CBS Takes Huge Writeoff on Sports : Earnings: High-priced contracts for baseball and football coverage are blamed for a loss of $169.1 million.


Incurring severe financial whiplash, CBS Inc. reported Friday that it lost $169.1 million in the third quarter due largely to a huge writedown on its Major League Baseball and National Football League contracts.

The news is the most pointed evidence yet of how much CBS overpaid for broadcast rights to major sports events, and possibly signals further trouble ahead when the network telecasts the 1992 Winter Olympics in February, analysts said.

The network’s third-quarter earnings had been delayed one month while CBS reviewed the value of its sports contracts. But Friday’s disclosure of additional writedowns exceeded many analysts’ estimates.


“I’m stunned how big it is,” said Richard J. MacDonald of Wasserstein & Perella in New York. “They must have written off close to 40% of the contract.” CBS paid $1.06 billion for a four-year baseball contract covering 1990 to 1993.

CBS said the third-quarter loss was caused largely by a pretax provision of $322 million for future losses relating to baseball and football. Although this was the first writedown relating to football, analysts said the lion’s share was attributable to baseball losses.

Last year, CBS took a $282-million pretax writeoff in the fourth quarter due to the baseball contract, resulting in an after-tax loss of $55 million. The network also took an after-tax provision of $115 million to cover future baseball-related losses.

Wall Street reacted unfavorably. The depth of the losses knocked down CBS’ stock price by $2.375 per share. It closed at $155.75. Standard & Poor’s also said it was considering downgrading about $825 million in CBS debt, now rated single A.

The writedowns--an accounting measure to show an asset’s decline in value--reflect the deteriorating economics behind television sports. CBS over the last three years has committed to spend $3.5 billion through 1997 for broadcast rights to major sports events.

But the CBS strategy, a bold grab for viewers at a time when the network was in dire need of a promotional tool, has turned into one of the biggest miscalculations in the history of broadcasting.

Shortly after CBS put together its string of costly sports deals, the bottom fell out of the sports advertising market, driving down advertising volume and rates. The network also had to compete for advertising and viewers against a proliferation of sports programs on cable.

A CBS spokesman said the network did not expect future writeoffs relating to the sports deals. But Jessica Reif, an analyst with Oppenheimer & Co. in New York, said CBS was “still susceptible” to future sports writeoffs, especially if the upcoming Olympics or football perform far below expectations.

Record ratings for baseball’s World Series in October are likely to help fourth-quarter results but not enough to eliminate expected losses.

Revenue for CBS in the third quarter totaled $625.6 million, down 5% from the period a year ago. Revenue at the CBS TV Network division slipped 6%, although results benefited from lower overhead and programming costs. The CBS TV Stations and CBS Radio divisions both reported lower revenue and earnings as well.

CBS Chairman Laurence A. Tisch said advertising demand in the fourth quarter has “shown signs of a modest pickup” in the daytime and prime-time viewing hours. But, he added, “the slow and sluggish pace of this recovery is not encouraging.”


Beginning in 1988, CBS committed itself to spending $3.5 billion on rights to televise major sports events as a hedge against its faltering prime-time performance. Since then, it has begun to turn around its prime-time and daytime schedules but has taken a bath on some of the sports deals. Here is what CBS paid for sports and how they have performed for the network.

Major League Baseball. In December, 1988, CBS agreed to pay $1.06 billion to televise baseball in the 1990-1993 seasons. In the fourth quarter of 1990, the network reported an after-tax loss of $55 million relating to baseball and made an additional $115 million after-tax provision for future losses. Analysts estimate that the lion’s share of Friday’s $322-million pretax writedown is attributable to baseball.

National Football League. In March, 1990, CBS agreed to pay $1.06 billion for a new four-year football contract, a 76% increase over its previous deal. Analysts estimate that CBS has so far had to write down about $100 million of its investment.

NCAA basketball. In November, 1989, CBS agreed to pay $1 billion for a seven-year contract to broadcast college basketball from 1991 to 1997. One of the few bright spots in sports programming, the NCAA broadcasts have enjoyed strong audience and advertiser interest.

1992 Winter Olympics. In July, 1988, CBS agreed to pay $243 million for broadcast rights to the games in Albertsville, France. In recent years, networks have lost money or barely broken even on Olympics coverage.

1994 Winter Olympics. CBS also has agreed to pony up $300 million for broadcast rights to the 1994 Winter Olympics in Lillehammer, Norway. The network sold off cable rights to both the 1992 and 1994 Olympics for $50 million to Turner Broadcasting System, thereby lowering its net cost per event by $25 million.

CBS earnings (loss) by quarter

In millions of dollars 1989:

1st: 56.1

2nd: 118.8

3rd: 61.8

4th: 59.5


1st: 85.3

2nd: 138

3rd: 43.5

4th: -156 1991:

1st: 23.3

2nd: 50.7

3rd: -169.1