19 (Fortunato) Proof (Nov20)
19 (Fortunato) Proof (Nov20)
19 (Fortunato) Proof (Nov20)
19
TELEVISION BROADCAST RIGHTS
Still the golden goose
John A. Fortunato
Broadcast rights contracts signed by professional sports leagues and teams, the NCAA for its
men’s basketball tournament, and collegiate conferences that extend into the decade of the
2020’s, clearly indicate that television networks continue to provide a very lucrative revenue
source.The money from television networks to purchase the right to broadcast games is the
foundation of the economic sports business model and the largest revenue source for a
popular sports league such as the National Football League (NFL) or an organization such as
the International Olympic Committee (IOC). For example, the IOC generates 47 percent of
its revenue from its broadcast contracts, with sponsorship ranking as the second highest
revenue source at 45 percent (International Olympic Committee, 2012).
This chapter focuses on the dynamics of television broadcast rights fees contracts and their
impact on the sports business. Parente points out that “once a sport, league, or team has had
its ‘product’ bought by television for use as programming, that entity can seldom exist
thereafter, at least in the same style or manner, without the financial support of television”
(Parente, 1977, p. 128). It is this revenue stream that influences league or team decisions, such
as the ability to sign free agents, the overall competitive balance of the league, and recently
movement of a university to another conference.
Pete Rozelle was commissioner of the NFL from 1960 to 1989. He is largely given credit
as the visionary who developed the economic business model for professional sports through
the establishment of a league-wide television contract. In the NFL in the early 1960s, each
team negotiated its own television contract. Rozelle convinced the NFL owners to change
from a system of teams making their own television deals and keeping the money themselves
to one of selling the league’s television rights as a singular, collective entity to the highest
bidding television network.
Rozelle correctly predicted that network television money would be the largest revenue
source for the NFL.The NFL is the league that garners the highest television rights fees. In
September of 2011, the NFL reached an extension with ESPN that will run through the 2022
season worth an estimated US$1.9 billion per year, a 63 percent increase over the NFL’s
previous deal with ESPN. In December of 2011, extensions through 2022 were also reached
with CBS, Fox, and NBC. Fox will pay the NFL an annual fee of US$1.1 billion, CBS US$1
billion, and NBC US$950 million (SBJ, 2012a).
There are a few variables that can increase the value of a league’s television rights.The main
variable is the size and demographic of the audience that watches the games. Sports
programming attracts the relatively hard-to-reach, male audience between the ages of 18 and
49 that is desirable to advertisers (for example,Wenner, 1989). It is the size and demographic
of the audience that will determine the rate that the television network can charge advertisers
for commercial time.Viewership data in the form of television ratings are vital because these
numbers have such a tremendous impact on the economics of a television network.Webster
and Lichty describe ratings as “a fact of life for virtually everyone connected with the
electronic media. They are the tools used by advertisers and broadcasters to buy and sell
audiences” (Webster and Lichty, 1991, p. 3).
In addition to the audience size and demographic, sports programming has unique charac-
teristics that are valuable to networks. Sports programming tends to provide consistent
audience viewership with television ratings for games fluctuating by a small percentage in
comparison to other programming. Sports games hold viewers over long periods of time with
games lasting three hours. Networks also get to promote their future programming, often
doing so during the context of the game when the audience is watching rather than only
promoting their shows during commercials when the audience might be more apt to be away
from the screen. Lever and Wheeler point out that “astronomical costs (rights fees) can be
justified by giving valuable exposure to new series and entertainment specials through
promotional spots” (Lever and Wheeler, 1993, p. 135).
Another important audience viewership variable is that fans often watch sports games
during the live telecast, not at a later time or another day using a DVR device, making a
promotion, a television commercial, or a sponsored portion of the broadcast more relevant
because it is viewed at the appropriate time desired by the network or the advertiser. David
Levy, president of sales, distribution and sports for Turner Broadcasting System, explained “we
know that sports is appointment viewing.We know that five, ten years from now, this might
be the only and final appointment-viewing product in the market, other than news. Nobody’s
watching the Super Bowl on Monday morning” (Ourand, 2011a, p. 17). Levy added:
you’re getting a built-in fan base each time you buy these sports properties. If I buy the
Pac-12 or NHL or NFL or NCAA basketball – any of these sports properties have
automatically built-in fan bases and pretty much a track record of a ratings process you
4088 T&F Routledge Hndbk Sport Comm:Layout 2 20/11/12 1:44 pm Page 190
the value of the sports content is increasing as it becomes more and more difficult to get
people in front of a set – and a specific demographic in front of a set. Sports is still able
to attract that demographic, and it’s pretty consistent in terms of the people it brings to
the set.That isn’t true of a lot of other programming on television.
