Behind Comcast's Gold Rush

How NBCU Plans to Profit From Its $4.4B Olympic Bid

By Mike Reynolds and Mike Farrell -- Multichannel News, 6/13/2011 12:01:00 AM

After losses in Vancouver and more to come in London, Comcast chairman and CEO Brian Roberts insisted that last week’s $4.4 billion Olympic Games bid by its NBCUniversal unit will make money.

But according to some people who follow the media giant closely, the path to profitability will depend heavily on higher fees and ad sales, which could be harder to find as the games cachet dwindles and the global economy finds its footing.

NBCU (a Comcast-controlled joint venture with General Electric) bested bids from Fox Sports and ESPN to win the rights to air the 2012, 2014, 2018 and 2020 Olympic Games. The win solidifies NBC as the Olympics Network — it has aired every Winter and Summer Olympics since 2000.

But by outbidding the competition by such a large margin — Fox reportedly bid $3.4 billion for four games and $1.5 billion for two, while ESPN/ABC bid $1.4 billion for two — NBC runs the risk of paying too much for what has become a programming loss leader. NBC said it lost about $223 million on the 2010 Vancouver Winter Games and that it expects to lose another $250 million at the 2012 Summer Games in London.

“We were blown away by the [NBCU] presentation and the passion this team has for the games,” International Olympic Committee member Richard Carrion said, according to published reports. “I’d be less than honest if I said the number didn’t come into play.”

Roberts said that the NBCU bid was “disciplined and responsible.”

“We think this will be a profitable relationship for NBC Universal,” Roberts continued. “Having eight more years, we will have an opportunity to build up a lot of the assets at NBC Universal … It was unanimous among our team that having [the games] for the longer term will help us achieve that goal.”

But at least one analyst doesn’t expect the media giant to turn a profit on the games until at least 2018, and that will be determined mainly by where they are held. The IOC selected Sochi, Russia, for the 2014 Winter Games and Rio de Janeiro, Brazil, for the 2016 Summer Games. Sites for the 2018 and 2020 Games have not yet been determined.

Wunderlich Securities media analyst Matt Harrigan estimated that NBCU would lose about $65 million on the Sochi Games and would break even in Rio.

That is substantially less than the losses sustained in Vancouver and London, but is mainly due to the lower fee paid for some contests. According to Carrion, NBCU will pay $775 million for the Sochi games (it paid $820 million for Vancouver) and $1.23 billion for Rio (it paid $1.18 billion for London). As for the Winter Games in 2018, the IOC commanded $963 million, while the 2020 Games garnered nearly $1.42 billion.

On the one hand, Harrigan said, it looks like the costs of the games can be spread across several networks, which will attract higher carriage and advertising fees. But the difference between the Fox and NBCU bids — about $800 million — suggest that the Olympics may not have the cachet they once had.

“On the surface it is not an atrocious deal,” Harrigan said. “But just playing devil’s advocate, Fox being $800 million behind in covering the bid is a little worrisome.”

Other analysts tread lightly in analyzing the deal. Morgan Stanley media analyst Ben Swinburne said that by bidding $4.4 billion for four Olympics, NBCU’s costs are basically flat considering the $2.2 billion it paid for two Games — 2010 and 2012. He estimated that with a modest rise in advertising rates and flat ratings NBCU could cut the losses per Olympics in half in 2014-2020 versus 2010-2012. And he said higher affiliate and retransmission consent fees could push the games into the black.

The so-called Olympic surcharge was imposed during the last round of the Olympics by NBCU, then under GE’s ownership. Sources indicate that NBCU has already obtained surcharges from a number of MSOs for some of the games under the new deal. NBCU is also receiving contributions from broadcast-network affiliates to support the Olympics bid.

Insight Communications CEO Michael Willner said he does not recall any recent conversations with NBCU regarding an Olympics surcharge, but he would have little objection to paying the amount he has paid in the past. If that fee were to rise, however, then it could become a problem.

“If they ask for more money, then they are contributing to the problem of spiraling sports costs,” Willner said. “That is not a good thing.”

Aside from the possibility of higher fees, Roberts and new NBC Sports Group chairman Mark Lazarus spoke to NBCUniversal’s array of assets, platforms and promotional capabilities as key components for its games gambit.

Lazarus said the rights deal encompasses “TV, tablets, mobile broadband,” before adding that it covers all platforms “now known, to be known and those still to be conceived.”

With those vehicles in place he said there would be more Olympics coverage on more platforms than ever before. “It’s all encompassing. That’s part of the value of our new company ... one of the great joys of this deal.”

And starting in 2014, each event will be available live on one platform. It was unclear what that might mean for London, the broadcast plans for which are already in place, according to Lazarus. However, he did say there would be more live streaming in real-time from next summer’s competition.

WINNERS

Comcast CEO Brian Roberts/NBCU CEO Steve Burke — The leaders put their imprimaturs on their new company, gaining longterm Olympic gold via lots of green. Now, if only NBC could place in the ratings in primetime. Meantime, the cache of the Games will spread throughout the programmer.

NBC Sports Group chairman Mark Lazarus — In his first major rights gambit, the cable veteran came up huge, picking up a quartet of Games that would have made his predecessor proud. With a commitment to new media and devices that have yet to be conceived, Lazarus will usher the Olympics presentation into the 21st century.

Gary Zenkel President, NBC Olympics, Executive Vice President, Strategic Partnerships NBC Sports — NBC’s business torch bearer and all those of working on the Games presumably now have gigs for the remainder of the decade. Will Zenkel and crew integrate NBC’s history of packaging drama in primetime with a new live approach to the games?

International Olympics Committee — Despite the NBC’s $223 million loss in Vancouver and projections calling for $250 million in red ink from London, the Games keepers received another huge check from their American benefactors — U.S. TV rights account more than half of the TV revenue the organization receives and one-third of its total revenue from 2005-08.

U.S. Olympic Fans/Viewers — Say goodbye to tape delays. Under the new deal, NBCU says all events will be live on TV or other platforms.