How Disney outfoxed the NHL.

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This from a June 3, 1998 issue of the Sports Business Daily:

A 15% drop in playoff ratings ‘hasn’t soured Fox on the NHL,’ according to USA TODAY’s Rudy Martzke, who writes that with a two-year contract option starting in 2000, Fox ‘likely will opt for televising all Stanley Cup final games.’ In the current deal, Fox televises Games 1, 5 and 7, with ESPN carrying the rest. Fox Exec Producer Ed Goren said it’s ‘possible’ Fox could begin showing all the finals as early as next year [1999], as talks “are taking place.’ But ESPN spokesperson Mike Soltys implied that the network would like to keep the finals package until 2000, adding ‘We’re happy with this package as it stands’ (USA TODAY, 6/3).

In other words, FOX wanted to televise every game of the Stanley Cup Finals, starting in 1999. The only roadblock was ESPN. On June 12, 1998, came this report:

Fox wants to broadcast the entire Stanley Cup Finals beginning in ’99, ‘but ESPN has no plans to give up hockey’s crown jewel,’ according to Mike Reynolds of CABLE WORLD. Both networks’ NHL contracts expire at the end of next year’s playoffs, but Fox holds a two-year option which ‘gives it the rights to show the entire Stanley Cup finals, starting in 2000,’ and sources indicate that ‘discussions have been held’ to move that timetable forward. While ESPN ‘wants to retain’ the status quo through ’99, sources say that talks have ‘centered on giving ESPN a reason to relinquish its’ Cup rights. One exec said the NHL ‘is talking’ with ESPN ‘about some incentive, but I don’t think it would be a rebate. It may be a case where the new contract extension that is being discussed with ESPN would be for a less amount of money over’ time. ESPN’s current NHL deal ‘is said to average’ between $11M-13M per year. Sources tell Reynolds that Fox would receive a 5% reduction in rights fees if it exercises its contract option, while others contend that the option years would ‘come at an increase’ of about 20% annually (CABLE WORLD, 6/8 issue).”

FOX wanted to do what no U.S. broadcast network has ever done — that is, broadcast the entire Stanley Cup Finals, giving it the credibility of the NBA Finals or World Series. It is understandable that ESPN would have wanted to prevent that from happening; at that time, the Stanley Cup Finals was one of ESPN’s biggest events. But to spurn FOX, as the NHL did, when the network was willing to give the league more exposure than ever before was counterproductive at best — especially considering that the exorbitant amount of money ESPN/ABC paid for the league did not end up helping very much at all long-term.

Not to say FOX is blameless; the network passed on its two year option for NHL games as a strategic maneuver. The News Corp. owned network wanted to “‘let its rights pass so it could bid on the broadcast and’ cable rights as a package.” FOX wanted to severely damage competitor ESPN, for whom the NHL was crucial winter programming, and nab the rights to air NHL games on cable arms Fox Sports Net and/or FX. By letting its negotiation period go by without a deal, FOX basically opened the NHL to competition.

In August 1998, Disney made a major bid for the NHL, offering to pay a combined $600 million for the broadcast and cable rights to the league — a massive increase over FOX’s $125 million deal. The danger of losing the rights to games on cable — and the danger of those games going to rivals Fox Sports Net and FX — led to Disney making the fairly controversial defensive move. While NHL owners were ecstatic at the idea of such a major payday, ABC affiliates were less than overjoyed. Quoting one station manager, “If the network wants to go out and do this, that’s fine and dandy. But don’t blow your brains out for it. And if you do blow your brains out, don’t come and ask us to pay for it.

Conventional wisdom was that “Disney’s preemptive strike for the NHL rights has more to do with the corporation’s ongoing battle with News Corp. … rather than a singularly savvy business move“. In fact, ABC had “‘little interest in having NHL games,’ … the offer ‘is being driven by ESPN’s desire to keep the NHL, which provides the’ bulk of first-quarter programming.”

There were some reports that FOX was leaning towards making a counteroffer to the ABC bid. The network had seven days to make a counteroffer, and could either outbid ABC on the broadcast portion of the deal, or outbid ESPN/ABC for broadcast and cable rights, though the latter was unlikely. However, Rudy Martzke of USA Today reported that the spurned network was likely to pass on making a bid, allowing ABC/ESPN to snatch the rights. At that time, the deal involved ABC airing “four to seven regular-season games,” down from 11 on FOX, “a weekly playoff game and ‘five to seven’ of the NHL Finals, in prime time after the May ratings sweep.” While that was a far cry from having the entire Stanley Cup Finals televised, the money seemed to make up for it.

Richard Sandomir of the New York Times then reported that FOX wrote a letter to the NHL asking for an extension of the seven-day period to counter the bid, wanting to know for sure how much Disney was paying for the broadcast portion of the deal. FOX wanted “‘assurance’ that the ABC portion of Disney’s $650M bid was for $250M and ‘not less.’” The network believed it was “at a disadvantage” because the NHL “‘initially disclosed the value of only the broadcast portion of Disney’s offer and omitted the cable portion.'”

