NBC’s stunning $1.27 billion preemptive strike last week to lock up domestic television rights for both the 2000 Summer Olympics in Sydney and the 2002 Winter Olympics in Salt Lake City seems on the surface like a prescription for lots of red ink.
But despite a chorus of naysayers, the Peacock web may have scored its own Olympic Gold.
It’s simple to see why some Madison Avenue savants and brass at rival networks are saying that NBC will never make its money back. After all, NBC agreed to pay the International Olympic Committee $715 million for the Games in Australia and $555 million for those in Utah – a 57% premium over the $456 million the web paid for the 1996 Summer Olympics in Atlanta and 48% more than the $375 million CBS paid for the Winter Olympics in Nagano, Japan. Those had been the previous records for Olympic rights fees.
However, NBC has made an important investment in its future, enhancing its brand name and distribution of its cable networks. Moreover, it’s a move that will strengthen the network’s bond with its affiliates and bring added revenues into the network’s growing group of owned stations.
Meanwhile, NBC’s megabid takes two major events away from its network competition, all of whom were willing to pay a premium to get in on the Olympic action. NBC has taken the Winter Olympics franchise from CBS, which had it in ’92 and ’94 and will have it again in 1998 in Nagano, Japan.
In addition, NBC has shut out Rupert Murdoch’s Fox Broadcasting from grabbing the Sydney Games, which was part of Murdoch’s blueprint to solidify Fox’s burgeoning move into major sports. And it has closed the door on ABC’s new corporate parent the Walt Disney Co. (assuming the merger goes through), which no doubt would have liked to use its marketing clout to exploit the Sydney and Salt Lake City Games.
At NBC, the brass obviously lives by Napoleon’s dictum: “Confusion to my enemies.”
According to sources familiar with the deal, the IOC was looking for bids next month on the 2002 Winter Olympics when NBC made a take-it-or-leave-it offer on both the 2000 and 2002 Games as a package. The net, sources said, told the IOC that its next bid would not be as big.
In addition, NBC and ABC – which jointly hold the rights to Major League Baseball – had discussed a similar venture for the Olympics but never put together a formal bid, insiders say.
However, with the Mouse due to take charge at ABC, NBC began to formulate its preemptive-strike strategy against the other networks.
NBC decided to make its dual bid Aug. 2 after a top-level strategy session between president-CEO Bob Wright and sports division president Dick Ebersol and his top lieutenants.
The IOC was slated to meet with all potential bidders for the Sydney Games in about three weeks, and in fact had been discouraging preemptive bids, according to industry sources.
But on Aug. 4 in Montreal, the Peacock web cemented a deal in principle with Dick Pound, chairman of the IOC’s TV negotiations committee.
“NBC made a unique offer in a unique media environment,” says Pound. “The IOC has had an outstanding relationship with NBC and we are happy it will continue and expand into the next millennium.”
“We would not have felt comfortable bidding for Sydney alone at this level,” says Wright, who adds that having the Summer and Winter Games increased the total revenue possibilities in terms of promoting the Olympics and selling them to advertisers.
Moreover, NBC brass, bolstered by strong ad sales on the Atlanta Games – the network probably will exceed $750 million in revenues and make money on the event – believed they could afford to pay a premium. That portions of the Games will play on sister cable channels CNBC and America’s Talking, adding value to those franchises, was also a factor.
“It’s not such a big premium for NBC. This deal is about branding and holding on to your base,” says Jon Mandel, senior VP of Grey Advertising. “You also have to remember that General Electric owns NBC, and having the Olympics helps them make a lot of goodwill with all the people they do business with all over the world.”
CBS was said to be upset at the loss of the Winter Olympics, which was very strong for the Eye web last year and in 1992.
Meanwhile, News Corp. chairman Murdoch had given every indication he was willing to pay a premium for Fox Broadcasting to have rights to the Sydney Games as well. While Fox had discussed spending some $700 million for the Sydney Games, an official bid was never entered, sources say, since the IOC discouraged such activities.
But that may have been a strategy the IOC employed just to keep Murdoch’s minions at bay.
“The IOC felt more comfortable doing business with NBC. It has a lot of experience with the network,” a source familiar with the negotiations says. “If (the IOC) had a bidding war it may have ended up with a little more money, but it prefers the distribution NBC can offer on the main network and its cable networks than what it would get from Fox.”
“There are a lot of disappointed people here today,” a Fox insider said. “We knew Rupert was willing to pay a premium and that it would be enough to bag Sydney.”
Despite the huge bid, NBC brass are confident they can make money on the deal. “People scoffed when we paid $456 million for Atlanta, and said we’d never make money, but we will end up in the black,” Ebersol says. “I’m confident we will do the same with Sydney and Salt Lake City.”
While NBC will have a tough time seeing black on the 2000 Summer Games and 2002 Winter Games, turning a profit is not out of the question.
“If you judge this deal by the 1992 Summer Games in Barcelona, where NBC lost about $100 million, this isn’t such a great deal. But if you judge it by Atlanta it’s not bad,” says Jerry Dominus, senior partner/director of national broadcast at J. Walter Thompson. “We’re living in an era where content is king. And NBC has two major events, with plenty of time to plan for them. That will be extremely attractive to advertisers. (NBC) has also showed Rupert Murdoch he can’t have everything he wants.”
In crafting the deal, Ebersol says that the web, beginning after the Atlanta Games and until the Winter Games in Salt Lake City, would produce a weekly Olympics show to air on CNBC, splitting ad revenues with the IOC.
“It was an idea we came up with when we were flying over to Sweden to make our presentation to (IOC officials there),” Ebersol says. “We thought it would make nice icing on a $1.27 billion cake.”