Along with death and taxes, add spiraling sports costs to the certainties of life. During good times and bad for advertising, prices keep climbing for the ultimate reality TV: live sports. But recently companies like DirecTV are pushing back against rights fees and marketers like Anheuser-Busch InBev are struggling with ways to justify them, it raises the question: Can sports continue to defy gravity?
Reliant on dependable ratings winners at a time when nothing else is a sure thing, TV networks and cable and satellite operators are shelling out double, or more, what they used to spend to carry live games from the National Football League, Major League Baseball, the National Basketball Association, Nascar, college football and basketball and other sports.
Consider the size of some recent deals: Starting in 2014, MLB will roughly double its annual payday thanks to national-TV renewals worth $12.4 billion with ESPN, Fox and TBS. After the 2014 regular season, ESPN will pay an estimated $7 billion to televise college football's new national playoff through 2026. Time Warner Cable will spend an estimated $8 billion over 25 years to create a new regional sports network around the Los Angeles Dodgers, according to Sports Business Journal.
But what goes up must come down, right? Outrageous sports costs have some advertisers and cable and satellite operators asking whether the cost justifies the return on investment.
At the 2013 World Congress of Sports conference last week in Naples, Fla., Blaise D'Sylva, VP-media, sports and entertainment marketing for A-B InBev, called for leagues to play fewer games.
The problem is not that "there are too many sports. There's just too much of any sport," said Mr. D'Sylva after his panel at the annual conference. "Because as an advertiser, we're trying to develop ideas and programs that break through with consumers. When you have games being shown on so many different broadcast and cable channels, 24-hour programming, how do you break through? Our concern: Does it get to be too much?"
Mr. D'Sylva predicted at least one league will shorten its schedule over the next decade. "We'd have the ability do more with a sport -- because I don't have to spend more money across a longer season," he said.
Adam Harter, VP-consumer engagement for Pepsi, raved about the beverage giant's sponsorship of Beyonce's halftime show during Super Bowl XLVII. But Pepsi still wants to know more about what it's getting for its money. "Measuring return on investment is an important challenge. We've got to get better at it," Mr. Harter said.
Cable and satellite operators, meanwhile, gripe about the high cost of ESPN and the fees sought by regional sports networks such as the Pac-12 and Big Ten networks.
DirecTV is probably the most outspoken about sports costs. Pat Doyle, chief financial officer, said it could drop its NFL Sunday Ticket package if the price is too high to renew the contract, which expires after the 2014 season. CEO Mike White told analysts the "sports-business model is broken."
DirecTV has slapped an "RSN surcharge" on customers in markets where it carries multiple regional sports networks. It is also trying to move regional sports networks such as CSN Houston onto a sports tier where consumers can decide for themselves if they want to pay for the channel.
Eric Grubman, exec VP at the NFL, said he thought DirecTV's comments were more about its view that it might not be able to get Sunday Ticket exclusively. "I don't know what their motivation was in making that comment. I don't think it's the end of Sunday Ticket by any means. I think it's the beginning of Sunday Ticket."
The big buzz among attendees at the conference was the launch of Fox Sports 1, which pitches itself as a cost-effective rival to ESPN, charging around $1 in monthly subscriber fees vs. $5 for ESPN.
(ESPN defended its fees, saying, "ESPN is consistently ranked by cable operators as the most compelling and comprehensive driver of their businesses, offering more total value in a multiplatform world than any other cable network by far. Our license fees reflect the value ESPN provides our distributors.")
Randy Freer, co-president of Fox Sports Media, is negotiating multiple deals to fill Fox Sports 1, launching Aug. 17. He said that consumers get "tremendous value" from sports programming vs. other forms of entertainment. In fact, sports accounts for only 10% to 15% of the average cable bill, and 30% of the programming costs, not 50% to 80% as critics claim.
Some of it boils down to lousy marketing, Mr. Freer said. "We don't do a good enough job of really touting how great a value your pay TV is vs. [things like] your cellphone. Nobody's complaining today about where their cellphone bills are going. We need to do a better job talking about, and promoting, the pay-TV marketplace."
There's also some hypocrisy in the debate. On the one hand, cable operators complain about regional sports networks. On the other, cable operators such as Comcast and Time Warner are in the RSN business themselves.
"If you look across the U.S. market, in markets where the distributor is in an ownership position with RSNs, the total cost of that market is significantly higher than other markets," Mr. Freer said. "Now, that may reverse over time -- but it will be a long time. So the theory they're doing it for cost certainty, I think, is a little bit of a fallacy."
General Motors is intrigued by Fox Sports 1 as an alternative to ESPN but is concerned about spreading its budget too thin. "I would not tell you that we see that as potentially having the reach, in the early stages, that we'd be looking for. But we will look at it," said Alan Batey, GM's VP-U.S. sales.
Steve Shannon, Hyundai VP-marketing, is intrigued by the first college football playoff on ESPN. But he's worried about costs. "It's not going to be cheap. But we're sure going to take a look," he said. "We love the college-football space."
The bottom line: Despite all the wailing about a sports bubble, marketers will continue to pay up for sports because, said Jim Vurpillat, global marketing director-Cadillac, "It's not DVR-able. People want to tune in."