NBC Bets Big on Games : Execs Think Ad Market Will Rebound for ’96 Olympics

NBC raised eyebrows by agreeing to pay a record-setting $456 million for the rights to broadcast the 1996 Summer Olympics in Atlanta, after losing money on the 1992 games. But the network on Wednesday said it can still come out a winner if the lackluster advertising climate improves.

“It’s entirely conceivable there could be $600 million in gross advertising revenues,” said a confident NBC Sports President Dick Ebersol. “We’ll make a profit on it.”

If that indeed turns out to be the case, then it will be the first time since 1984 that a broadcast network has not miscalculated the value of the Olympics. Three out of the last four Games lost money, and the other broke even.

While NBC officials claim to be confident of beating the odds, advertising executives caution that the current economy does not support such optimism.

“Based on what there is now, I don’t see it,” said Paul Schulman, president of Paul Schulman Co., a New York-based media buying firm.

NBC’s $456-million rights fee is 14% higher than the previous record of $401 million that NBC paid to broadcast the 1992 Summer Olympics in Barcelona, Spain. In that deal, the network lost upward of $100 million, partly due to a disastrous pay-per-view venture dubbed The Triplecast that did not pan out as expected.

This time, Ebersol promised, there would be no pay-per-view element to NBC’s 1996 Summer Olympics. Indeed, he said that NBC’s projections do not even include a cable TV deal to lay off costs, though some still expect NBC to strike a deal with Atlanta-based Turner Broadcasting.

“We’re totally supported at $456 million without one dime of cable money,” he said.

NBC’s assumptions about profitability are based on several factors. Network officials expect 1996 to be a healthy year for TV advertising because it falls in the quadrennial election cycle, which tends to fuel ad expenditures. In addition, the Winter Olympics are no longer in the same year, which should free up some ad budgets.

But perhaps most important, the Olympics for the first time in 12 years will be held in a U.S. city, and most events will be live in prime time, which should boost viewing levels.

“That increases the overall importance to American viewers,” said Jim Waterbury, general manager of NBC affiliate KWWL-TV in Cedar Rapids, Iowa, and head of the NBC affiliate board. “There’s no question that nationalism plays a big part in Olympics watching.”

Based on current advertising trends, Ebersol said the network would make “low single digits, about $10 million, maybe more,” from its investment.

To justify such huge expenditures, networks typically point to intangible benefits, like using the Olympics as a platform to promote new fall programs or the network’s news anchors. Yet in the past, researchers have not been able to establish such a “halo” effect.

The Olympics are a complicated and expensive undertaking for the networks, and fielding hundreds of employees for nearly two-weeks of nonstop coverage is akin to mobilizing an army. Ebersol said that in addition to the $456-million rights fee, the network would have to spend another $100 million in production costs--not to mention the untold millions in lost revenue the network must use of its own air time to promote the event that it otherwise would sell.

NBC hopes to defray some of its expense by having its 211 affiliates help shoulder the costs, which was done in 1992.

But many observers believe the only way NBC will make a profit on the 1996 Olympics is for the network to make a deal with a cable TV company, similar to the deal CBS made with Turner Broadcasting for the 1992 Winter Olympics in Albertville, France.

“Having committed $456 million, in my opinion NBC is going to have to work something out on the basic cable side,” said Jim Spence, president of the consulting firm Sports Television International and a former senior ABC Sports executive.

Ebersol said he would begin discussions with cable TV networks after Labor Day.

The Olympic Picture

When it comes to the Olympics, the normal rules of common business sense rarely apply. Only one Olympic event out of the past five has made money for a broadcast network. NBC’s winning $456-million bid for the 1996 games--the most ever paid for a broadcast rights--comes at a time when sponsors are paying less for advertising time in the face of leveling ratings.

While rights fees have increased...

Broadcast rights for the Olympic games in million

1994 Winter Games: $300

...adverstising revenues have been mixed...

Gross advertising revenues in millions

1992 Summer Games: $500

...and prime-time ratings have peaked

Average percent of TV households tuned in

1992 Summer Games: 17.5%

...and profit has turned to loss

In millions

1992: 0

1992: $100+

Note: The United states boycotted the 1980 Summer Games in Moscow

Source: Nielsen, ABC, NBC, CBS