(Ourand, 2011a, p. 17)
A second important variable for a sports league to maximize its revenue from television
broadcast is to have multiple networks bidding for the rights to its games. Any time a sports
league can get multiple networks competing against each other for its broadcast rights there
will surely be an increase in the rights fee paid to the league.The NFL has received substantial
right fees because many networks bid to televise that league’s games. Cable television
networks continue to actively bid on packages of games and provide an astounding level of
revenue for sports leagues. The trend of cable television networks acquiring the rights to
prominent sporting events is because they have the dual revenue source of advertising income
and monthly subscription fees. ESPN is the most expensive cable network. Cable providers
pay more than an estimated US$5.00 per month per subscriber to have ESPN as part of the
package of channels that they offer to customers (Flint, 2012).
All leagues have cable television networks as part of their broadcast portfolio. In its national
television contacts agreed in 2012 and scheduled to begin with the 2014 season, Fox will pay
Major League Baseball (MLB) US$2 billion, ESPN will pay MLB US$5.6 billion, and Turner
will pay MLB US$2.6 billion in deals that will run through the 2021 season (Ourand, 2012b).
The National Basketball Association (NBA) has broadcast rights contracts with ABC/ESPN
and Turner that average US$930 million per year and expire after the 2014 season
(SportsBusiness Journal’s Annual Resource Guide and Fact Book provides a listing of all leagues
broadcast rights agreements).The number of networks involved in the bidding process was a
factor in MLB receiving an over US$800 million annual increase in its broadcast rights and
will be a determinant in the amount of revenue that the NBA will secure in its next television
negotiation.
Ourand (2011b) provides an example of how multiple television networks bidding on an
event can increase the cost in his description of the negotiations for the rights to the
Wimbledon tennis tournament. NBC had been the over-the-air rights holder since 1968
with live coverage of the Men’s and Women’s Championships. ESPN had been the secondary
rights holder providing coverage during the week. NBC was paying US$13 million per year
and ESPN was paying US$10 million.The NBC contract expired after the 2011 Wimbledon
tournament, with ESPN’s contract scheduled to run through 2014.
After preliminary meetings were held with various network officials earlier in 2011, a
schedule for presentations by the interested networks was set up by the All England Lawn
Tennis and Croquet Club that hosts the Wimbledon championships. Fox made a presentation
for why it should be the rights holder on Monday June 27, followed by NBC and ESPN on
June 28. Fox indicated that it would use its FX cable channel to televise matches. At the end
of its meeting Fox informed the All England Club that it was prepared to sign a ten-year,
4088 T&F Routledge Hndbk Sport Comm:Layout 2 20/11/12 1:44 pm Page 191
US$350 million contract. NBC pledged to show all matches live by also using its cable
properties once it acquired all Wimbledon television rights in 2014. NBC did not make a
monetary offer in its presentation meeting. ESPN stressed in its meeting that its networks had
a larger audience reach than the other networks cable properties. ESPN made a similar
monetary bid to that of Fox.
On Wednesday, June 29, the All England Club would contact all the networks. Fox would
be informed that it would have to increase its bid to acquire the rights at which time Fox
declined and took itself out of contention. NBC would make an offer for an average annual
payment in the mid-US$30 million range. ESPN would increase its bid to US$40 million per
year. On Saturday, July 2, NBC would make a final bid for a twelve-year contract with an
average annual payment in the high-US$30 million range. The All England Club would
return to ESPN for a final offer, explaining that if the network increased its US$40 million per
year bid from ten years to twelve it would acquire the rights. ESPN agreed and beginning in
2012 for the first time the entire Wimbledon tennis tournament was televised on a cable
network.
Another strategy that a sports league can adopt to get more networks involved and increase
its rights fees is to take a portion of its games and create another television package that it
could sell. In that thinking, again Rozelle would be instrumental in co-creating another
television institution: Monday Night Football. This prime time package of games would be
another product for the networks to bid. In 1985, when the major networks were not looking
to greatly increase their rights fees, Rozelle and the NFL developed a package of Sunday night
games that would be sold on cable television.
Other sport organizations have used a similar tactic of segmenting their games. For
example, MLB created a Sunday afternoon package of games that was purchased by Turner
and a Sunday evening game of the week that is the premier attraction of ESPN’s contract.The
Federation International of Football Association (FIFA) segments it television rights based on
language. In 2011, FIFA, signed broadcast contracts worth an estimated US$1.85 billion for
the 2012 and 2022 World Cup tournaments, including US$1.2 billion for United States rights
from Fox and Spanish-language rights with Telemundo, owned by NBC Universal (SBJ,
2011).
