The Biz: Could MLB strike strand Fox, others?

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If a baseball strike in mid-September leads to the cancellation of the World Series, it might not crush Fox in the short-term. But the long-term impact could result in financial problems deeper than the ones the network is already experiencing with sports broadcasts.

News Corp., which owns Fox and a group of local stations, could lose $260 million to $360 million in potential ad revenues if the Series and playoffs are called off, according to UBS Warburg and others. But News Corp. wouldn't have to pay Major League Baseball the bulk of the $257 million it would owe in rights fees for the post-season, negating the lion's share, though not all, of the lost potential ad dollars.

Longer term, a strike might hurt Fox. Fan apathy and even downright anger, which arose in the wake of the 1994 strike that canceled the post-season, could boil over at an even greater level this time and have a deleterious effect on ratings and advertiser interest once baseball settles a work stoppage. Fox's $2.5 billion, six-year deal with MLB runs through 2006 and the value of that contract would likely plummet with ensuing disinterest. Even talk of a strike in the media augurs what could lie ahead: The All-Star game on Fox earlier this month posted its lowest national rating ever.

ambiguous clause

Fox does have a clause in the deal that allows it to renegotiate if the contract loses value. But the clause is believed to be ambiguous and Fox would not want to be stuck with rights to a sport where viewers and advertisers are up in arms.

The impending baseball trouble is only the latest imbroglio for News Corp. on the sports front, where it has struggled to find enough ad dollars to pay the massive rights fees it's on the hook for. In December, it took a whopping $909 million write-down based on the expectation of weaker ad revenue for its three major sports properties-the National Football League, Nascar, and MLB. That came after the weak TV market forced Fox to drop prices for the 2001 World Series about 5% to 10% from the prior year to just under $300,000 for a 30-second spot.

If a strike halts this post-season, Fox says it will either give advertisers rebates or work to put them on the network elsewhere. "It's like a pre-empted show," says Jon Nesvig, president of Fox ad sales.

Fox has sold about 70% of its World Series ad time, but the threat of a strike is hurting its efforts as advertisers take a wait-and-see approach. "The worst thing that comes with this is the uncertainty," Nesvig says. "People who need to get their advertising down now might not."

Fox also hopes to avoid a strike in order not to lose valuable airtime in the fall to promote its new season of prime-time shows. "The World Series still does a big number, and it is a great platform," says Tim Spengler, exec VP for Interpublic Group of Cos.' Initiative Media.

other victims

Besides Fox, obviously a strike would be a dagger to Major League Baseball. MLB has 14 corporate partners, including heavy hitters Pepsi-Cola Co., Anheuser-Busch Cos., Nike and MasterCard International, that have committed more than $170 million for the 2002 season spread across rights fees, media buys and promotional dollars. If the season is cut short, some rebates may be in order and the marketers may rethink their affiliation with-and spending on-the sport.

Most of baseball's partners either declined to comment or did not return phone calls. But one marketing executive at a corporate partner said: "We have contingency plans in place for everything, even in movie deals where if the star dies or the film falls apart we're protected." The executive said he is prepared to reallocate baseball dollars to the National Football League and Nascar.

Ironically, then, Fox could find a small silver lining. If baseball ad dollars go away due to a work stoppage, then ad prices for other sports (critical programming to reach young males) such as the NFL and Nascar could increase in the fall, which might bolster Fox's NFL sales. "Football prices [would go] up-college and pro-because of lack of male programming," says Larry Novernstern, senior VP at Interpublic's Deutsch.

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