Turbulence in the Air

It could have been a funeral, men arriving in dark suits, rain falling glumly on the city. As the leaders of professional sports--league commissioners, television executives and team owners--gathered for an unusual conference at the Waldorf-Astoria hotel, a few said they might not have come if business were good.

Business is not so good.

Crowds have thinned at ballparks across the nation this spring and research suggests kids are losing interest in traditional sports. Television ratings have slipped to the point where a prominent Wall Street firm estimates the networks will lose billions on everything from football to stock car racing.

All of this comes as a jolt to an industry that considered itself recession-proof.

“I think in the next five years you’re going to see bankruptcies,” Tim Leiweke, president of Staples Center, told the roomful of executives. “You’re going to see a league or two that’s going to Armageddon.”

But the World Congress of Sports was no wake, not for a business so practiced at making money. Inside the Waldorf’s elegant ballrooms, appropriate for their sense of entitlement, the power brokers chose to look beyond gloomy forecasts and focus on strategy.

Discussions sometimes grew heated, opinions differing, but the talk kept returning to television--the engine that drives pro sports and the medium by which most fans watch games. The buzz at the conference was about a broadcast revolution sparked by those shaky ratings.Two recent deals signaled the shift.

The NBA signed a six-year, $4.6-billion contract that moves the heft of its schedule, including the All-Star game, to cable. Arena football agreed to forgo any rights money whatsoever in exchange for putting its league on NBC each Sunday.

“The red flag went up,” Fox Sports President Ed Goren said. “Who would have believed a year ago that the NBA would be a cable sport and Arena football would be a network sport?”

With the landscape in flux, the Internet and emerging technologies might be in position to grab a bigger piece of the action. As Washington Capital owner and AOL executive Ted Leonsis mused at the World Congress in March: “I’m not so sure there will be an ABC or an NBC or a CBS.... Everything is going to change.”

A New Kind of Deal

It all began with Pete Rozelle, who proved that a keen businessman is as important to sports as a star quarterback. The late NFL commissioner turned his league into a television juggernaut, its rights fees exploding from a reported $300,000 in 1960 to more than $2 billion next season. Basketball stoked the flames with help from Magic Johnson, Larry Bird and Michael Jordan.

The networks complained from time to time, especially during recessions and labor disputes, but the money seemed endless. Then came the February announcement that News Corp.--which owns Fox--was taking a $909-million writedown on its contracts with football, baseball and stock car racing. Weeks later, the investment bank Morgan Stanley predicted similar losses for ABC, CBS and, to an extent, NBC.

What changed? Industry observers point to something beyond a soft advertising market and reverberations from the Sept. 11 terrorist attacks.

Though more people watch sports than ever before, the audience is spread across what NFL Commissioner Paul Tagliabue called a “wilderness of channels.” Ratings have been diluted and networks cannot sell enough commercials to recoup their massive investments.

Some television executives dismiss such losses, arguing that big games draw attention to their networks and prime-time shows, a value not easily measured. But Goren acknowledged at the World Congress that “there is no question network sports have taken a hit.”

Thus the NBA deal.

At a crossroads where analysts wondered if rights fees might finally shrink, the industry came up with a new formula. The incumbent, NBC, was outdone by ABC and no fewer than three cable partners: ESPN, TNT and a network to be formed by the NBA and AOL Time Warner.

The economics make more sense. ABC takes only 15 games in the regular season, a few in the playoffs and the entire NBA Finals, giving it a better chance to turn a profit. The partners handle most of the load, as many as 300 telecasts, because they can generate revenue in two ways, by selling commercials and by charging fees to the cable operators that carry their shows.

At the same time, the league assumes an expanded role. No longer free to sit back and count money, the NBA will share the risks and rewards with AOL Time Warner when they launch their tentatively named All Sports Network next fall.

The same goes for Arena football. Starting with the 2003 season, its teams will benefit from greater exposure on NBC but won’t see cash from the deal unless the telecasts attract sufficient viewers and sponsors.

“The networks are tired of losing money and being put in a position to bid against each other,” AFL Commissioner David Baker said. “What this did, it made us true partners.”

The Good and Bad

What does it mean for fans?

More partners means more games for anyone with cable or satellite service. If such deals spread throughout major sports, there will be fewer instances such as a recent Sunday when neither the Dodgers nor the Angels could be found anywhere on theTV dial.

The reshuffled landscape might also lead to more variety. NBC’s deal with Arena football suggests the traditional networks might be open to newer--read: inexpensive--sports.

At the very least, heightened competition has sparked technical improvements.

Terry Ewert, an executive producer for CBS Sports, recalled that no matter how often he explained football to his wife, she never quite grasped the rules. Then his network superimposed the “1st & Ten” line on screen and she told him: “You know, I kind of get that.”

Television has since added rotating replays and effects that highlight everything from the trajectory of a curveball to the break of a green.

But bigger and better doesn’t come cheap. Over the course of two days at the Waldorf, where the SportsBusiness Journal assembled a series of panels, there was frank talk about who pays and how.

As cable networks spend more on rights fees, they will charge more to operators and that increase could end up on monthly cable bills. In other words, as several panelists noted, sports have inched into the realm of pay-per-view.

