A WHOLE NEW GAME
Two events of stunning proportion have rocked sports television in the past two weeks. On Dec. 13, CBS obtained exclusive network rights to major league baseball for four years, beginning in 1990, with a bid of $1.08 billion. Each season CBS will televise the All-Star Game, both league championship series and the World Series, as well as 12 regular-season games. On Dec. 9, New York Yankees owner George Steinbrenner closed a deal with a New York cable network that will pay the Yankees $500 million for the right to broadcast the team's games locally for the next 12 years.
First, the CBS deal. Don Ohlmeyer, a former producer at ABC Sports and now chairman of Ohlmeyer Communications, said last week, "This is an incredible change in the balance of power in TV sports. [Commissioner] Peter Ueberroth did a masterful job. He has left a tremendous legacy for the sport."
Said Sean McManus, a former vice-president at NBC Sports and now an executive at Trans World International, a Los Angeles production company, "Financial realities aside, this is an enormous programming and prestige coup for CBS. It now has got a virtual monopoly of major sports series." And Chuck Howard, formerly a vice-president at ABC Sports, concluded, "I don't think there has ever been a bigger surprise in the history of this business."
Before NBC, ABC and CBS submitted their bids to Ueberroth, almost everyone in television suspected that CBS would make only a token effort to gain the baseball rights. After all, it hadn't seriously sought baseball since 1964, the last year it televised the sport nationally. NBC and ABC have shared baseball since '76, with each carrying the World Series or the playoffs in alternate years. The current six-year contract, which expires after the '89 World Series, cost NBC $525 million and ABC $575 million. ABC says it has lost money on the deal—perhaps as much as $50 million a year—and NBC is believed to be doing no better than breaking even.
Most observers assumed that NBC would walk off with a hefty piece, if not all, of the new contract. NBC has been broadcasting baseball since 1947, and the sport is as integral to the network as the Today show. True, only two weeks earlier NBC had committed itself to paying $401 million for U.S. broadcast rights to the 1992 Summer Olympics in Barcelona, but no one figured that deal would make it sacrifice its connection with the national pastime. In addition, the bottom-line-oriented executives who run Capital Cities, which owns ABC, had led many to believe that their network might put in a low bid and let NBC take over completely.
What no one outside CBS knew was how much it coveted baseball. As Neal Pilson, president of CBS Sports, revealed after the news broke, "I can tell you now that baseball has been our Number 1 priority since 1984. We wanted it more than anything else, including either of the '92 Olympics."
In May, CBS won the U.S. rights to the 1992 Winter Games in Albertville, France, with a bid of $243 million, which was $68 million more than anyone else had offered. It then came up almost $40 million short in its bid for the Summer Games. After the baseball deal was announced, some skeptics surmised that CBS had lowballed the Barcelona bidding so that it would have at least $1 billion to spend on baseball. One competing executive summed up CBS's coup this way: "All the money left on the table in the Olympic bidding was chump change compared with what CBS dropped for baseball."
Kibitzers were quick to point out that if every postseason series were to go seven games, CBS would get no more than 34 games a year and thus would be paying about $8 million per game, which comes to almost $1 million an inning. But even if the network loses money on baseball, the deal could make sense. For starters, of the three networks, CBS possesses the best portfolio of sporting events (see box, pages 34-35). Not only does it have the premier pro-football package (the NFC, which includes most of the biggest markets), a good college-football contract, exclusive network rights to the booming NBA and a college-basketball deal that includes exclusive network rights to the immensely popular NCAA tournament, it also has the Masters golf tournament and tennis's U.S. Open. "CBS has cornered the marketplace," says McManus, "and that means it can leverage its advertisers because its advertisers are severely limited in the non-CBS alternatives they have on TV sports."
Meanwhile the cupboards of the other two networks are comparatively bare. Once the colossus of TV sports, ABC has a good college-football package, Monday Night Football (a so-so performer these days); a middling college-basketball contract; and a number of individual events, including the Triple Crown races, the Indianapolis 500, the Rose Bowl, the Sugar Bowl and golf's U.S. Open, British Open and PGA Championship. ABC's biggest shortcoming, at least in terms of prestige, is that for the first time since 1960 it doesn't have either a Winter or Summer Games in its lineup. Indeed, after losing the Barcelona Olympics, the network decided not to adorn a new truck, which it had recently ordered, with its traditional ABC Sports Olympic slogan.
