The NFL's five-year, $2.1 billion television deal expires at the end of this season, and the networks, tired of suffering gigantic losses, are mad as hell and aren't going to take it anymore. Commissioner Pete Rozelle is backed into a corner, and it's going to be hard for him to come out of this one looking good, because suddenly the rules of the game have changed.
Up until now it was easy. Rozelle would boldly demand—and CBS, NBC and ABC would meekly pay—higher and higher fees for the privilege of televising NFL games. Not anymore. Even if Rozelle can point to rising ratings, he knows that when it comes to the NFL and television these days, you can throw away the ratings books. Advertisers just aren't clamoring for time on NFL telecasts the way they used to, so the networks have been getting stuck with the check. There's a new game in sports broadcasting, a kind of pin the tail on the donkey. Who will get nailed with the big losses in the future: the networks or the NFL?
At this point, Rozelle hopes to sign a new three-network deal in early 1987 for about the same money the NFL got in the last contract, but the TV people are demanding rollbacks. And they mean it. Talks should heat up soon. Here's what the Sixth Avenue moguls will tell the commissioner in full melancholy detail:
In 1985 the networks lost more than $75 million on the NFL regular season—a documented $21 million for CBS, a reported $26.9 million for ABC and an estimated $29.9 million for NBC. This year, the total losses almost certainly will dip into three-digit millions. Why? In accordance with the 1982 contract, the networks will pay the NFL $455 million in rights fees, up 10% from '85. But TV cannot pass that 10% increase on to their advertisers, because no advertiser will pay it. "The regular-season losses could reach $120 million, and I'm lowballing it," says CBS Sports president Peter Lund.
ABC Sports president Dennis Swanson says that his network may pull the plug on Monday Night Football in 1987. "That's an extreme position, because Monday Night is an integral part of our prime-time programming," says Swanson. "But we're not going to put ourselves in the position of losing money on events. If we can't come out ahead, there's no point being in the business."
The networks are not above posturing for negotiating advantage, and there's no doubt that they're taking a bath. Furthermore, financial conservatism has taken hold at all three networks. The fire bell for TV sports first sounded last fall when NBC won the bidding for the 1988 Seoul Olympics for $300 million, $700 million less than the $1 billion many TV people had predicted the '88 Games would be worth just four years earlier. The 28 teams in the NFL depend on network TV for 60% of their revenue. Significant rollbacks in rights fees, or the loss of ABC's $150 million for Monday Night Football would surely jeopardize the financial health of the league, its owners and players, not to mention its commissioner.
In desperation, Rozelle plans to entertain offers from a number of syndication and cable companies that are lining up to bid on the Monday Night package. Among them are Rupert Murdoch's fledgling Fox Broadcasting, which has hopes of becoming the fourth over-the-air network by 1988, as well as Home Box Office, ESPN and Turner Broadcasting.
Says Rozelle's negotiating partner, Cleveland Browns owner Art Modell, "If we take less—and the chances are we might have to take less—then we want to dabble in other forms of television. We're not going to push any panic button." Pay-per-view TV won't be a possibility for another decade. And the freedom of individual teams to cut their own TV deals was ended by Rozelle in 1961. Of course, rules are made to be broken. Rozelle's nemesis, L.A. Raider boss Al Davis, for instance, could go out and make a deal of his own, if the next league contract is not to his liking.
Fox is hot after Monday Night, but it just shelled out more than $1 billion for five Metromedia TV stations, and, with only 97 affiliates, many of them weak UHF stations, the network would have an even tougher time selling Monday Night commercial spots than ABC has had. The same goes for Ted Turner's superstation, which showed a $92.8 million loss in the first half of 1986 after dropping $26 million on the Goodwill Games. ESPN badly wants into the NFL, but it couldn't come up with the $150 million asking price without charging a 50% rate increase to most of its cable carriers.
HBO appears to have the inside track for the five night games played on Thursdays, Fridays and Sundays, if only because the pay-cable company doesn't run commercials. That means HBO would not lure advertiser dollars away from the networks. So what are Rozelle's options?
1) Well, he can hope that ratings for '86 go through the roof. But even if they do he would be wise to take what CBS and NBC will give him and pray that ABC stays with Monday Night even at distress prices. Cable TV still reaches only 47% of the country. There's no way Turner or ESPN could justify the big bucks for all 21 Monday Night games.
2) He can go for a profit-or revenue-sharing deal, similar to NBC's arrangement with the 1988 Seoul Olympics. Or he can try to raise more revenue with some form of corporate sponsorship. Toyota Night Football anybody?
3) He can sell—and no doubt will sell—the five non-Monday-night specials to HBO or ESPN. But if HBO gets the games, he might be asking for special new problems. There would be no TV commercial breaks, and HBO games would be 38 minutes shorter, on average, than normal ones. The NFL Players Association would probably protest on the grounds of insufficient timeouts.
NBC Sports president Arthur Watson says the next NFL deal will be a cornerstone upon which future sports rights agreements will rest. And in this deal the networks hold the trump cards.
Rozelle must keep the balance between NFL owners and the TV networks. New players from Fox and HBO are ready to jump in.