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Wednesday, February 09, 2005

Sports Media and Business: For N.F.L., Deal Is Up, It's Good

The New York Times > Sports > Pro Football > Sports Media and Business: For N.F.L., Deal Is Up, It's Good
February 9, 2005
For N.F.L., Deal Is Up, It's Good

s the National Football League commissioner, Paul Tagliabue doesn't let his business strategy slip out publicly unless there is a reason. When he announced last Friday in his pre-Super Bowl news conference that the league was "giving very serious consideration to being part of the launch of another major sports network on cable and satellite television," he knew precisely what he was doing.

He could have ended his response to a question about the status of talks with ABC and ESPN with a comment that the league and the two Disney-owned networks "have a disagreement about what the rights fees should be." But he went beyond that.

By mentioning the league's interest in a new all-sports network, it appeared that Tagliabue had mind-melded with Rupert Murdoch, chairman of the News Corporation, who, two days before, told securities analysts on a conference call that he would not challenge ESPN with a new sports network "without a pretty full N.F.L. franchise."

That's obvious, of course. The N.F.L. is the bell cow of sports ratings.

In his remarks, Tagliabue did not name Murdoch's Fox Network because he might have also meant Comcast, the largest cable operator in the country, as a partner with the league, its NFL Network or other suitors. The venture could also be with more than one partner, and it could be a ploy to make ESPN realize it could lose the N.F.L.

The league might also tell ESPN that it can bid to keep half of its current Sunday night package and that the other half would be sold to the new venture.

It's good, as Tagliabue might say, to be the king.

But wait, there's more. By creating a package of eight late-season games that would be played on Thursday and Saturday nights, the league can satisfy a craving for more televised football that might involve TNT, USA or the NFL Network, if it is not a part of the venture that would compete against ESPN.

This is the N.F.L. doing what it does best: creating and maintaining leverage. As the most valuable television property in sports, the N.F.L. usually has more suitors than it has product to sell. That keeps prices up. And having a competitor to play off against the all-powerful ESPN is like having gold nuggets shooting out of your ears.

The league knows what it means for a network to have its games. Getting rights to the N.F.L. was a building block to ESPN's success. When it lost league rights from 1994 to 1997, CBS obsessed over how to get them back, and it did, leaving NBC behind to co-own the defunct XFL, then enter a risk-free deal with the Arena Football League. Buying CBS's National Football Conference package made Fox far stronger and a viable future home for Major League Baseball and Nascar.

DirecTV's profile was vastly elevated through the exclusive satellite rights to carry the N.F.L.'s Sunday Ticket to subscribers. The need to retain them led DirecTV, in which the News Corporation has a 36 percent stake, to pay $700 million annually for a new contract - more than the $622 million average CBS will pay and nearly equal to the average $712 million Fox will send to the league in their new deals.

The N.F.L. has been greatly enriched by the money paid by the networks and DirecTV, but it never got any of the equity upside from building those entities until it made its seven-year deal with Sirius Satellite Radio. In addition to $188 million in cash, the N.F.L. received $32 million in stock and warrants to buy 50 million shares.

The impulse to benefit from cash and stock in a media contract may be what is at play in Tagliabue's leverage dance with Murdoch, Comcast or other suitors. Why not get a lot of cash up front and reap some profits when the stock rises? But there is a risk. By being an equity partner in one of the networks carrying its games, the N.F.L. becomes a competitor to the other networks that only pay rights fees.

But that seems to be the road it is traveling. By creating the NFL Network, the league established itself in a business that will, when it carries regular-season games, compete against other networks it has always dubbed its partners.

The denouement of the suspense over what will happen with ESPN and ABC (will it keep "Monday Night Football" or have it switched to Sunday night, bumping the megahit "Desperate Housewives" to another day?) may not conclude until October. The league can talk to anyone it wants until Oct. 1, but it cannot make a deal; ESPN and ABC then have an exclusive period to negotiate from Oct. 1 to Oct. 31.


Beyond a 41.1 rating (down 1 percent from last year) and attracting an average of 86.1 million viewers (down 4 percent), Fox's broadcast showed a small benefit to having Paul McCartney sing at halftime. The performance rated a 40.1, a 4 percent drop from the preceding half-hour; over the past five years, the halftime drop has averaged 5 percent.


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