NO LONGER GOOD SPORTS Major-league losses cause TV networks to rethink pro deals


New York -- Open a beer, grab some chips and tune the television to a ballgame.

Over this slothful relationship, fortunes have been made. Ballplayers became multimillionaires and team owners -- who in another era were ex-players looking for something to do -- became moguls. The big hits, however, may already be in the past.

Televised pro sports are drawing fewer and fewer viewers -- a trend that could have far-reaching impact. Last week, for example, the National Hockey League became the first major league to sign a national TV contract less lucrative than the previous contract.

And hockey's problems are not unique. If other television contracts shrink, revenues of the Baltimore Orioles, Washington Redskins and other teams could drop by millions of dollars.

And because TV money accounts for nearly half of total team revenues, shrinking contracts could put intense pressure on the teams, which face spiraling player salaries.

In the end, the trend could have a major-league impact on the monetary hopes of everyone from the 17-year-old lefthander with a good fastball to the New York financier looking to sell a major league team like, say, the Orioles.

For more than a decade, huge increases in sports broadcast revenues have been fed by sponsors eager to pitch products directly to American men, a demographic group notoriously tough to reach. But that willingness appears to have peaked.

"There is no denying the drop in demand for advertising time on sports broadcasts across the board," said Richard Hamilton, senior vice president at D'Arcy Masius Benton & Bowles, a Manhattan ad agency.

The average rating for a sports event broadcast on the three major networks dropped by a third in the past decade, according to Nielsen Media Research. In the past five years, declines have been felt by every sport significant enough to register on ratings meters, from the Big Three -- football, baseball and basketball -- to auto racing, bowling, golf, cycling and horse racing.

Meanwhile, the cost of advertising on these programs has begun to decline. This year, rates on sports events are down more than 10 percent, ad executives say. And a growing number of ad spots remain unfilled, despite cooperative efforts by many teams to provide sweeteners such as extra tickets for sponsors.

Building gate receipts, the most venerable source of revenue for a sports franchise, is a costly process. Expensive players must be retained, stadiums enhanced and promotions dreamed up.

In contrast, national TV contracts may be the closest thing to money from heaven. The millions of dollars generated by television rights came along with invaluable exposure -- and teams didn't even have to provide the camera. For baseball, local and national broadcast fees are frequently estimated to account for 40 percent of overall revenues. For football, the figure may be even higher.

This source of money, of course, won't disappear. Networks still pay the pro leagues millions of dollars annually, and local cable and independent station operators pay millions more. Moreover, the pay-per-view concept raises the prospect of a vast new source of revenue.

But at the very least, the steady increase of the size of TV contracts appears to have stopped, and a decline may have set in. "I see this as something more significant than a blip," Mr. Hamilton said. "It will be a long time before advertising will recover to the point it was two or three years ago."

Pro hockey setback

The new season for sports leagues began Thursday when, just a few hours before faceoff, the NHL agreed to a new, one-year national television contract worth $5.5 million. That's about one third of the league's prior three-year deal, which paid $17 million annually. It marked a setback for a league that, despite only regional appeal, had wrested a 50-fold gain in revenues from U.S. national TV rights during the '80s.

"It had been apparent that too much was paid the last time," said Dantia Gould of QV Publishing, a York, Maine, newsletter company that focuses on sports broadcasting. The same, she adds, could also be said for other contracts between networks and major sports leagues.

The impact will be evident when their contracts come up for renewal.

"The networks will be hard negotiators. They won't pay significant increases -- I don't think they can," Ms. Gould said. "At best, you stay at the same level. At worst you take a decline, like the NHL."

The pounding the networks have taken from sports contracts is striking. Halfway through a $1.06 billion contract for major-league baseball, CBS has already charged off $170 million. Some suggest the actual losses may be at least $60 million more. The intangible value of the contract -- to provide a large audience for promoting other shows -- has been negligible.

The National Football League, once as consistently successful for networks as a point-after kick, has also been a debacle. Backer Spielvogel Bates, a major league New York advertising agency, reckons the major networks lose $20 million to $30 million annually, except when they carry the Super Bowl. The two major cable networks that share in the NFL contract, TNT and ESPN, lose $5 million to $10 million annually, the agency estimates.

Initially, the tremendous losses from sports affected only networks, which were locked into multiyear contracts. But as those contracts expire, said D'Arcy's Mr. Hamilton, it's highly unlikely they will be renewed at the same rates.

That could be devastating for sports teams that have already locked in player contracts with multimillion-dollar annual increases. Each NFL team receives an estimated $33 million a year from a national television contract, plus $1 million to $4 million a year in local fees from radio and preseason contracts, according to Paul Kagan & Associates, a West Coast research firm.

Baseball teams have national contracts, whose revenues are split among all teams, and local contracts. According to figures published by QV Publishing, which in turn drew some information from Financial World magazine, total television revenues range from a high of $69.4 million for the New York Yankees to $22.5 million for the Orioles (a number the Orioles dispute, although the organization would not say if it was high or low) to $17 million for the Seattle Mariners.

Basketball is similarly spread. Each National Basketball Association team receives about $8 million from a national contract. Then there are substantial local contracts, which range from $19.3 million for the Los Angeles Lakers to $4.5 million for the Washington Bullets to $4.1 million for the Seattle SuperSonics, according to QV Publishing.

Hockey is the most difficult to gauge. Since 1979, it has had a nationwide contract on cable, and individual teams have a patchwork of local deals. Kagan & Associates reckons local revenues from TV average about $4.5 million. The new national cable contract provides a few hundred thousand dollars more per club.

Player salary issue

The most visible impact of the consistently lower television contract for hockey is in player salaries.

Although attendance at NHL games averages 90 percent capacity -- a number that compares favorably with other sports -- dominant players receive significantly less money. Only Wayne Gretsky ranks in Forbes' compilation of the highest-paid athletes. Other major hockey stars squabble with clubs over a few hundred thousand dollars a year -- routine salaries in baseball, football and basketball.

Franchise fees may also be affected. The expansion price for the new hockey team in San Jose, Calif., is $50 million, half the $95 million that baseball's National League is charging for franchises in Denver and Miami. Those numbers, though, may be heading down. The Houston Astros, for example, have been on sale for $95 million since last year without changing hands.

Meanwhile, sports teams and leagues are scurrying around for alternatives to make money, whether in limited pay-per-view contracts or in games telecast to hard-core fans on special satellite systems.

"You could draw a conclusion that the major networks have been the principle engine in supplying cash for sports leagues," said Joel Nixon, vice president for broadcasting in the NHL. "For the next decade, [the other sports leagues] may have to find another source. Can it ever be replaced? I don't know. It will certainly be a challenge."

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