Disney Makes a Play for NHL

In the latest bidding war for valuable sports programming, the Walt Disney Co. has made a preemptive offer for NHL games in an attempt to knock archrival News Corp. out of the running.

Despite a staggering decline in hockey ratings, Disney has offered to pay the league about $600 million for five years of exclusive coverage of the games on ABC and ESPN cable. That is more than twice the amount ESPN and News Corp.’s Fox network now pay the league under contracts that expire at the end of the coming 1998-99 season.

Neither ESPN nor Fox would discuss the negotiations, but the NHL confirmed the talks. “Yes, there’s an offer on the table that is under consideration,” said Frank Brown, league vice president for media relations. “This is a potential opportunity for us to move into a period of expansion with an expanded viewer base and expanded revenues.”

At a time when television viewership is being splintered by a proliferation of choices, networks are bidding up sports rights because of their value as prestige programming able to deliver big audiences and in particular hard-to-reach men. In recent contract negotiations with the networks, both the NFL and the NBA extracted record prices for television rights.

The bidding war also underscores the ongoing battle between Disney and News Corp. for sports dominance in cable television, and the importance of ESPN in driving Disney’s financial performance. ESPN is the nation’s most profitable cable or broadcast network, but its strength is being threatened for the first time by an assemblage of two dozen regional sports networks under the Fox Sports Net banner.

Disney lost a humbling round in the battle last month, when it was forced to scuttle plans to move into Fox’s regional turf with the launch of ESPN West because cable operators in Southern California refused to add another sports channel to their lineup. Rising sports fees have contributed a great deal to climbing cable rates, and operators have been loath to pile on additional costs that would further irritate customers.

What is more, Fox Sports Net is viewed as one culprit behind ESPN’s falling ratings this year. Though hockey has not been a stellar performer on television, it is a cornerstone for ESPN2, which airs as many as three games a week during the regular season, from October to April.

“ESPN couldn’t afford to lose hours of professional programming, especially for ESPN2,” said Robert Gutkowski, chief of the Marquee Group, a New York-based sports marketing company. “And they couldn’t allow hockey to go to the Fox Sports Net.”

Fox said it has until Aug. 14 to match ESPN’s offer. One source said the NHL has agreed to sell cable rights to ESPN regardless of Fox’s counteroffer.

But sources are doubtful Fox will step up. Fox loses an estimated $1 million a game under its current five-year, $155-million contract with the NHL. And many Fox affiliates have not been happy with the investment because of low and falling ratings.

Fox got a 1.4 rating this season, down from a 2.0 in the lockout-shortened 1994-95 season. A rating point represents about 980,000 households. Regular-season ratings fell 17% on ESPN and were flat on ESPN2.

ESPN paid $100 million to broadcast seven years of NHL games. While sources say Disney isn’t particularly interested in broadcasting hockey games on ABC, they say it is using the broadcaster as leverage to protect ESPN and entice the league with a promise of cross-promotions that could build viewership.

The approach helped Disney win an eight-year, $9.2-billion contract for ESPN and ABC with the NFL in January, beating out Time Warner’s TNT network for the cable rights. Sources say Disney was able to increase its bid by packaging cable and broadcast, offering the league a one-two punch with Sunday night games on ESPN and “Monday Night Football” on ABC that could be cross-promoted and sold to advertisers as a package.

But cable operators say the bundling allows Disney to pass on more of the total cost to them in the form of increased licensing fees. ESPN has the right to increase its fees to cable operators by 20% a year.

They worry that Disney will do the same with hockey.

But the NHL views the increase in revenues as a way to build the sport. Ticket prices for hockey games have remained steeper than those for pro football and basketball in part because of hockey’s poor television contracts. Last season, it cost an average of $40.78 for a ticket to an NHL game, compared to $36.32 to see an NBA team or $38.09 for football.

While a $600-million television contract would provide each of the 27 clubs in the NHL roughly $4.5 million a year in revenues, that is still a fraction of the $15 million to $16 million that NBA teams draw down from their television contracts, according to Gutkowski.

While the increases could bring a needed boost to the sport, some team owners say the money will only offset their rising costs.

“Based on the escalation of salaries over the past three years, increased television revenue is critical for our survival,” said Tim Leiweke, president of the Kings.

For the Mighty Ducks, Disney’s NHL team, the deal likely would mean even more national exposure. The Angels, Disney’s baseball team, have appeared with greater frequency on ESPN since the company bought a controlling interest in the team.

But it is not certain what the Ducks would do with the additional income. They could spend the money on free agents or player salaries, or they could use the money toward operating costs and perhaps spare the fans another ticket-price increase.

The Ducks raised ticket prices again this year and pledged to add free agents as part of a $10-million payroll increase, but so far they have failed to sign any major free agents. The potential additional revenue would not by itself pay the salary of an NHL star.

With Disney directing money from one corporate pocket into another, the company could demand the increased television revenue be used to help pay off the Angels’ losses. While the Ducks are profitable, the Angels lost $27 million in the first two seasons of Disney management. When the Angels raised ticket prices last year, Anaheim Sports President Tony Tavares stressed some of the additional revenue would help defray those losses.

Helene Elliott, Jim Hodges and Bill Shaikin contributed to this story.