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CBS, Turner Sign $10.8 Billion NCAA Basketball Deal

April 22 (Bloomberg) -- CBS Corp. and Time Warner Inc.’s Turner Broadcasting agreed to a $10.8 billion, 14-year contract for broadcast, Internet and wireless rights on an expanded men’s college basketball championship tournament.

The games will be shown nationally on CBS, TBS, TNT and truTV next year, with CBS and Turner splitting coverage of regional semifinals, the companies said today in an a statement. CBS will air regional finals, the Final Four national semifinals and the championship game through 2015. Starting in 2016, regional finals will be split by CBS and Turner, with the Final Four and the championship game alternating every year.

“For the NCAA, it’s 14 years of security,” David Levy, president of sales, distribution and sports at Turner Broadcasting, said in an interview. “Not knowing where the world is going to be, it’s great for the schools. For us, it’s 14 years of quality programming.”

With the agreement, CBS retains a marquee sports event long associated with the network, which also airs golf’s Masters Tournament and American Football Conference games as part of the National Football League’s television package. The deal also provides live telecasts of every basketball tournament game, split between the two networks.

The tournament will add three teams, stretching its field to 68, if the National Collegiate Athletic Association’s Board of Directors approves the recommendation of the group’s Division I Men’s Basketball Committee in a vote on April 29.

ESPN Challenge

CBS, which has carried the tournament, known as “March Madness,” since 1982, joined with Turner to challenge Walt Disney Co.’s ESPN for the contract. On average, the NCAA will receive $740 million a year, Jim Isch, the Indianapolis-based group’s interim president, said in the statement. CBS and Turner began working on their bid in October, according to Sean McManus, chief of CBS Sports.

“CBS had escalating costs in the previous NCAA deal that have been replaced and that puts CBS on solid footing for lasting financial stability,” McManus said today on a conference call.

Duke University’s 61-59 victory over Butler University this month tied the highest television rating for college basketball’s championship in 11 years. The game drew 34 percent more viewers than last year’s final between the University of North Carolina and Michigan State.

Shares Up

CBS, owner of the most-watched U.S. television network, rose 33 cents to $16.43 in New York Stock Exchange composite trading. The shares had gained 15 percent this year before today. New York-based Time Warner rose 17 cents to $33.25 and had advanced 14 percent in 2010.

Turner’s Levy said the agreement marks the first time the network will crown a sports champion, which “enhances our leadership position in the sports marketplace.”

“This is a huge deal for Turner,” Levy said in an interview. “We’re not a 24-hour, 7-day-a-week sports network, so we have to look at what we think are the most premium sports properties out there and this fits into that mold.”

Levy said that although the deal is expensive, he is confident the agreement will be profitable.

“The risk we don’t believe is there,” he said. “Marquee sports content is expensive. It’s also must-see programming that drives audience, drives ratings growth, drives advertising and drives distribution revenue.”

ESPN Response

ESPN, home of the women’s college basketball championship tournament, said today in an e-mailed statement that its television reach, digital capabilities and season-long coverage and year-round marketing would have “served the interests of the NCAA and college fans very well.”

“We made an aggressive bid,” ESPN said in the statement, without divulging financial details.

CBS’s coverage of the men’s tournament after 29 years had to evolve, as viewers in the last five years have demanded to watch every game nationally, McManus said on the conference call.

“To generate the revenue and exposure needed to complete this deal, we needed a cable partner and we needed the assets of Turner,” McManus said. “My challenge was to find an arrangement to keep the property on CBS in a meaningful way while dramatically increasing the exposure and revenue.”

CBS and Turner will work together to jointly sell advertising for the tournament, McManus said. The networks plan to collaborate on marketing and share costs, he said.

Shortfall Capped

If programming rights fee and production costs exceed advertising and sponsorship revenue, CBS’s share of the shortfall will be capped annually between $30 million and $90 million, Time Warner said today in a regulatory filing. Over the life of the contract, CBS’s potential shortfall will not exceed $670 million, according to the filing.

“What we are selling to advertisers is the cumulative amount of eyeballs watching the NCAA tournament,” McManus said. “If you have the tournament on four networks during the first round, it’s all cumulative.”

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Curtis Eichelberger in Washington at ceichelberge@bloomberg.net.

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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