Despite its Barcelona victory, NBC seems to be in worse shape than ABC. The network of the AFC, NBC gets lower NFL ratings than CBS, and it has the weakest college-basketball package of the three. The same goes for its golf package and anthology show. Without baseball, NBC will have to come up with programming for 26 regular-season Saturday afternoons, plus all the postseason dates. It has no regular-season college football and no pro basketball, and last year it let ABC scoop up the Rose Bowl. Says Howard, "All of this may not leave NBC in total darkness, but it certainly leaves it with the weakest year-round network schedule since the 1960s."
So what happened and who is to blame? When NBC sportscaster Bob Costas learned that his network had lost baseball, his favorite sport, he said, "It's one of those deals that makes you terribly angry, but who are you going to be angry at?" The people Costas should be angry at are the programming geniuses who have given NBC the strongest prime-time lineup in history. Last week was NBC's 25th in a row on top. It drew a 15.1 Nielsen rating, compared with ABC's 13.2 and CBS's 10.7, which happened to be its lowest weekly rating since the start of the fall season. NBC had seven of the top 10 shows, while ABC had two and CBS one.
According to industry insiders, neither NBC nor ABC wanted the entire baseball package—that is, regular-season games, both league championship series and the World Series—because such a commitment would require them to preempt too many highly rated prime-time shows. Thus, ABC and NBC bid thinking that two of the networks might share postseason play again or that one of the championship series might wind up on cable. Ueberroth had encouraged the cable idea, but after the bids were opened, NBC and ABC found to their chagrin that he preferred network exposure for all postseason games. Only CBS, with its weak prime-time programming, dared go for that. Said Ueberroth, "What we liked about the CBS bid was that one network was willing to pay to televise the entire league championship series on free over-the-air TV rather than going to cable."
What Ueberroth also liked was the $1.08 billion that CBS was willing to spend. No sooner was CBS's victory announced than word leaked out that ABC and NBC had proffered bids in the mid-$600 million range for an equivalent package. If true, that meant CBS had overspent by some $400 million—perhaps because it simply didn't dare lose this bidding war. According to industry insiders, some CBS affiliates are so distressed over the network's abysmal ratings that CBS had to come up with some kind of major coup to keep them from bolting to the opposition. Says Gregory Hookstratten, an attorney who has represented sports announcers Vin Scully Dick Stockton and Dick Enberg, and who is a close observer of TV sports, "CBS way overpaid. It could lose $100 million a year; that's what the experts estimate. But it's in a lot of trouble. It suffers in the morning, it suffers late at night, it suffers in prime time worst of all. The affiliates are angry; they're just dying to break away. CBS simply had to do something."
Pilson put a different spin on last week's proceedings: "This is a big win for CBS Inc., not just CBS Sports. It's part of our overall network strategy."
That strategy is set by CBS president Laurence Tisch, who since taking over as CEO in 1986, has produced big profits for CBS by selling off most of the company's nonbroadcasting assets but has watched the network's ratings deteriorate. Tisch hopes that the playoffs and World Series will draw their usual massive audiences in October and that these audiences will stay tuned to the network's prime-time shows for the rest of the season.
Sometimes it works that way, but often it doesn't. Who can forget the endless promos during the 1984 Summer Olympics for one of ABC's upcoming prime-time shows, Call to Glory? That program lasted only until February. And most of CBS's recent prime-time creations don't look any better than that.
For CBS, buying baseball was a huge gamble. Inflation could increase advertising revenues enough to make the deal profitable, but the network could incur large losses if it has to pay inflated prices for rights to the NBA and NCAA Final Four; the contracts for both will be renegotiated at the end of 1990. Another ominous prospect: The possibility of a baseball strike or lockout looms in '90, the first year of CBS's contract.
For baseball, however, the CBS deal is solid gold. It will bring each of the 26 teams close to $10 million a year—the current contract pays each about $7 million per annum—and Ueberroth is about to nail down a separate cable-TV deal, which could increase each club's take to $14 million.
However, even as the baseball owners danced joyously around Ueberroth's money fountain, they were concerned about the local TV deal Steinbrenner had signed with Madison Square Garden's MSG Network that will bring the Yankees roughly $41 million a year for 12 years. MSG will broadcast as many as 75 games for the first two years of the contract, starting in 1989, and 150 games in the next 10 years. Despite the high price tag, Dick Evans, the Garden's chief executive officer, is ecstatic. "Yes, it's a lot of money," he says, "but remember the amount of product we are buying—more than 1,500 games. Step back and look at what NBC is paying for two weeks of the Olympics in 1992. The economics make sense for us."
