The Business of Sports

NFL: Blackouts Before the Lockout


1. The NFL MidSeason

It was good, old-fashioned, smashmouth football. On Sunday, the Oakland Raiders beat the Kansas City Chiefs in a 23-20 OT thriller. Muddy field, muddy uniforms. Al Davis crowing from his owner's suite. And surely, the disgruntled spirit of the Chiefs' legendary owner Lamar Hunt contributing to the storm clouds above.

The best thing about the Chiefs-Raiders game? After 11 straight home game blackouts, the thousands of Raiders fans in the Bay Area actually got to see it. From Oakland and San Diego to Detroit, Buffalo, and Tampa Bay, the NFL is on track to break its controversial blackout record this season. Fully 11 of the NFL's 30 total markets may end up experiencing a game blacked out regionally from television coverage this season. And in a season playing out before a predicted player lockout next season, that's not exactly the way to maintain goodwill with sponsors and fans.

For those games it does actually televise, the NFL is averaging 18.3 million viewers through Week Eight, up 6 percent from the same point last year and up 22 percent from 2008, according to sports media watchers. NFL games have accounted for the 13 most-viewed programs on television, period, since the regular season kicked off on Sept. 9. General Electric's (GE) NBC division leads all networks carrying NFL games with its prime-time Sunday Football Night in America telecasts, averaging a 13.0 rating and 21.5 million viewers, while News Corp.'s (NWS) Fox televison is averaging an 11.5 rating and 19.0 million viewers through this week, and ESPN's Monday Night Football telecasts are averaging a 9.2 rating and 14.6 million viewers. Noting sports fans' increasingly diverse digital content options, ESPN is now using its strong numbers, in part, to renegotiate its $1.1 billion annual rights deal with the NFL to expand its mobile broadcast platforms.

Even when compared with monster ratings numbers put up by American Idol and Dancing with the Stars, the NFL remains, for many sponsors, the only game in town. CBS (CBS) President and Chief Executive Leslie Moonves last Thursday told the Hollywood Reporter that "advertising is nearing prerecession levels" and that ad growth trends "continue to be strong in the current fourth quarter and going into 2011."

The NFL is "not programming you replace. … The NFL is the NFL," Moonves said, "and it's very valuable."

Despite the billions it's socking away in 2010 from TV revenue driven by these whale ratings, the NFL, in anticipation of a players' strike following the end of the season, is building a nearly $900 million lockout pool financed from revenue now being withheld and from the approximate $320 million savings the league accumulated by not paying non-health-care benefits to players this year, according to the SportsBusiness Journal. Roughly $28 million is coming from each of the NFL's 32 teams—in addition, the report states, "to reserves the league has saved that are sufficient to pay for two years of interest" on roughly $1 billion of "stadium debt that flows through the league."

In London last week, NFL Commissioner Roger Goodell said that uncertainty surrounding the collective bargaining agreement and a likely lockout next year is making it difficult to finance the San Francisco 49ers' proposed new stadium in Santa Clara. Investors "want to make sure the CBA is something that will allow them to finance a stadium," Goodell said. "And that's challenging in this environment. … A lot of these stadiums are being moved to privately run facilities. And that's fine. It's a transition. But that transition is changing the economics for the owners."

2. And No One Has Ever Said the NFL is One-Dimensional

At Costco (COST), even though Thanksgiving is still two weeks away, the holidays are in full swing. A visit on Sunday meant waiting in 10-deep lines to park, get in the door, check out, and in between, experience the NFL in 3D, as a jam-packed Sony (SNE) HDTV demo space allowed shoppers to see what Michael Vick vs. Peyton Manning looked like through the latest 3D lens.

Last week, ESPN released the results of a comprehensive study it conducted on 3DTV usage, finding "stronger user affinity for 3D content, greater recall for 3D ads, essentially no adverse health effects from 3DTV once acclimated to the technology," and a growing consumer preference for 3D over 2D. The study, conducted by one of parent company Disney's (DIS) marketing research arms, was conducted during the World Cup. "The result of this comprehensive project confirms what we've said time and time again: Fans have a higher level of enjoyment when watching 3D," said Artie Bulgrin, ESPN's senior vice-president for research and analytics.

The cable giant has committed to a full trial year of its dedicated channel ESPN3D, showing "about 100 live events," and states it is also committed to a second year. Company executives also claim that the channel now goes into more than 62 million homes. ESPN is planning on broadcasting all four BCS football games in January in 3D, as well as the BCS National Championship Game. Rival Versus is producing its first 3D telecast this Saturday, when the top-ranked Oregon Ducks take on the Cal Bears.

But what does the growing demand for 3D programming mean for pro sports' gold-standard league? The NFL first began experimenting with 3D broadcasts in November 2008, when it showed a Thursday night San Diego Chargers-Oakland Raiders game in 3D in a handful of movie theaters in Boston, New York, and L.A. On Sept. 2, Verizon's FiOS TV broadcast the first NFL game on regional television, a preseason game between the New England Patriots and the New York Giants. No plans have been announced, however, for other NFL broadcasts in 3D, even the Super Bowl (though that will likely change between now and Feb. 6).

The real holdup? Those 3DTVs haven't caught on as quickly as desired. As with all sports broadcast decisions, it all comes down to ROI [return on investment]. Until enough consumers buy 3D sets to entice advertisers to support 3D broadcasts at higher price points, it's not a good business decision for ESPN and other media companies to continue to foot the bill for über-expensive 3D broadcasts.

Rick_horrow
Rick Horrow is a leading expert in the business of sports. As chief executive officer of Horrow Sports Ventures, he has been the architect of 103 deals worth more than $13 billion in sports and urban infrastructure projects. He is also the sports business analyst for CNN, Fox Sports, and the Fox Business Channel. Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports (2010). Horrow is also the host of Sportfolio, a new program on Bloomberg TV that airs Wednesday nights at 9 pm ET.

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