Sports leagues have created two other opportunities for revenue through television. All
leagues have partnerships with Direct-TV for satellite subscription packages that provide
viewers with the opportunity to watch the league’s out-of-market games (a Direct-TV
subscription ensures that NFL fans have the ability to see every game of the NFL season).The
leagues have also developed their own networks using the cable television business model of
the dual revenue stream of subscription fees and advertising. To help increase the audience
demand for these channels leagues have put games on their league-owned network.This, in
essence, creates another bidder in any rights fees negotiation. In the 2012 season, the NFL
Network increased its schedule of games to thirteen. The NFL Network is in 59 million
homes and costs cable providers approximately 84 cents per month per subscriber (Ourand,
2012a). In 2012, the MLB Network broadcasted playoff games. As part of the agreements
between MLB and its broadcast partners, the MLB Network will pay Fox US$30 million per
year to acquire the rights to two division series games (Ourand, 2012b).
Finally, the value of broadcast rights and an interest by a network can be increased through
the manipulation of the television programming schedule.The signing of a broadcast rights
contract creates a partnership between a sports league and a television network where both
4088 T&F Routledge Hndbk Sport Comm:Layout 2 20/11/12 1:44 pm Page 192
now have a vested interest in increasing the audience watching the games. In addition to
being their greatest revenue source, television networks provide the greatest source of brand
exposure (see, for example, Fortunato, 2001). Exposure is ascertained through the league’s
placement in the television programming schedule (day and time that the game is played) and
the selection of the teams playing in those games.The selection of which teams will appear
on nationally televised games is in fact the first step in setting up the entire schedule of games
for a league (for example, Fortunato, 2001; 2008).This television schedule strategy allows the
best teams and best players to receive exposure to the largest possible audience. Fortunato
explains that:
the proper exposure and positioning in the program schedule and offering the best
product to viewers in the form of teams, players, and matchups are essential to achieve
the best television rating, and subsequently to earn the greatest advertising revenue,
which would initially benefit the network – and eventually the league – when
negotiating its next broadcast rights contract.
(Fortunato, 2001, p. 73)
Leagues and networks work together in making the programming schedule as desirable as
possible. For example, the NBA in its broadcast contract with Turner for a package of games
on Thursday night, has it so that there are only three games played on that night, with two of
them televised by Turner. This eliminates the competition that Turner might receive from
NBA games being televised by local channels throughout the country.
The NFL has done multiple programming schedule changes to make its packages more
attractive to television networks. First, the NFL bye-week, which gives each team one week
off, makes a sixteen-week season of games into a seventeen-week television product. This
gives the network an extra week of NFL programming and allows the NFL to ask for higher
rights fees.The NFL has also moved its playoff games to later start times which push the games
into prime time and larger audience viewership.
In 2006, the NFL adopted a flexible schedule component for its over-the-air, prime-time
rights holder, NBC. In flexible scheduling a more attractive game would simply be moved
from Sunday afternoon to Sunday evening and televised on NBC. Games that are originally
scheduled for Monday, Thursday, or Saturday are not eligible to be shifted. Dick Ebersol,
former NBC Sports Chairman, described the process as “we’re able to say to the league,‘here
is a game we would like to have, and here are reasons why we think this is a compelling game.’
And then the league’s television department and the commissioner make the final decision”
(Stewart, 2006, p. D5). In the “Flexible scheduling procedures” popup window at
www.nfl.com/schedules, the NFL described flexible scheduling as a strategy that “ensured
quality matchups on Sunday night in those weeks and gave surprise teams a chance to play
their way onto primetime” (Stewart, 2006, p. D5, para. 2).
The partnership between a league and a television network in terms of the programming
schedule is also seen through developing special games for the network. In 2011, the National
Hockey League (NHL) reached a ten-year, US$2 billion agreement with NBC. Each NHL
team will earn approximately US$7 million per year from the NBC contract (Vascellaro and
Everson, 2011).The NHL and NBC had achieved success in televising the Winter Classic, an
outdoor NHL game traditionally played on NewYear’s Day. In this latest contract agreement,
the NHL created a new Thanksgiving Friday afternoon game to be televised on NBC.
4088 T&F Routledge Hndbk Sport Comm:Layout 2 20/11/12 1:44 pm Page 193
Overall, NBC agreed to televise 100 regular season games on its over-the-air network and its
cable channel, NBC Sports Network.
have total payrolls of only approximately US$55 million (USA Today, 2012). Owing largely to
its local television revenue, the Yankees have had the highest payroll every season since 1999
(the Baltimore Orioles had the highest payroll in 1998).
