Networks Compete for Olympic Rights

The engine that drives the Olympics is television money, and this weekend the International Olympic Committee goes back to its favorite fuel: U.S. network dollars.

Senior executives from ABC, NBC and Fox today are expected to place about $2 billion on the line for a shot at winning the U.S. broadcast rights to the 2010 Winter Games and 2012 Summer Olympics.

Each network will submit a sealed bid at IOC headquarters in Lausanne, Switzerland. If the money is right, the IOC could announce a winner Saturday.

The prize for the networks can be pure gold: 17 consecutive days in winter and summer of off-the-charts ratings and ad revenue. Worldwide, about 3.7 billion people -- about two of every three on the planet -- watched the 2000 Summer Olympics in Sydney, Australia, according to IOC surveys.

But the bidding this year is complicated not only by uncertainties about global politics in the years ahead but also by the fact that Olympic officials have yet to select a site for the 2010 and 2012 Games, which are being sold as a package deal.

In fact, Viacom Inc.’s CBS said this week that it had dropped out of the race because of “all the uncertainties.”

Particularly troublesome for the networks is that no one knows whether the 2010 Winter Games or the 2012 Summer Games will be in a time zone that translates well for U.S. prime-time viewers. New York is considered among the top contenders for the 2012 Games. And that would be just fine with the networks; the 2000 Sydney Games -- 15 hours ahead of New York, 18 ahead of Los Angeles -- were a ratings dud for NBC.

The 2008 Games will be in Beijing, 15 hours ahead of L.A. The 2006 Games in Turin, Italy, will be nine ahead and Athens, next year, is 10.

NBC, the IOC’s largest financial underwriter, is paying $3.5 billion for the right to televise five editions of the Games -- summer and winter -- in the United States from 2000 through 2008.

In 1995, as part of the deal, NBC committed $1.5 billion for the rights to the 2006 Winter Games and 2008 Summer Olympics.

There are some in Lausanne, and some U.S. TV executives as well, who believe that the IOC ought to get $2 billion -- a 33% increase -- for 2010 and 2012. The math works out to $58.8 million a day.

The networks are gambling that, even with such an increase, the Games still will turn a profit, as they have in the past. The 2002 Winter Games in Salt Lake City were a ratings gold mine for NBC, which netted $75 million.

Besides political and logistical issues, the action in Lausanne is muddled by other dynamics. They include:

* IOC President Jacques Rogge wants competitive bidding. NBC’s deal for the 2000 through 2008 Games was negotiated in secret.

* NBC has a long Olympic history. The network has televised every Summer Games since 1988. Since its first Olympics, the 1964 Summer Games in Tokyo, NBC has paid -- or is committed to pay -- the IOC $4.83 billion.

NBC Sports Chairman Dick Ebersol has long enjoyed good relations with Rogge and his predecessor, Juan Antonio Samaranch, and the IOC often is a relationship-driven enterprise.

* The IOC wants to get a deal done now -- or at least before July 2, when the full IOC membership will select the site of the 2010 Winter Games. Knowing the bottom line of the U.S. TV deal enables the IOC to tell a local organizing committee, which stages the Games, what its revenue will be. From the IOC’s standpoint, that avoids a hassle with the local committee.

Further, the U.S. TV deal traditionally sets the table for the IOC’s deals in Europe, Asia and Australia.

* The networks want to get a deal done now too. Despite the sluggish economy, the advertising market for the U.S. networks has proved remarkably robust the last two years, triggering the belief that the time to do a deal might never be better -- even though 2010 and 2012 are a long way off. Advertisers last month spent a record $9.3 billion on commercials for the prime-time season beginning this fall.

Just as no one knows where the Games will be in 2010 and 2012, no one knows what new technologies will mean to television viewers seven and nine years down the road.

In considering the bids, the IOC wants to see how platforms such as cable, video-on-demand and pay-per-view, as well as innovations such as high-definition TV and wireless data transmission, might figure into the picture.

“It is not just a question of opening envelopes and saying the highest number,” IOC Director General Francois Carrard said last month during a meeting of the IOC’s policymaking executive board.

“The IOC will take into account many elements.”

The goal is to get more of the Games onto TV -- only a fraction of the 3,000 or so hours of action is televised -- and to promote Olympic sports between editions of the Games.

“We’re hoping the companies will take advantage of these technologies to provide the public with an unparalleled scope of coverage,” said Neal Pilson, the IOC’s TV consultant and a former president of CBS Sports.

Adding to the complexity of the bidding is the role of the U.S. Olympic Committee. Because these are U.S. broadcasters, the USOC has a seat at the table in Lausanne.

The USOC gets a 12.75% cut of any deal -- probably more than $200 million for 2010 and 2012. The USOC, according to its consultant, IMG agent Barry Frank, “would like to receive consideration from the [winning] network to promote the USOC, its athletes and national governing bodies,” meaning the federations that run the individual Olympic sports.

Another negotiating complexity that has evolved over the years is the conglomeration of media companies.

Originally, executives of a network’s sports department hammered out the Olympic TV deal. Then it was the network’s top brass. Now it’s the parent company.

So it’s not really just NBC that is involved in the pursuit of the Games, it’s General Electric Co. -- which means NBC, CNBC, MSNBC, Bravo and Spanish-language Telemundo.

And it’s not really just ABC. It’s Walt Disney Co. -- which means ABC, various ESPNs and the Disney Channel.

Nor is it just Fox. It’s News Corp. -- meaning Fox, Fox Sports Net, FX and, perhaps, DirecTV, the nation’s leading satellite TV provider. News Corp. is awaiting regulatory approval to buy 34% of El Segundo-based Hughes Electronics Corp., owner of DirecTV. Fox has used megabuck deals with the NFL, Major League Baseball and NASCAR to help legitimize its standing as the fourth major network.

Like NBC, ABC has a long Olympic history, dating to the 1970s when the late Roone Arledge -- mentor to NBC’s Ebersol -- ran the show, and the three broadcast networks, not four, were undisputed kings of the air.

Today, no matter which network lands the deal, the new realities of television economics make it impossible for a single network to carry the load.

“If the IOC is able to get $2 billion for two Games, there is only one way somebody is going to be able to justify that, and that is cable,” said Rick Burton, head of the Warsaw Sports Marketing Center at the University of Oregon.

Cable has become the chief enabler for networks to pursue big deals because it has two streams of revenue -- advertising and subscription fees.

“If Disney says, ‘OK, we agree to pay $2 billion for 2010 and 2012,’ and the money is due on those dates,” Burton said, “it will adjust the subscription fees to the cable operators accordingly.”

Disney’s ESPN has initiated several rate hikes in recent years. Sen. John McCain (R-Ariz.), chairman of the influential Senate Commerce Committee, which oversees the cable industry as well as the USOC, has been sharply critical of rising cable fees. What that means for the ability of ESPN, or other cable outlets, to hike cable fees is unclear.

Meantime, NBC and Ebersol, mindful of the IOC’s shifting priorities, have announced plans to air around-the-clock coverage -- 806 1/2 hours -- from Athens next year. The centerpiece remains the prime-time show on NBC, to be supplemented by the four cable partners.

“We are committed to showcasing the athletes of the U.S. and the world in a way that has never been seen before,” Ebersol said in February, when negotiations for the 2010 and 2012 deal were rounding into shape.

The timing and Ebersol’s statement were carefully designed for those paying close attention.

If the three bids are close, some observers suggest, NBC will get the nod because of its long-standing partnership with the Olympics.

But, as Burton said, “If Fox or Disney want to get stupid with money, they’ll throw loyalty out.”