News Corp. Writes Off $909 Million for TV Sports

Stung by the high cost of sports broadcasts during one of the worst advertising slumps in history, News Corp. on Tuesday took a $909-million operating charge in the second quarter because of its three expensive U.S. national sports television contracts.

News Corp.’s Fox Entertainment Group wrote off $387 million of its eight-year, $4.5-billion contract with the National Football League, $297 million of its eight-year, $1.9-billion NASCAR auto racing deal and $225 million of its six-year, $2.4-billion contract with Major League Baseball.

As a result, News Corp.’s net loss in the second quarter ended Dec. 31 widened to $606 million, or 50 cents a share, from a $23-million loss, or 3 cents, a year earlier. The company’s sales in the latest quarter rose 7% to $4.12 billion.

“I think you have to say that the prices being paid [for sports] have gone beyond an economic level, not just here but around the world,” said News Corp. Chairman Rupert Murdoch in a conference call with analysts.

More than any other media mogul, Murdoch has built his empire on the back of sports programming, buying up games for his pay television services around the world.

Fox’s is the largest quarterly write-down ever taken by a network on sports and underscores the increasingly difficult economics of such programming for broadcasters. In 1995, Fox took a $350- million write-down in the second year of its four-year, $1.6-billion contract with the NFL, and its rival, CBS, wrote down $196 million on its NFL contract in 1991.

Yet fees paid for professional sports have continued to escalate, as ratings and advertising rates have declined amid a glut of games on television.

Over the last two seasons, General Electric Co.’s NBC lost an estimated $300 million on National Basketball Assn. games. And last month, the network lost the bidding to renew the NBA deal to Walt Disney Co.’s ABC and ESPN networks. Analysts said Tuesday that they were surprised that neither of the other two networks with NFL rights--ABC and Viacom Inc.’s CBS--plan to write down the value of their football contracts.

News Corp. said the downturn in U.S. advertising has prevented the company from meeting sales forecasts for sports broadcasts.

News Corp. cut its fiscal 2002 profit forecast because of lowered expectations for ad sales. Chief Financial Officer David Devoe said the company’s operating profit, excluding interest and taxes, probably will rise by a percentage in the single digits.

Excluding the sports charge, News Corp. said it would have earned $203 million, or 17 cents a share, down 25% from $270 million, or 26 cents, a year earlier. That was in line with analysts surveyed by Thomson Financial/First Call.

The company said that despite the slump in advertising, revenue gains were driven by its filmed entertainment and cable networks such as the Fox News Channel. However, these improvements were more than offset by sharp declines at the television stations, broadcast network and newspapers.

Operating income in the television division declined to $113 million, down from $211 million a year earlier, because of ratings decline at the Fox networks, sports programming costs as well as the advertising slowdown.

News Corp. also said it would no longer buy consulting services from its auditor, Andersen. The announcement follows similar disclosures last month by Disney, whose auditor is PricewaterhouseCoopers.

In the wake of the Enron Corp. scandal, many companies are seeking to avoid a potential conflict of interest by their accounting firms.

The American depositary receipts of Sydney, Australia-based News Corp. fell 53 cents to $27.35 before the earnings were released.

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Times wire services were used in compiling this report.