Comcast CEO’s Bet on Profitable Olympics Met With Skepticism

Comcast Corp. (CMCSA) Chief Executive Officer Brian Roberts says NBC Universal’s $4.38 billion deal for the television rights for the next four Olympics will be profitable. Some analysts disagree.

Comcast’s NBC Universal, which outbid Walt Disney Co. (DIS) and News Corp. for the U.S. rights this week, will make money by charging higher distribution fees for the broadcast station and its cable networks as well as increasing ad rates. Comcast will also charge for the right to stream events on mobile devices and tablet computers, said a person familiar with the plan, who declined to be identified because the strategy isn’t public.

General Electric Co. (GE), which sold control of NBC Universal to Philadelphia-based Comcast in January, said in April 2010 the network lost about $223 million on the Vancouver Games. Given NBC Universal’s history of losing money on the Olympics, it’s difficult to be confident in Comcast’s chances of turning a profit, Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore, said in an interview.

“They have their work cut out for them,” said King, who has a “hold” rating on Comcast shares. “The fact they outbid everyone else by about $1 billion, I think it would be a challenge to argue they’re clearly going to make money on this.”

‘Disciplined and Responsible’

Comcast, which owns 51 percent of NBC, spent about $2 billion for the rights to air the 2014 winter Olympics in Sochi, Russia, and the 2016 summer games in Rio de Janeiro, little changed from what Fairfield, Connecticut-based GE paid for the 2010 and 2012 games. Disney’s ESPN offered $1.4 billion for the 2014 and 2016 rights, and News Corp. (NWSA)’s Fox bid $3.4 billion for all four Olympics, $900,000 less than Comcast, said two people with knowledge of the bids.

“We’ve been very clear from the beginning that we want to be disciplined and responsible and try to find a way to have profitability,” Roberts said this week. “We’ll have an opportunity to build up a lot of the assets at NBC Universal. We are confident that we will build value for our shareholders and have a profitable relationship.”

Comcast plans to air Olympic events on its cable stations including Golf Channel and Versus, a sports-oriented cable channel that broadcasts games from the National Hockey League and the National Lacrosse League. Comcast collects affiliate fees from pay-TV operators, including DirecTV (DTV) and Cablevision Systems Corp. (CVC), to broadcast NBC Universal content.

Ancillary Benefits

NBC has broadcast every summer Olympics since 1988 and the winter games since 2002. The locations of the 2018 and 2020 haven’t been decided.

Comcast will not get the same type of ancillary benefits that GE could leverage, David Joyce, an analyst at Miller Tabak & Co. in New York, said in an interview. GE said it generated $800 million in revenue from the 2010 Games.

“GE didn’t mind bidding up to win the Olympics in China if it meant the company could sell turbines and water solutions and all the other GE products,” said Joyce, who recommends investors buy Comcast shares. “You don’t have that with Comcast.”

Comcast rose 19 cents to $24.31 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 11 percent this year.

While the Olympics are “almost certainly a loss leader” for the company, there are many “halo effects” that may make a deal worthwhile, Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York, said in an interview.

‘Lose-Lose Situation’

Cross-promotional opportunities between the NBC broadcast channel and Comcast’s cable systems, which include Bravo, USA, and E!, are essential to gaining value from the merger, which cost the cable provider $13.8 billion in cash and assets, Moffett said.

Other strategic benefits that go beyond the bottom line include advancing the visibility of Versus with consumers and showcasing Comcast’s Xfinity service, including its Apple Inc. (AAPL) iPad application and video on demand, analysts said.

“The NBC brand is tightly intertwined with the Olympics,” said Moffett. “Some shareholders will realize that restoring NBC will require spending some money.”

NBC Universal’s agreement with the International Olympic Committee allows it to create an Olympics channel. The network also plans to air all the games live in addition to delaying certain events to air during prime-time.

The split between being more financially disciplined and losing the association of owning the Olympics makes winning the bid a “lose-lose situation” for Comcast, said Amy Yong, an analyst at Macquarie Securities in New York.

“They haven’t been able to make money off it, but if they don’t win it, they lose the brand and the franchise value,” Yong said.

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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