Webs gamble on recouping costs of soccer

On Friday, the whistle blew for the start of the World Cup, with 32 nations competing in 64 matches played over a month in South Africa.

While the soccer tournament, which runs every four years, will be watched avidly by fans around the globe, for many broadcasters, the FIFA World Cup is an expensive luxury that often doesn’t recoup its high purchase price.

The event is expected to attract a cumulative viewership of 26 billion worldwide, according to sports business specialist Sportcal, and will add 1%-2% to the growth of global TV ad revenue this year, research group Screen Digest forecasts, which equates to an incremental rise of between $1.5 billion and $2.5 billion.

Media agency ZenithOptimedia is more conservative and estimates that the event will generate an extra $1 billion revenue worldwide for all types of advertising.

But the cost of TV rights totals $1.9 billion, up from $1.2 billion at the 2006 tournament, and if revenue falls short of the upper target, many TV companies will lose money — particularly as most bought rights at inflated prices before the conomic recession hit.

Broadcasters have been burned by previous tournaments.

French commercial webs M6 and TF1 both lost money on the 2006 World Cup, which was held in Germany — even though the French national team played in the finals (losing to Italy).

The contest generated an additional $119 million in advertising for the two networks, according to research firm Yacast, but they had paid $151 million for rights.

M6 also lost money on the 2008 European soccer tournament, which cost $60 million in rights and production, but generated only $25 million in additional revenue.

So, when it came to the 2010 World Cup, M6 declined to bid, and TF1, which bought the rights for $120 million, sublicensed 34 matches to pubcaster France Televisions for $30 million and sold pay TV rights for all 64 matches to paybox Canal Plus for $9.5 million. It retained free TV rights to the opener between South Africa and Mexico, the French team’s games and the final stages of the contest.

For TF1, the World Cup will boost advertising revenue by $36 million to $48 million. So the net could lose up to $44.5 million.

A similar picture emerges outside Europe.

The most money paid by media outlets from a single country was the U.S., where the rights for the 2010 and 2014 tournaments went for $425 million, most of this coming from a Spanish-language deal with Univision worth $325 million. Univision earned some $109 million in ads during the 2006 World Cup and is expecting to earn at least $100 million this year, leaving it with a shortfall.

ESPN will air all matches live and in HD in the U.S. over ESPN, ESPN2 and ABC.

There is the added risk that if the national team fails to progress beyond the initial group stage, then audience figures and ad revenue will drop off a cliff — as they did in France in 2002 when the national team was knocked out in the first round.

Screen Digest estimates that in the U.K. and France, 20% of the additional ad revenue is dependent on the national team progressing to the contest’s final stages.

Guillermo Roman, head of marketing for Mexico’s Televisa Sports, says many advertisers hold off buying spots until the last minute.

“We usually sell about 40% of (the ads) during the World Cup,” he says. “We need to be patient. We’ve been covering the numbers we’ve been expecting. … But it’s not as easy as it used to be.”

Adding to the effect on revenue of the economic downturn, market fragmentation is also taking its toll, with social media and other forms of digital media eating into the advertising pie.

Nike subsidiary Umbro, which supplies the sportswear for the England soccer team, isn’t advertising on TV during the team’s matches, preferring to place ads on YouTube, MySpace and Facebook. The assumption is that many fans will watch games with their laptops on their knees, chatting with friends via the Web.

So, why do broadcasters keep coming back?

For many, the World Cup is a must-have event, especially for market leaders.

“In every market, the channel with a (numeral) ‘1’ in its name must be the one to show the big events to keep its status when facing ad agencies, advertisers and viewers,” says Vincent Letang, a senior analyst at Screen Digest.

For some, there is a bigger prize in mind: For Univision, for example, it is the chance to secure the loyalty of the U.S. Hispanic ad market, which is worth $2.2 billion a year, of which Univision has the lion’s share at around $1.5 billion.

Sportcal researcher Ezechiel Abatan points to the huge audience shares the World Cup delivers. During the 2006 World Cup, German pubcasters ARD and ZDF — which shared rights — nabbed an average 50% share for all games and an average 80% for all matches involving the German team.

Such high viewership means that commercial webs can use the matches as a platform to promote their shows, improve their audience figures and drive up the prices of advertising spots.

Sports also has a resonance other forms of entertainment may lack.

“The big advantage of soccer, and all sports, is the emotional and experiential branding — you touch people with emotion,” Abatan says. “I am French, and one of my best memories is when France won the World Cup in 1998. That is what sponsors and advertisers are looking for: to reach people and be associated with events that have an impact on their lives.”

Pay TV companies justify the cost by pointing to the added value the tournament gives their subscribers, and across Europe pay TV companies have snapped up rights that free TV companies have declined to take.

In Italy, for example, Sky Italia grabbed the pay TV rights to all matches, with pubcaster RAI retaining only free TV rights to 25 matches, while commercial rival Mediaset was left empty-handed.

Whoever lifts the trophy, the clear winner is the sport itself. Soccer’s governing body, FIFA, will harvest $2.15 billion for total media rights, up 53% from 2006, and $1 billion from corporate sponsorship, according to Sportcal. Not bad for a month’s work.

Anna Marie de la Fuente in Los Angeles and James Young in Mexico City contributed to this report.

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