Under an eight-year, $18.3 billion deal signed in 1998, the NFL secured the right from networks ABC, CBS, Fox and ESPN to opt out of the agreement after five years (after the 2002 season) and try to enlarge the largest deal in sports TV history. At the time, the networks agreed to have no say in the matter, in part because CBS was doing what it could to replace NBC in the NFL's lineup of broadcast partners and ESPN wanted to muscle out TNT.
But in a sign of just how weak the ad climate has become and how much major media companies could be souring on huge payouts to sports leagues, an NFL spokesman said the league is already leaning toward allowing the contract to run its course through the 2005 season. "It's unlikely at this time that we would look to open it up," Brian McCarthy said. "We're certainly happy with it."
Industry executives agree that if the NFL were to reopen the deal it would struggle to match its current largesse. "If they did open it up, the networks would all try to reduce their payments in this current environment," said Neal Pilson, the former head of CBS Sports and an industry consultant. "The NFL absolutely could not improve its deal."
CBS executives have stated repeatedly that its part of the deal, which costs the network an estimated $500 million a year, is profitable, but industry executives say the fumbling ad market is causing all four networks to lose money on NFL broadcasts. "Right now, the networks as a whole are losing money on the NFL," Mr. Pilson said. "They're losing a lot more money than they anticipated due to the economic slowdown and the effect of the Sept. 11 disaster."
To be sure, networks don't only look to the NFL to drive profits-the games have other benefits such as bolstering a network's image and serving as a platform to promote other programs-but neither do they want a sea of red ink.
A Wall Street analyst who follows Walt Disney Co. (ABC, ESPN), Viacom (CBS) and News Corp. (Fox) but declined to be identified said: "When they figure out what they're going to pay and they make forecasts based on the advertising market, they try to forecast it as a break-even to a slight profit. However, if the ad market is anything below their forecast-and no one forecast the ad market would be this weak in 2002-it would be hard to imagine them making money."
Figures from Taylor Nelson Sofres' CMR show that even before the recent downturn, though they are not the only revenue generators, ad intakes often did not come close to the rights fees. CBS did take in more ad dollars last season, an estimated $569 million, than its $500 million commitment, but the network had the Super Bowl, and that accounted for nearly a quarter of those dollars. In 1999, CBS took in only $387 million. Similarly, during the 1999 season ABC took in $569 million including its Super Bowl take, more than its estimated $550 million-a-year rights fees. Last season, figures show, ABC hauled in some $415 million. Fox, which has the Super Bowl this season, took in $501 million in 1999 and $581 million last season, giving it one year above and one below its average rights price of $550 million. The biggest loser may be ABC sibling cable network ESPN, which ponied up an estimated $600 million a year as it outbid Time Warner's TNT for Sunday night games. CMR shows ESPN took in $99 million in 1999 and $82 million last year.
CBS, ABC and ESPN representatives declined to comment, while a spokesman for Fox did not return a call.
But the networks' struggles with their NFL dollar commitments were underscored last week at a forum as ABC Sports President Howard Katz turned sardonic when asked if he expected the NFL to offer the networks a bailout package after next season-in other words, to essentially renegotiate a lesser deal. "Do I think that the NFL is going to come in and say, `Fellas, we know you're not doing well and we're going to readjust the last three years of the deal downward'?" he said. "No, I don't expect that's going to take place."
Responded the NFL's Mr. McCarthy: "We wouldn't expect them to give us money back if the tables were turned."