CBS' dream season turned to nightmare on W. 52nd St.

THE BALTIMORE SUN

When CBS Inc. started an unprecedented spending spree for sports programs 2 1/2 years ago, it was a broadcasters' market. More fans were tuning in. More advertisers were paying the highest prices for commercial time. And the economy was rolling along.

So, CBS had no qualms about paying $243 million for the 1992 Winter Olympics, $300 million for the 1994 Winter Olympics, $1 billion for the college basketball tournament and another $1 billion for major league baseball. The competition followed.

But now the game has changed.

Today, sports viewership is stagnant, advertisers are cautious and the economy is rolling backward.

As a result, CBS is stuck with more than $3 billion in sports programming that it bought since May 1988 -- more than any other network -- that it is finding difficult to sell to advertisers.

"CBS paid too much, and advertising prices have come down," said Jane Grant, an analyst at Moody's Investors Service, a major brokerage in New York. "Now, they're thinking, 'How can we get out of this situation?'"

Not easily -- if at all.

CBS' problems are symptomatic of what now is a glutted marketplace for sports programs and an oversupply of commercial spots for them. There is more commercial inventory in sports programs than there are advertising dollars to fill it. Every network is suffering the consequences:

* Capital Cities-ABC Inc. last year reported profit declines in the third and fourth quarters overall and significant losses on major league baseball games it showed on its all-sports cable television network, ESPN.

* Turner Broadcasting System Inc. last year lost at least $34 million on the telecast of its Goodwill Games from Seattle during the summer and recorded additional losses on the first year of its four-year NFL contract.

* General Electric Co. does not report separately on the performance of its broadcasting subsidiary, NBC, but the network is believed to have recorded a profit decline last year in part because of losses incurred from its NFL package.

* Sports News Network, an all-sports news cable television network that imitated Turner's Cable News Network, kicked off its broadcast last spring, but lasted only until mid-December.

But CBS, which has the biggest sports calender -- it dubbed 1990 its "Dream Season" -- is hurting the most. The network acknowledges losing $55 million last year on the first year of its four-year, $1 billion baseball package, but most analysts place its loss closer to $100 million.

The loss was so heavy that CBS asked Major League Baseball to pitch in financial relief, including a rebate. Baseball answered "no."

"The extra inventory has been difficult to absorb," admitted Jay Rosenstein, vice president for programming at CBS Sports. "These rights agreements were made at a time when the economy was much better. There are certain unknowns that have become as important as factors as the additional inventory."

Analysts have projected 1991 will be no better than 1990 for any of the networks.

"There is simply too much sports around," said a financial consultant to CBS, who requested anonymity. "Expenses are rising, and demand is not. It is not a healthy environment for any network."

*

Certainly, neither CBS nor any other network foresaw such gloom a few years ago when they began paying sports organizations exorbitant rights fees to televise various games and events. New multiyear contracts they entered during the past 33 months to televise the NFL, NBA, baseball and college football and basketball totaled $7.4 billion, up 131 percent over previous deals.

CBS was the most aggressive buyer during this spree, accounting for nearly half the networks' spending.

Its actions sent shock waves through the broadcast industry. In the midst of CBS' buying binge, former NBC Sports president Arthur Watson was quoted as saying, "They've got to be out of their minds."

In fact, CBS was following a strategy all networks had used for many years. It just was doing so with more gusto.

Standing third in the prime-time ratings, CBS hoped to increase its prime-time audience with the lure of sports. Sports shows, broadcasters have long believed, provide a quick way to attract viewers and hook them on prime-time programming. ABC was the first to prove the theory in 1976, when it aired the Winter Olympics. The next season, it jumped from last to first in the ratings.

But the fact of this theory is it has failed more often than it has worked. Nonetheless, CBS was undeterred.

Furthermore, the network gambled it could never have too much commercial time on sports programs. Advertisers always are eager to reach males, and sports are their best vehicle to reach that segment.

In 1990, CBS aired more than half of all the sports programming on network television. It became the first network to show the Super Bowl, World Series and NBA Finals in the same calendar year. It also televised the NCAA Final Four, the Masters golf tournament, the U.S. Open tennis tournament and the Daytona 500 stock car race.

The viewers, however, stayed on the sideline. CBS gained some prime-time ground on NBC and second-place ABC, but mostly because the ratings at those networks slipped.

In addition, CBS' Dream Season turned out to be nightmarish games not even the fattest couch potato wanted to watch to the finish. At last year's Super Bowl, the San Francisco 49ers had the Denver Broncos handily beaten by halftime. Nevada-Las Vegas won college basketball's national championship by a record 30-point margin. In the NBA Finals, the Detroit Pistons needed only five games in which to win the best-of-seven series over the Portland Trail Blazers. In the World Series, the Cincinnati Reds swept the Oakland Athletics in four games.

