News Corp. dodged an NFL bullet in its second quarter, writing $350 million off the cost of its football contract and bringing in a better-than-expected profit as a result.

The $350 million write-off means News Corp. has accounted for the entire loss it expects to take on the $1.58 billion four-year contract, removing what would have been an annual dampener on its earnings. The write-off is broadly in line with estimates of how much News Corp. would lose on the contract.

News Corp. offset the loss against a $600 million profit it made selling some of its stake in British TV operator BSkyB in December. It also used this profit to write off close to $100 million in startup losses on its new FX cable channel, News Corp. execs revealed to Wall Street analysts in a conference call last week.

The accounting treatment on the NFL contract stunned Wall Street analysts, most of whom had expected the football contract to lose close to $100 million this year and drag down News Corp.’s overall result. Instead News Corp. reported a 16% increase in net profit to $279 million on revenue of $2.3 billion, up 15.7%, for the Dec. 31 quarter.

TV growth

Ironically, most of the growth came from News Corp.’s television division, primarily because of the benefits of the football contract, which News Corp. was careful to point out were not reflected in the $350 million write-off.

The television division’s operating income rose 65% to $144 million, which Fox television CEO Chase Carey said Monday night was substantially due to the NFL contract. The division includes both Fox’s television station group and the Fox Broadcasting Co. News Corp. did not break out earnings from each but said the TV station group increased operating profits more than 50%.

As well as higher profits for the TV station group, Carey said the benefits of the NFL contract included promotional value of the NFL coverage and its ability to draw new affiliates to the network.

He said News Corp. calculated the write-off by projecting forward the advertising revenues for the life of the contract, based on the season just past and using “conservative reasonable assumptions” about future advertising revenue, offset against the license fees and costs of producing the football coverage.

Carey defended the accounting treatment but analysts said it will be treated skeptically on Wall Street, where News Corp.’s numbers will be adjusted to reflect the losses.

Skepticism expected

“Most people will look right through that… I think there will be a certain amount of skepticism by U.S. investors,” said Merrill Lynch analyst Jessica Reif.

Reif said the result showed “underlying strength” despite the football writeoff, with the television division growth higher than expected and newspapers doing well. Newspapers’ operating income rose 33% to $104 million, largely because of higher advertising revenue in the U.K.

“It was an OK quarter. We had expected it to be down and it was, except for the accounting treatment,” Reif said.

In other areas, News Corp. had a poor quarter. Its filmed entertainment division operating profit fell from $38 million to $17 million as a result of “the poor performance of 20th Century Fox’s winter release schedule,” News Corp. said.

” ‘The Pagemaster,’ ‘Trapped in Paradise’ and ‘Miracle on 34th Street’ all performed below expectations, resulting in losses during the quarter,” News Corp. said. It added that it shipped 8 million videocassettes of “Speed” in November.

Other analysts said News Corp. did worse than expected in areas like magazines and book publishing. Books’ operating income more than halved to $15 million while magazines and inserts’ operating income fell marginally to $65 million.