The NHL apparently was unconcerned, and the letter from FOX was deemed a legal ploy. The Board of Governors approved the deal despite FOX’s objections. After the details of the deal were released, FOX was not happy; despite the fact that ABC was said to be paying $250 million for the broadcast portion of the deal, reports said that ESPN “will have complete control of the production and commercial time of all the NHL telecasts and buy the time on ABC for the broadcast telecasts. … Such an arrangement ‘may become an issue with Fox,’ which may ‘still pursue legal action over whether ESPN is shouldering more than’ the $350M of the bid than the league says. ABC will also realize a cost savings by having ESPN produce the games, as ESPN telecasts, which have non-union technical crews, ‘can cost as little as one-fifth’ of an ABC telecast.” Later, it was revealed that ESPN would pay all of the $600 million for the deal and buy time on ABC (as in the current ESPN/ABC NBA deal).

Despite wanting to drop the last year of its obligation to the NHL (and shed itself of the $45 million dollar commitment to the league for the ’98-’99 season), FOX stayed with hockey through the 1999 Stanley Cup Finals. That year, the network aired regular season games in 11 coverage windows. The next year, ABC aired games in four coverage windows. The denigration of the NHL on network TV began in earnest, and from the start, NHL officials seemed to agree with it. “Frankly,” then NHL Executive Vice President Steve Solomon said, “it’s been very, very difficult for regular season games to demonstrate their importance on over-the-air network television, week in and week out.”

And so the NHL went for the temporary fix. Obviously, money is the most important asset in any business and certainly in sports. However, the league was heinously short sighted. For far less money, the NHL could have had far more exposure. FOX aired NHL regular season games in nearly triple the amount of coverage windows of ABC, and the network wanted to air the entire Stanley Cup Finals (even today the first two games of the Final air on cable). More exposure leads to more interest and awareness, and is beneficial in the long-term.

More importantly, all indications are that FOX would have more committed to the league than ESPN/ABC, glowing puck aside. FOX needed the NHL on cable, to help challenge ESPN (a feat FSN has not yet accomplished). Getting the rights to NHL games would have simultaneously weakened a pre-NBA ESPN/ESPN2, while helping to strengthen Fox Sports Net and FX. In order to help strengthen FSN and FX, FOX would have promoted NHL games far more than it had in previous years, and the NHL could very well have found itself in the same position it is in now with Versus — only, instead of being a big fish in a small pond, the league could have been a big fish in a big pond.

Now, eight years later, the NHL can look back at that $600 million dollar deal with Disney fondly. The league gets no rights fee from NBC, and will air Game 1 of the Stanley Cup Finals tonight on Versus. And for all anyone knows, that could have still been the outcome, even if the league had rejected a too-good-to-be-true offer from Disney and stayed with FOX. Still, one wonders where the NHL would be if it had stayed with a network that wanted to make it the cornerstone of a greater effort to take down ESPN, a network that was willing to air every single game of the biggest event in the sport.

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  • Chris

    Props to you Paulsen. I consider myself a pretty big hockey fan and I’m someone who pays close attention to media deals that sports leagues and teams make, and this is the first I’ve ever heard of this. This is sports media reporting at its finest.

  • mcoale

    i still have nightmares about the stupid deal the NHL made with SportsChannel back in the early 90s.

  • mike

    Let’s hope FCC Chairman Kevin Martin somehow pursuades Congress to offer cable channels on an a la carte basis, that would destroy the Mouse because 20 percent of its profits would be gone. Its thoroughly unfair that 98 percent of cable subscribers are paying for something they don’t watch or need….ESPN and then there is that 50 cents a month NFL surcharge. We can’t have universal health care in the US, but we have cable TV socialism where everybody who wants basic expanded is stuck with ESPN. The numbers are truly pathetic when it comes to viewers of ESPN programming and truthfully, how many of the Sports Center anchors could get a job in the old days before Al Primo ruined TV news with his Action News in Philadelphia in the early 1970s. Its sad that people think ESPN has talented people, it doesn’t besides Bob Ley. But until Martin overhauls cable, ESPN will strangle everyone and that’s unfortunate.

  • mcoale

    ESPN is the least of my worries regarding the possibility of a la carte programming.

    I’d much rather get rid of all the televangelist and shopping channels before the Four Letter.

  • Morgan Wick

    The NFL Draft gets over 5 percent of the audience (not the 2% Mike implies) and MNF games get more. And the people who watch certain ESPN stuff aren’t necessarily the same as the ones who watch other ESPN stuff. And ESPN may be the only option for watching certain local teams in certain games. Trust me, more cable customers than you think will keep ESPN.

  • Anonymous

    NHL
    about the stupid deal the NHL made with SportsChannel back in the early 90s. That deal was the best thing ever for the SportsChannel, it bought them back into the market place once again.