Tv Sports: Playing For Keeps
As a sports fan, Rupert Murdoch might not know a pitch from a punt. But Murdoch may have set the world's record for speed-dialing when he heard from investment bankers in January that Peter O'Malley, owner of the Los Angeles Dodgers, was putting the storied ball club up for sale. The Australian-born mogul, who built an empire on deals, had another trophy in his sights. On Sept. 5, he bagged it, agreeing to pay $350 million for the Dodgers, nearly double the $193 million the Baltimore Orioles fetched four years ago.
Three years after upsetting the balance of TV sports with a $1.58 billion deal for National Football League games, Murdoch has blitzed his way through the U.S. sports scene like an all-pro linebacker. Murdoch, who controls one network and two cable channels, now has contracts to show virtually every pro or college sport in the land. And, with deals pending to buy the Dodgers and part of the New York Knickerbockers and New York Rangers, he has joined the fastest-growing team in America as well: media moguls who collect teams and TV rights to sporting events to attract an audience for their ever-expanding broadcast empires.
SUREFIRE STRATEGY. You might want to check your lineup card (table). Time Warner Inc. owns baseball, basketball, and hockey teams. Walt Disney Co. owns the Mighty Ducks of Anaheim and the Anaheim Angels. Even tiny Adelphia Communications Corp., a cable company with 1.9 million subscribers on the East Coast, owns a 25% stake in the Buffalo Sabres hockey team. Today, 52 public companies own at least a piece of the 130-odd major sports teams in America, says Paul J. Much, managing director of investment banker Houlihan, Lokey, Howard & Zukin Investment Management Inc. At least a third are media companies. For them, "sports franchises are software, something to put through their distribution pipelines," says Much.
Media companies snap up sports teams and programming for one simple, hugely compelling reason: In the fragmenting American TV audience, sports is the only surefire way to land a substantial and predictable audience. And that can make all the difference. Just ask Ted Turner. Until he paid $496 million for cable rights to NFL games in 1991, his TNT was just a second-rate cable channel running old movies. Now TNT vies with USA Networks for top rank among cable channels.
Football catapulted Fox into the big leagues as well. The $1.58 billion it paid for the NFL contract also brought it a bunch of CBS affiliates, which defected to keep the games that CBS used to have. Little wonder, then, that when the NFL puts its TV contracts up for renewal soon, the bidding is expected to take in nearly $7 billion. Murdoch's fx cable channel is rumored to be after the TNT contract; CBS could take on ABC Monday Night Football.
"Sports programming sells anywhere, anytime," says News Corp. Co-chief Operating Officer Chase Carey: "It's unpredictable, unscripted." It's also big business, with $3.7 billion in network ad sales last year, according to Competitive Media Reporting. Sports is especially powerful on cable, where football and World Wrestling Federation matches usually head the ratings list.
Even oldies sell: Classic Sports, a three-year-old rerun network that reaches only 11 million homes, went for a steep $175 million on Sept. 3. The winner was ESPN, which is 80% owned by Disney. The losers: a consortium that included Fox Sports and Cablevision. Disney plans to air Wide World of Sports and other shows from the archives of Disney's ABC unit.
PAYBACKS? Increasingly, though, media companies find it cost-effective to own the teams that draw the audience. An owner may lose money at the gate, but gets some back by paying himself for broadcast rights. That's why Philadelphia-based Comcast Corp. last spring bought a majority stake in the Spectrum arena, the Philadelphia 76ers basketball team, and Flyers hockey team for $250 million. On Oct. 1, Comcast will send its newly created SportsNet channel to as many as 2.6 million cable subscribers. "In today's biz it takes everything, it takes the teams, the building, and the network," says Jack L. Williams, SportsNet's president and CEO.
As media moguls move to snap up more sports franchises there will be no dearth of sellers. Many team owners are losing millions a year paying their stars' hefty salaries. Media companies, however, can run the teams as loss leaders and more than make up the difference on ad and subscription fees. "There will be increasing migration of sports to regional cable operators," says Dennis J. FitzSimons, president of Tribune Broadcasting Co. Tribune, which owns the Chicago Cubs and carries their games on its WGN cable superstation, might look at teams in other markets, says FitzSimons.
Even with healthy advertising and cable revenue, paybacks may be elusive at today's prices. Murdoch is expected to pay $350 million for the Dodgers, a hefty 25 times the team's expected earnings this year. But the Dodgers have a multinational lineup that includes star players from Mexico, Korea, and Japan. And, while current Major League Baseball rules prohibit individual teams from selling TV rights overseas, Murdoch no doubt is betting that he'll someday have a chance to bounce signals from Dodger Stadium to his satellites hovering over Asia, Latin America, and elsewhere. That's the kind of sport that Rupert Murdoch likes best.