $15 million more than ESPN had offered.

NBC, which had sharply criticized CBS’s Albertville bid, in December paid $401 million for the Barcelona Games, $101 million more than it had paid for the Seoul Games of 1988. Then came the estimated $500 million paid by Madison Square Garden Network for local rights to the New York Yankees and the monumental CBS bid for baseball. And in January, 1989, ESPN anted up $400 million for four years of baseball’s national cable rights.

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Why the staggering escalation?

“Entertainment programming in prime time is a crap shoot” for advertisers, said TWI’s Frank. “With the major sports events, networks and their advertisers are finding that the audiences are there, and so the advertisers are willing to step up and support the marketplace.”

But while big ticket sports events score well with audiences in prime time, not all the networks are equally anxious to disrupt their prime-time entertainment for sports.

Said David Poltrack, CBS senior vice president-marketing and research: “If you are the No. 1 network, you’re reluctant to preempt your prime-time entertainment. I wouldn’t be surprised if NBC felt they couldn’t afford to do that to their schedule.”

NBC’s Watson is quick to point out that the NBA and NCAA tournament formats calling for prime-time exposures would not deter either NBC or ABC, although those two networks would try to schedule sports events around their more successful nights of entertainment. “The fact that you are the No. 1 network in no way precludes your ability or flexibility to bid on a package that includes prime time,” Watson said.

NBA Commissioner Stern’s brilliance in knowing how to get milk out of the cow without killing it should shine as ABC and NBC try to make up for the loss of baseball in late spring and summer. The NCAA Final Four will benefit from the competition and college football could also benefit, but only if schools find a way to increase their sport’s value.

“I don’t know of a time when there hasn’t been intense competition for sports rights,” said CBS Sports’ Pilson. “But it’s particularly intense now. ABC and NBC are in desperate need of programming.”