The most notable free agent signings in MLB prior to the 2012 season were largely a result
of those teams having recently signed very lucrative local cable television contracts.The Los
Angeles Angels reached a ten-year, US$240 million agreement with first baseman Albert
Pujols. In December, 2011, the Angels agreed to a 20-year contract with Fox Sports West
valued at more than US$3 billion.The Texas Rangers, in August 2010, reached an agreement
with Fox Sports Southwest in a deal valued at US$3 billion over 20 years. Prior to 2012, the
Rangers spent US$111 million to acquire Japanese pitcher,Yu Darvish. The Detroit Tigers
signed first baseman Prince Fielder to a nine-year, US$214 million contract.The Tigers earn
US$40 million per year from Fox Sports Detroit with a new broadcast deal to be negotiated
before 2018, in the midst of the Fielder contract. Ed Goren, Fox Sports Media Group vice
chairman, stated, “the local TV money has changed the entire landscape. There are a lot of
other teams that can play with the big boys now and write those big checks” (Nightengale,
2012, p. 1C). Jerry Reinsdorf, Chicago White Sox chairman, commented on the potential
impact of local cable television revenue on the competitive balance of baseball, stating,“it does
have the potential to hurt competitive balance. The big TV deals are basically a function of
market-size and competition.There’s no way that Kansas City can get a deal comparable to
what the Angels did” (Nightengale, 2012, p. 1C).
Utah join to form the Pacific-12 Conference (Pac-12).This helped the Pac-12 secure a 12-year,
US$3 billion contract from ESPN and Fox that extends through the 2022–23 seasons. Univer-
sities in the Pac-12 earn approximately US$21 million per year in television revenue.The Big
Ten Conference (Big Ten) provides its schools with similar annual revenue. The Southeastern
Conference (SEC) universities earn approximately US$17 million (Smith and Ourand, 2012).
The addition of universities has allowed conferences the opportunity to reopen their broadcast
rights agreements. The addition of Pittsburgh and Syracuse to the Atlantic Coast Conference
(ACC) led the ACC to renegotiate its agreement with ESPN, increasing each school’s annual
payment from US$13 million to more than US$17 million (Hiestand, 2012).The Big 12 after
addingTexas Christian andWestVirginia was able to renegotiate a contract with ABC/ESPN that
had an eight-year, US$400 million contract signed in 2007 and due to run through 2016 replaced
with a US$1.3 billion, 13-year contract that will run through 2025 (SBJ, 2012b).
In terms of competitive balance within collegiate conferences, it is important to note that
each conference can establish its own system of broadcast revenue distribution.The Big Ten,
for example, shares all of its broadcast revenue equally. In the past, the Big 12 shared half of the
broadcast revenue equally, with the other half being distributed based on appearances on
television. As an independent for football, Notre Dame has its own broadcast contract where
NBC pays US$9 million per season for all of the Fighting Irish home games and one prime-
time neutral site game. For all other sports Notre Dame competes in the Big East Conference
and is a part of any rights contracts that the league acquires, most notably for basketball.
Following similar trends in professional sports of developing television assets collegiate
conferences have started their own networks.The Big Ten Network was established in 2006.
In August of 2012, the Pac-12 launched its own national network and six regional networks
devoted solely to the Pac-12 (Pac-12 Enterprises, 2012). The national Pac-12 Network is
seeking a reported 80 cents per subscriber per month (Flint, 2012). Universities too have now
started their own television networks. In August 2011, the University of Texas launched the
Longhorn Network which provides the school US$15 million a year over the next 20 years
(Vascellaro and Everson, 2011).
Summary
The monetary increases that the television networks continue to give to sports leagues for the
rights to televise their games demonstrate the value of this programming. Investing in sports
rights fees remains a viable strategy because of the unique and advantageous characteristics of
this programming, most notably the size and demographic of the audience and the fact that
games are often watched live.As long as many networks want sports programming on their air
and bid for the rights to their games, leagues, teams, and other sport entities will continue
receiving high broadcast rights fees. At this point there is no reason to doubt that television
revenue is going to remain the foundation of the economic sports business model for the
foreseeable future.
References
Fisher, E. (2010, July 19–25). He set the standard. SportsBusiness Journal, 13 (1), 1, 32–4.
Flint, J. (2012). Cable bills might take hit:With sports rights fees skyrocketing, cost of Dodgers’ record
sale could be passed along to viewers. Los Angeles Times, March 29, C8.
