Rights Fees in Sport

The steadfast rule when it comes to sports and rights fees is that it’s the business of entertainment. The dollars are going to go where the value is. With Rights fees, networks pay fees to have the rights to a particular broadcast, for example march madness, the NFL or the Olympics.

Rights fees are determined by the value a certain property holds, this is determined by the ratings. The most important ratings market world wide is undisputedly the North American, and in particular the US market as we will later discuss with the Olympic media coverage. With in the US it is a battle field to increase ratings because of the dollar value associated with the opportunity to sell advertising and consequently the rights fees.

Personally I believe that 1.725 billion is a ridiculous amount for NBC to pay for the rights fees of March Madness. But obviously they are not mad. The economics and financials behind their decisions to continually pay more and more is justifiable. Once again boiling down to the ratings. The 70 hours of March Madness are extremely popular in the US and boast extremely high ratings. Therefore, advertisers are willing to pay the big bucks to get their ads on the air. The same is true about the Superbowl, with 30 second advertising sports reaching astronomical highs networks are lining up to buy the rights fees for the event. As Bill Brown the senior vice president of Fox Sports stated, “ we want entertainment…we want to televise the teams that will deliver us the highest ratings”. That truly summarizes the essence of sport media today, and why rights fees are working. “Fox, paying MLB about $417 million a year in a deal”, which expires next year. With baseball’s popularity on the rise again the rights fees for the league are undoubtadly going to increase. But as the numbers have shown the Fox network is the big spender when it comes to rights fees, dispensing $2.5 billion from 2001 to 2006 on MLB alone.

While Fox has a hold on baseball, Time Warner and ABC/ESPN seem to be focusing their dollars on the NBA, both handing over just over $2 billion over a 6 year period . But as aformentioned the rating speak volumes and while the NBA is very popular in the US, from a network point of view March Madness, NCAA basketball is a winner. CBS is paying $6.2 billion dollars over a 12 year period to ensure their TV rights. As this is one of basketball’s major properties and wanted by advertisers who are trying to target a very specific demographic.

However, there is a problem with increasing rights fees being paid by networks, funds are not bottomless. At a certain point the sports industry will plateau and as we are seeing financial resources are being pulled from sports with lower rating to finance the network’s bid for the highly rated events like the Superbowl. This is also known as a zero sum industry, where one event/league will benefit while another suffers. The NFL is currently taking in about $550 million/year from 4 different networks respectively. The price tag is not that high because of the extensive amount of game air-time, but because of the perceived value. Networks are teaming up with their own programming to compliment the short NFL season to bring in more ad spots and rightly so. The NFL as a league also knows the value of their product and realizes that networks are still willing to pay these incredible rights fees. After all the networks are already paying twice as much as their last contracts. However, who suffers in the zero sum game? The worst case or ratings influencing the general public lies within Canada and amateur/university level sports being dropped from the schedule due to poor ratings and unpromising commercial dollars. However, rights fees are also a source of funding for many college level athletics, at least in the US, as ESPN’s rights fees have helped fund many programs including minor level and women’s sports.

Yet, on the international level rights fees have played an important role since the mid-1980’s. Rights fees have become an integral part of the revenue stream from many not-for-profits such as the IOC.

The majority of the advertising revenues generated during the Olympics are US based (92%), one of the reasons behind altering the summer/winter Olympic schedule to separate two year periods. By giving US advertisers a staggered Olympic schedule more dollars were made available for sponsorship and advertising and thus rights fees. It was reported that NBC paid $793 million for the rights to the Athens Olympics. The increase from the Sydney figures can be attributed to the favorable time zone and for the fact that European Olympics have historically had much better viewer ship/ratings than the Asian ones. In fact the NBC’s coverage was totaled at 1,210 hours between all their affiliated networks, something quite unprecedented to date.

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