And they obviously make sense for Steinbrenner, who doesn't seem to be bothered by the fact that only 39% of the homes in New York City are wired for cable. With the MSG contract and a local radio deal that brings in a few more million a year, plus the Yankees' share of the CBS package, Steinbrenner will collect more than $50 million a year for broadcast rights alone. Only the New York Mets, the Philadelphia Phillies and the Los Angeles Dodgers have developed markets that can come close to producing such a financial windfall. The rest of baseball is understandably worried about what the Yankee deal portends for the future.
"The Yankees will be bringing in $41 million a year on their local contract. We'll be getting $3 million a year," says Bud Selig, owner of the Milwaukee Brewers. "That means he has $38 million more to play with. If we had wanted to get into the bidding for Andy Hawkins [a free-agent pitcher whom New York signed to a $3.6 million contract on Dec. 8], how could we have competed with Steinbrenner?"
The rift between the haves and the have-nots could create a two-tiered market within the majors, similar to what happened in the late 1970s, when free agency first heated up. But despite predictions to the contrary, the emergence of free agency improved competitive balance, though this new influx of capital may be so great and distributed so unevenly that the effects could be disastrous. In the case of Hawkins, for instance, the Yankees wrapped up the deal by guaranteeing him $1.6 million more than the next-highest bidder. Where does that leave teams like the Cleveland Indians, whose local radio and TV package will go from a measly $2.1 million last year to $3.1 million in '89?
Says Oakland Athletics general manager Sandy Alderson, "Looking at the national TV contract and the way players' salaries are escalating now, I doubt the Yankee deal will cause a dramatic rise in what middle-level players get paid. The problem will come when and if teams like the Yankees and the Dodgers start having 20 players making $1 million to $3 million each. Then the smaller teams won't be able to compete for a lot of players."
So the question of whether CBS and Steinbrenner have left the American sports world richer or poorer remains unanswered for now. But about one thing there can be no doubt: Neither TV sports nor major league baseball will ever be the same again.
PHOTO
RICHARD DREW/ASSOCIATED PRESS
Tisch (left) got a way to—perhaps—lift CBS out of third place; Ueberroth got $1 billion.
PHOTO
FOCUS ON SPORTS
Scully (left) of NBC, Tim McCarver (below left) of ABC, and Tony Kubek and Costas of NBC will lose their network link to baseball.
PHOTO
RICHARD MACKSON
[See caption above.]
PHOTO
RONALD C. MODRA
[See caption above.]
PHOTO
FOCUS ON SPORTS
Steinbrenner's TV deal may let him outgun rival teams for top players.
ILLUSTRATION
HAYES COHEN
CBS SPORTS: FROM THE DEPTHS TO THE HEIGHTS
Twenty years ago who would have guessed that CBS would one day rule the TV sports world? In 1970 it owned rights to only one major sport, pro football, and it shared those rights with NBC and ABC. But by 1990, when the new four-year baseball deal goes into effect, CBS's lineup will include not only baseball but also such mainstays as the NBA, college football, college basketball (including the NCAA tournament) and, in all likelihood, a share of the NFL, whose current contract with the three networks expires at the end of the '89 season.
Meanwhile, despite having spent $401 million to land the 1992 Summer Olympics, NBC will have lost considerable ground, and ABC, which until recently had billed itself as the network of the Olympics, will have become a shadow of its former self.
The chart does not include annual events like the Masters golf tournament (CBS), the Indy 500 (ABC) and the Orange Bowl (NBC). If it did, the relative strengths of the networks wouldn't change dramatically. It also should be noted that the Olympics shown in the columns for 1970 and 1990 refer to rights paid for the '72 and '92 Games, respectively.
1970
ABC
SUMMER OLYMPICS
NBA
NCAA
NFL
NBC
WINTER OLYMPICS
WORLD SERIES
PLAYOFFS
REGULAR SEASON
NCAA TOURNAMENT
NCAA REGULAR SEASON
NFL
CBS
NFL
1980
ABC
WINTER OLYMPIC
WORLD SERIES
PLAYOFFS
REGULAR SEASON
NCAA
NFL
NBC
SUMMER OLYMPICS
WORLD SERIES
PLAYOFFS
REGULAR SEASON
NCAA TOURNAMENT
NCAA REGULAR SEASON
NFL
CBS
NBA
NFL
1990
ABC
NCAA REGULAR SEASON
NCAA
NFL
NBC
SUMMER OLYMPIC
NCAA REGULAR SEASON
NFL
CBS
WINTER OLYMPIC
WORLD SERIES
PLAYOFFS
REGULAR SEASON
NCAA TOURNAMENT
NCAA REGULAR SEASON
NBA
NCAA
NFL