Losses Predicted on NFL Deals

As the smoke cleared from negotiations leading to the most expensive sports contract in history, critics suggested that networks will lose hundreds of millions of dollars a year on professional football broadcasts and that cable customers will have to pay higher rates to finance the staggering fees paid by ESPN.

NBC found itself without National Football League games after a 33-year run and called a news conference Wednesday to defend the loss, predicting that each of the winning networks will lose between $150 million and $200 million a year on their packages.

“In a tough economy like we had in 1991 or 1986, those losses would double,” said Dick Ebersol, president of NBC Sports, which lost the American Football Conference games to CBS and was outmaneuvered by ABC for “Monday Night Football.” “We drew a line in the sand and drew it very deeply for the AFC, which is at best third in line in the advertising food chain. $500 million is a reckless sum to pay for the weakest package.”

ABC, CBS and Fox are each paying between $500 million and $550 million a year for broadcast rights to NFL games under new contracts negotiated this week that are worth nearly $18 billion over eight years to the league. In addition, ESPN agreed to shell out $600 million a year for exclusive cable rights to Sunday night games, knocking out Time Warner Inc.’s TNT cable network, which has shared those rights for the last eight years.

While Fox will pay a 38% increase, packages bought by ABC, CBS and ESPN went for more than twice their current rate, bringing the annual total spending by the networks to $2.2 billion. Yet those games generated only $1.2 billion in advertising last year, with rates historically rising by about 5% a year.

One debt-rating agency warned that while diversified conglomerates such as General Electric, the owner of NBC, and Walt Disney Co., owner of ABC and ESPN, could absorb higher prices, less diverse and more heavily leveraged companies like CBS and News Corp., the owner of Fox, are vulnerable.

Ebersol said NBC was willing to pay $340 million a year, tops, to keep the AFC package, sustaining an annual $40-million loss: “We could handle that based on the promotional value of the AFC. We have 6,400 employees and we are not going to put their jobs in jeopardy like CBS did with baseball in 1988.”

Ebersol was referring to a $604-million write-down CBS took on its major league baseball contract that resulted in heavy layoffs.

He said he could understand why ABC agreed to pay more than twice as much as its current rate to keep “Monday Night Football,” which is ABC’s highest-rated program in prime time and the top-rated of the three packages, trailed by NFC games and the AFC games. Without it, he said, ABC would be in fourth place in prime-time ratings.

Rivals quickly portrayed Ebersol as a poor sport. They contended that the deals make economic sense because the value to the networks goes far beyond mere advertising income. “You have to take that with the appropriate grain of salt,” said Chase Carey, president of News Corp., whose Fox network will pay $550 million a year to renew broadcast rights for the NFC for eight more years.

Even though Fox took a write-down of $350 million on its last $1.6-billion NFL contract, Carey said the new package was more economical for the network because of additional advertising spots doled out by the league and an additional Super Bowl, bringing its total to two in the first five years. He said Fox was also in a better position because it has fortified its television station group over the last year, bringing its stations in NFC markets to 12 and in NFL markets to 17--more than any other network.

Advertisers pay high rates to reach the large audiences football delivers in the biggest cities.

Still, another Fox source said: “I hate to admit it, but NBC is the smartest one.”

But CBS said NBC paid just as hefty a premium for its recent Olympic Games and National Basketball Assn. contracts. “He [Ebersol] doesn’t practice what he preaches,” said a CBS executive. “If two weeks of programming from Sydney, Australia, is worth $700 million a year, then five months of the NFL should be worth $500 million.”

Ebersol said the exclusivity that NBC has for those rights is worth the premium. He said one danger of escalating rates for the NFL is that the networks are all competing for the same advertising. Indeed, an ESPN executive, acknowledging that it would get “hammered” with losses on the contract, said it could command higher ad rates and perhaps funnel money from Fox.

While “Monday Night Football” is the most valuable, Disney paid more for the exclusive cable rights. Analysts said the league jacks up those prices knowing that cable networks can pass their costs on to cable operators, which in turn are allowed under government regulations to pass them on to customers.

ESPN chief Steve Bornstein said fees charged cable operators will inch up only a few cents per subscriber, but cable companies are bracing for the worst because of ESPN’s history of rate hikes.

“The NFL has used its de facto monopoly over football to the great disservice of the American public,” said Leo Hindery, president of Tele-Communications Inc., the nation’s largest cable operator. “The 135%-a-year increase on the cable package is beyond the pale. I’ve got three choices and none of them is fair: I can eat it, I can pass it along to customers or I can drop ESPN.”

Recent cable rate inflation has set off a furor in Washington, where lawmakers are once again threatening to impose rate restraints.

* NBC RENEWS ‘ER’: The network spends $8.5 million for medical drama. A1

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Hike!

ABC, ESPN, CBS and Fox agree to pay record amounts for the rights to broadcast professional football games over the next eight years.

1998-2005: $2.2 billion a year

* Source: Associated Press