4088 T&F Routledge Hndbk Sport Comm:Layout 2 20/11/12 1:44 pm Page 196
Fortunato, J. A. (2001). The ultimate assist:The relationship and broadcast strategies of the NBA and television
networks. Cresskill, NJ: Hampton Press.
Fortunato, J.A. (2006). Commissioner:The legacy of Pete Rozelle. Lanham, MD:Taylor Trade.
Fortunato, J. A. (2008). The NFL programming schedule: A study of agenda-setting. Journal of Sports
Media, 3 (1), 27–49.
Hiestand, M. (2004). 1984 TV ruling led to widening sweep of the college game. USA Today, August 20,
2E.
Hiestand, M. (2012). US$3.6 billion inTV money for ACC a good sign for SEC, Big 12. USAToday, May
10, 1C.
Lever, J., and Wheeler, S. (1993). Mass media and the experience of sport. Communication Research, 20 (1),
125–43.
Lewis, M. (1998). Pete Rozelle: He hooked us on football as show biz and gave Sunday (and Monday) a
new kind of religious significance. Time Magazine, December 7, 188–90.
Nightengale, B. (2012). Cash flows through MLB cable outlets: Local TV deals add revenue, alter
landscape. USA Today, February 10, 1C.
Ourand, J. (2011a). How high can rights fees go? More bidders, solid ratings, attractive demos and ‘TV
Everywhere’ fuel a sizzling media rights market, but could the bubble burst? SportsBusiness Journal,
June 6–12, 14 (8), 1,16–19.
Ourand, J. (2011b). How ESPN captured NBC’s turf at Wimbledon. SportsBusiness Journal, July 11–17,
14 (12), 4.
Ourand, J. (2012a). No new TV package on the horizon. SportsBusiness Journal, February 13–19, 14 (41),
1, 28.
Ourand, J. (2012b). Fox, Turner contribute to $12B rights haul for MLB. SportsBusiness Journal,
September 24–30, 15 (23), 1, 6.
Ourand, J., and Smith, M. (2010). NCAA’s money-making matchup: How CBS, Turner made the
numbers work in US$10.8 billion deal. Sports Business Journal,April 26–May 2, 13 (2), 1, 27.
Pac-12 Enterprises (2012). About Pac-12 Enterprises. Pac-12.com. Retrieved from http://www.pac-
12.com/SPORTS/Pac12Networks/Pac12Networks.aspx.
Parente, D. (1977). The interdependence of sports and television. Journal of Communication, 27 (3),
128–32.
Pucin, D. (2011). Media titans clash in L.A. sports arena:Time Warner has its eye on Fox’s most valuable
television asset:The Dodgers. Los Angeles Times, December 6,A1.
International Olympic Committee (2012). Revenue Sources and Distribution. Olympic.org. Retrieved
from http://www.olympic.org/ioc-financing-revenue-sources-distribution?tab=sources.
Sandomir, R. (2011). Regional sports networks show the money. NewYork Times,August 20, D1.
SBJ (2011). FIFA Wraps Up TV Deals. SportsBusiness Journal, October 31–November 6 14 (27), 6.
SBJ (2012a).The Season that Was. SportsBusiness Journal, January 30–February 5, 14 (39), 22–3.
SBJ (2012b). Current College Television Deals. SportsBusiness Journal, March 19–25, 14 (46), 46.
Scully, G. W. (2004). The market structure of sports. In S. R. Rosner and K. L. Shopshire (Eds.), The
business of sports (pp. 26–33). Sudbury, MA: Jones and Bartlett.
Smith, M., and Ourand, J. (2012). ACC expansion will pay off in new TV deal: $1M to $2M increase
annually per school. SportsBusiness Journal, February 6–12, 14 (40), 1, 8.
Stewart, L. (2006). Bears-Giants moved under flex schedule. Los Angeles Times, October 25, D5.
USA Today (2012). Salaries Databases. Major League baseball salaries. USAToday.com. Retrieved from
http://content.usatoday.com/sportsdata/baseball/mlb/salaries/team/.
Vascellaro, J. E., and Everson, D. (2011).TV cash tilts college playing field. Wall Street Journal,August 25, B1.
Webster, J. G., and Lichty, L.W. (1991). Ratings analysis:Theory and practice. Hillside, NJ: Erlbaum.
Wenner, L.A. (1989). Media, sports, and society:The research agenda. In L.A.Wenner (Ed.), Media, sports,
and society (pp. 13–48). Newbury Park, CA: Sage.