Net gains for CBS, Turner
Both CBS and Turner have a lot to gain from their blockbuster 14-year, $10.8 billion NCAA March Madness deal.
Turner, hot on the heels of landing Conan O’Brien for TBS, has nabbed another marquee TV property that will add major value to three of its cablers, TBS, TNT and TruTV. CBS, meanwhile, found a creative way to stay in the big-bucks sports rights game without losing its shirt. CBS and Turner also control all Internet and wireless rights to the games, which has become an increasingly important component of tourney coverage for CBS in recent years.
“The economics of this deal works out for both parties, or we wouldn’t have done this,” said CBS News and Sports topper Sean McManus in a conference call with reporters Thursday. McManus called the arrangement with Turner “a creative way to make sure this didn’t go anywhere else (and) stayed on CBS.”
David Levy, president of sales, distribution and sports for Turner Broadcasting, called the deal “landmark” for the cabler.
“We are well-positioned to monetize our investment in NCAA programming across three nationally distributed networks,” Levy said. “With the combined linear and digital assets of these two large media companies we’ll be able to maximize the exposure of the Tournament, as well as provide incomparable access for viewers.”
Under terms of the deal, CBS and the Turner outlets will share rights to the Division I Men’s Basketball Championship starting next year and continuing through 2024.
For CBS, the new pact eliminates the final three years of the network’s previous 11-year, exclusive deal with the NCAA. Due to escalating rights fees, the last three years of the contract would have cost the Eye some $2.1 billion.
And Turner now has yet another strong piece of leverage when it comes time to renegotiate its TBS, TNT and TruTV affiliate deals with cable MSOs and satellite providers.
It also helps the cabler’s cause as it continues its attempts to convince Madison Avenue that its channels deserves broadcast-level advertising rates.
In an age of fragmenting viewership across the TV dial, must-see events like March Madness have become even more attractive to the broadcast nets. But escalating fees for big-time sports have also made the traditional nets much more willing to share those rights with cablers. Fox and TBS, for example, split the Major League Baseball playoffs. In the case of the NCAA basketball tourney, Eye’s previous deal, set to expire in 2013, would have cost the net more than $770 million that year alone. The new pact averages out to about $771 million per year — but is split between CBS and Turner.
According to a report by J.P. Morgan, CBS was on track to lose more than $50 million this year on its NCAA tournament costs, and even more in 2011. Now, under terms of the new deal, McManus said the network will be in the black in year one.
“In this agreement, we have created a new strategic partnership that not only makes this prestigious property an ongoing core asset in our stable of major television events, but a profitable one as well,” he said.
What’s more, according to a Time Warner filing with the SEC, Turner is actually the party responsible for paying the NCAA its fees over the life of the agreement. Should fees and costs exceed the revenues, CBS has negotiated a cap on its losses — between $30 million and $90 million a year, or $670 million over the 14-year term.
Turner and CBS will share advertising and sponsorship revenues, and also split production costs.
For the NCAA, the addition of Turner means all March Madness games will be available on four national TV outlets — a first for the tourney.
But that may also cause a stir with CBS affiliates, which are used to being able to pick and chose from the wide selection of games at the outset of the tourney to carry the matchups that matter most to their market. Now that games will be split between CBS and Turner, CBS’ affils will receive the same uniform national feed of games — which means the local station managers may have to grit their teeth while the game their viewers really want to see is telecast instead on TBS, TNT or TruTV.
According to insiders, the network is working with affiliates on how to handle that situation.
The CBS-Turner partnership had been in the works since last fall, as the Eye’s last deal with the NCAA gave the association an out to shop for a new TV rights arrangement after the 2010 tourney.
ESPN was eager to nab the tourney for its channels, but ultimately the Eye’s partnership with Turner allowed them to field the winning bid.
The two sides have already collaborated in the past on the Olympics (in 1992 and 1994) and on PGA coverage.
Eye and Turner also recently kicked around the idea of mounting a joint bid for the 2014 and 2016 Olympic Games, but they’re now believed to have cooled on the idea as they would face off against incumbent NBC, and likely Fox and ESPN as well. What’s more, CBS has also discussed merging its CBS News operation — also run by McManus — with CNN in the past. While those talks have never panned out, the increasing ties between the Eye and Turner would seem to increase the likelihood of a deal coming together in the future.
When pressed on the issue, McManus and Levy said Thursday they would look at additional CBS/Turner collaborations “when it makes sense.”
Deal comes as the NCAA Division I Men’s Basketball Committee unanimously passed a recommendation to increase the tournament field size from 65 to 68 teams beginning with the 2011 Championship — ending speculation about a leap to 96 teams.
The NCAA’s Division I Board of Directors will review the proposal at its April 29 meeting.
Under the pact, CBS and Turner will split coverage of the regional semifinal games; CBS will cover the regional finals, as well as the Final Four — including the National Championship Game — through 2015. A joint team of CBS and Turner reps will sell advertising for the games, and those spots will be sold on the basis of cume ratings.
Beginning in 2016, coverage of the regional finals will be split by CBS and Turner, and the Final Four and the National Championship game will alternating every year between CBS and TBS.
McManus and Levy defended the decision to allow the championship on cable by noting that Turner is available in 90% of TV homes. Securing the championship game was crucial to Turner and “necessary to get the deal done,” McManus said.
CBS Sports has broadcast the NCAA basketball tournament since 1982. This year’s broadcast of the championship game earned its highest rating in five years with 23.9 million viewers.
The NCAA said its “March Madness on Demand” streaming video player will continue to be available on both NCAA.com and CBSSports.com, and will now appear on Time Warner sites.
Execs declined to speculate on the fate of DirecTV’s “Mega March Madness” package in light of the new deal.