Other costs are less obvious. Logos of car manufacturers, insurance companies and breweries clutter every halftime show, scoring update and graphic. Virtual ads appear on screen while play is underway. Even some advertisers are upset.

“To put Ally McBeal’s face behind home plate at the World Series is the kiss of death for sports,” said Tony Ponturo, an Anheuser-Busch vice president. “Quality is still part of the equation. Do you want John Madden promoting prime-time shows rather than setting up the next play?”

Equally worrisome are deals that could further blur the line between sports and entertainment. As partners with leagues, might television have a say in the rules of the game? Relationships become even more entangled with mega-corporations such as the Tribune Co., which owns the Chicago Cubs and the cable network, WGN, that televises Cub games. It also owns The Times and the Chicago Tribune.

Does that mean WGN sportscasters might hesitate to criticize players who work for the same company? Might the same be true for affiliated sportswriters? Will News Corp.--which owns Fox, Fox Sports Net and the Dodgers--put its team on national television even if a better game is available that day?

“You have to put your blinders on and say, ‘I’m not going to treat the Dodgers any different than I do the Texas Rangers,’” Fox Sports Net President Tracy Dolgin said.

No matter how carefully executives proceed, there is the matter of perception. Goren noted: “The public will be looking for things and we’ll be vulnerable.”

Specific Tastes

When considering this tectonic shift, Geoff Reiss recalled the nascent days of cable when viewers asked why they should pay for more channels when they already received 2 through 13 for free. People wondered if they really needed sports or news around the clock.

“It turns out we’re not happy if we don’t have half-a-dozen sports channels,” Reiss said. “Cable taught us to have very specific tastes.”

As a senior vice president at ESPN.com, he believes the Internet and emerging technologies can likewise succeed with their ability to satisfy those tastes. These newcomers were invited to sit beside conventional media at the World Congress, where Leonsis predicted the dawning of an “on-demand world.”

In some cases, that world is already here.

Pay-per-view packages offer every game in the nation on a given day, with season-long subscriptions ranging from $49 for the WNBA to $179 for the NFL. Personal video recorders such as TiVo allow viewers to pause, summon a slow-motion replay, then resume where they left off. The Internet also is venturing beyond its norm of updated scores and statistics.

Some new features complement television, such as NASCAR.com’s “Racecast.” For $4.95 a month, subscribers can watch races on TV while using their computers to access instant data on any car and even listen to radio conversations between drivers and crew chiefs.

Other developments pit new against old.

Web sites feature video clips that allow a Philadelphia fan to summon 76er highlights without sitting through a wrap-up show. Too busy to watch the Angels for three hours? Pay $4.95 a month to MLB.com to see 20-minute “condensed games” that feature part of every at-bat.

Even more programming will become available as leagues digitize their archival footage.

“Let’s say you have a 12-year-old son and you want to tell him how great Magic Johnson was in the ‘80s,” said Jimmy Lynn, AOL’s director of account services. “You’ll be able to pull up a full selection of Magic Johnson highlights.”

Much depends on how quickly new technologies become commonplace in American homes.

High-speed connections might allow the Internet to stream video of everything from European soccer matches to Olympic ski jumping. With interactive set-top boxes, fans could choose their own camera angles and receive only those commercials suited to their preferences. Ads could be reduced to icons--if the viewer is interested, he or she points and clicks for information.

Reiss offers a word of caution about the future.

“It’s neat to think in Buck Rogers terms that, gee, we’ll have a gizmo that pours you a beer right out of your TV set,” he said. “But people have been talking about this stuff being two or three years away for a long time.”

Whatever innovations come along, the industry will no doubt try to profit from them. As Jerry Colangelo, chairman of the Arizona Diamondbacks and Phoenix Suns, said: “We can’t keep raising ticket prices.”

Game of the Week

With so much in the works, real and imagined, traditional networks want to be clear about one thing: They are not giving up on sports.

The proliferation of media has made big games even more valuable to them. Ratings are diluted across the board, including entertainment and news, and nothing else delivers the desired audience of 18- to 34-year-old men in such numbers.

So the NFL, the flagship league, remains highly attractive. The Super Bowl, with its gargantuan ad revenues, will not switch to pay-per-view anytime soon.

But if discussions at the World Congress were any indication, the days when a nation gathers around its sets for the game of the week on network television are dwindling. And the transition might not be entirely smooth.

Cable will assume more programming as emerging technologies champ at the bit to be part of the deal--one could almost see it in the way Reiss fidgeted on the dais while listening to more conventional viewpoints.

The networks will put up a fight. Fox, for instance, has approached baseball executives with concerns about losing viewers to MLB.com’s “condensed games.” Leagues, teams and players also want a say.

Billions of dollars are at stake.

“What the landscape will look like five years from now is hard to imagine,” Colangelo said. “There is a hesitancy in going forward, in conducting business as we always have.”

Perhaps that is why the World Congress was well attended, an unprecedented mix of top executives. A sports business consultant compared it to an intervention where the industry finally admitted it has a problem.

“It’s a complicated world,” Tagliabue said during his keynote address. A world, he predicted, “that’s going to change in extraordinary ways.”

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The Price of Complete Coverage

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Diluted Ratings, Larger Network Contracts

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