"CBS perceived a value for sports that just isn't there," said Dick Ebersol, the president of NBC Sports, which paid $600 million for the NBA this season through 1995-96. "Sports is like any other business. You pay for what you get."

Sports bodies said they are not to blame for the networks' problems.

"The networks are responsible for that," charged Jim Marchione, a spokesman for the NCAA, which received $63 million for its basketball tournament last season and will reap $112 million this year. "And I don't see the value of our men's championship diminishing."

To be sure, more broadcast ventures are buying sports. But they are competing for an audience that has not grown proportionately, and advertisers are acutely aware of that in what now is a tight economy.

"The American consumer has had an insatiable appetite for sports broadcasting," said John Mansell, an analyst at Paul Kagan & Associates based in Carmel, Calif. "So there hasn't been the slightest reduction in sports on TV. In that sense, the leagues and team owners haven't been hurt. But the broadcasters have because there is a lot more competition."

With the advent of cable television, CBS, NBC and ABC no longer are the only players in the sports broadcast game, as they have been most of past 51 years since NBC first televised a sporting event -- a college baseball game between Columbia and Princeton.

The big three now compete with superstations such as TBS and myriad regional sports networks such as Home Sports Entertainment, which is based in the nearby Las Colinas development and specializes in televising Texas-based teams such as the Mavericks, Houston Astros and Southwest Conference teams. HSE also is an affiliate of Prime Network, an umbrella company for several regional sports networks across the country to which HSE subscribers gain access.

For the big three, ESPN and Turner alone, the new contracts they have signed mean 184 more games and 10,000 more commercial spots will be aired over the course of the new contracts than over the terms of the previous deals.

The additional competition and increased programming is diluting audiences and deflating the advertising price networks can demand.

For example, CBS' ratings for the NFL season slipped to 13.8 percent in 1989 from 15.8 percent in 1985, according to A.C. Nielsen Co. in New York. NBC's ratings for college basketball collapsed to 3.4 percent in 1989 from 4.6 percent in 1986. Ratings for Thursday night baseball on ABC fell to 6.2 percent in 1989 from 9.5 percent in 1985.

Even this year's Super Bowl -- an exciting 20-19 victory by the New York Giants over the Buffalo Bills -- was only the 18th-highest-rated Super Bowl. Except for last year's Super Bowl, the 1990 game was the lowest rated since 1974.

Furthermore, ABC used to command up to $250,000 per 30-second commercial spot for its "Monday Night Football" program. But with five networks -- ABC, CBS, NBC, ESPN and Turner Network Television -- now televising NFL games, ABC is getting as little as $125,000 per half-minute spot.

Advertisers are getting picky in the changing sports broadcasting environment. Many don't want to pay extravagant prices, and most only want to be on marquee events. Toyota, Japan's second-largest automaker, balked at a record price of $850,000 for a half-minute commercial spot during this year's Super Bowl. Anheuser-Busch, the largest brewer in the United States, is cutting its expenditures for golf and tennis but increased its spending for Super Bowl XXV.

General Motors Corp. in January signed a $400 million, seven-year contract with CBS to be the lone domestic automaker advertising on the network's college basketball tournament games. Exclusivity is not uncommon. But some analysts said CBS agreed to the deal only because it was eager to recoup the record $1 billion it spent on college basketball's crowning event. CBS explained the GM contract simply as "a good deal."

Although most analysts are critical of CBS' business plan, one observer opined the network would eventually profit from its risky venture. John Mandel of Grey Advertising Inc. in New York said CBS and other networks are crying wolf.

"These are long-term deals that work out over time," he said. "I think the CBS deal still makes sense. They make their money in years three and four, not off the bat."

Mandel said the networks are claiming sports are breaking them now in order to get cheaper deals on sports programs after the current contracts expire.

"Obviously, we have a deal that didn't work for us in year one," Rosenstein said. "But we're not in the business of posturing for the future."

Most analysts said CBS' symptomatic problems are a sign that the end of the television sports-spending spree is near. If broadcasters are struggling to find advertisers for their programs, they will probably be less likely in the future to pay the sky's-the-limit rights fees sports organizations have been demanding, some analysts said.

"I don't think anybody will pay the fees again that CBS did," said Grant, the analyst from Moody's. "There was a time broadcasters thought there was an insatiable appetite for sports on television, but the ratings aren't supporting that. Sports rights fees will come down."

Or sports organizations will be forced at least to package their seasons and events differently, another analyst said.

"Once these contracts expire, I wouldn't be surprised if you don't see regular-season sports go to cable soon," said Steve Sternberg, a vice president at Bozell Advertising in New York. "The networks just want the big events, anyway."

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