“If David Stern pulls this out of his hat, he’s a true magician of TV rights negotiations.”
The story of how the NBA left NBC for ESPN/ABC is fairly complicated. The six-year deal the NBA signed with ABC/ESPN and TNT — a deal that expires after next season and will be replaced by a new deal soon to be announced — is arguably the most complex in the history of television rights deals.
The genesis of the television deal begins in the post-Jordan era, as the NBA hit rock bottom during the early winter months of 2001.
2000-01 season.
The 2000-01 season was a year like every other year for the NBA.
The league was trashed in the mainstream media to the point where the failings of the ‘new generation’ were even discussed on shows like Hardball on MSNBC (where host Chris Matthews commented to NBA Commissioner David Stern that the NBA was populated not by “real gentlemen kind of guys by most standards,” but by “guys that are closer to the streets“). The league was even the subject of a CNN televised and Wolf Blitzer-hosted ‘Town Meeting’. The media-generated perception of the NBA players was negative, as it always seems to be.
In the two years following the NBA lockout, NBA ratings cratered. And over the course of a four-year television deal with NBC and TNT, a deal that went into place with the lockout-shortened 1999 season, “regular-season viewership [fell] 38% on NBC, and ‘slightly less’ on TNT and TBS“. With the league’s television contract with NBC and Turner expiring after the 2001-02 season, the league entered TV rights negotiations “no longer [seeming] as invincible as it once did“. The rampant criticism of the players certainly did not help; NBC was cited as being “very concerned about the league’s future” in one of the many articles trashing the league that year.
With the players criticized for various misdeeds, ratings down significantly and only two realistic broadcast networks on which to air games (incumbent NBC and ABC), league officials still remained confident. “NBA attorneys ‘have the blueprints for a new [TV] contract, up for negotiation in the third quarter of this year that will almost certainly deliver big increases in rights fees, despite’ the ratings.” NBC, after all, could not “afford to relinquish the NBA contract” even if it meant paying too much for a product with declining popularity.
NBC’s need for the NBA notwithstanding, the fact that the league could count on another competitor surely aided the confidence of league officials. Despite indicating that he “would ‘like to renew’ with NBC and Turner,” Commissioner David Stern also stated that “he ‘wouldn’t mind’ if ABC and ESPN ‘made a competing offer.’“
Disney was highly interested in snatching the rights to NBA games. Adding the NBA would only help strengthen the resume of the self-proclaimed Worldwide Leader in Sports, ESPN. Disney’s interest gave the NBA some needed leverage, even as the league continued to fall from its previous stature. “NBC doesn’t want to lose [the NBA]. [But] I think ABC and ESPN are going to be very aggressive, and they’ll probably get it, unless NBC completely shocks us and really pulls out the checkbook. That plays right into the NBA’s hands. It’s frustrating to have leagues continue to demand these high prices when it’s not reflected in the ratings.” ABC’s presence made the NBA’s price go up significantly; in fact, some sources within ABC believed that “the network will be in there just to raise the price for NBC. … This is bad news for NBC, which was hoping to renew the NBA on the cheap.”
Towards the end of the 2000-01 season, ratings did begin to increase somewhat. With numbers still down year-to-date but not quite as atrocious as they were earlier in the season, the pendulum began to swing more towards a renewal of the television deal with NBC and Turner. Stern was said to expect “a modest increase in rights from NBC and a sizable jump in cable fees because of the scramble by Turner, ESPN and Fox for association” with various NBA digital properties.
Thanks to a scintillating postseason, including a maximum three seven game series in the Eastern Conference, ratings were up significantly for the NBA Finals. The 2001 NBA Finals stands as the highest rated of this decade, and the high ratings for the series made it even more likely that NBC would renew with the league. The good numbers reduced NBC’s already tenuous leverage over the league; with the NBA’s prospects looking up and ESPN/ABC very interested, NBC found itself in the position of having to pay the NBA more than it was worth.
Summer of 2001.
In the months leading up to the television negotiations, several occurrences changed the landscape of any potential deal. First, but of least importance, a surprising competitor at least briefly entered the fray, as Commissioner Stern met with Viacom President & COO Mel Karmazin for discussions that were rumored to center around moving the NBA back to CBS. The addition of a second competitor made NBC’s situation more dire. “‘[B]y holding the talks, [Karmazin] could end up costing NBC $200[M] to $300[M] more’ to re-up for the TV rights.”
Then-NBC President Andrew Lack was quoted as saying that NBC would be “‘very aggressive’ in NBA TV rights negotiations, but he added if ‘the numbers are going to choke us, we are going to walk away’” This came on the heels of Disney purchasing the FOX Family Channel — hence gaining the rights to the network’s MLB broadcasts and creating a potential outlet for ESPN programming, “which could play a role in any ABC/ESPN bid for the NBA’s TV rights.” Disney, in fact, began “hinting to cablers that it’s got every intention of wresting NBA rights from Turner and NBC, and would air at least one game a week on the rebranded ABC Family network“.
The economic climate was a major factor as well. An “ad market slump … [draining] dollars out of media pockets” made some wonder if “there could be a worse time for the NBA to be negotiating“. The fact that CBS and FOX were locked into deals with the NCAA, PGA Tour and NASCAR narrowed the amount of options the NBA had. While cable rights were seemingly up in the air, analysts such as consultant Neal Pilson believed that NBC “[would] keep the NBA,” as “[y]ou always look to see which network has the biggest need.” With Disney confident about gaining NBA rights, even as many still believed NBC would retain the league, the NBA found itself in the middle of what was gearing up to be a bidding war.
NBC and Turner’s exclusive negotiation period with the NBA began on Tuesday, September 18, 2001 — seven days after the terrorist attacks of 9/11. NBC was considered “‘the front-runner’ for the NBA’s TV rights” and some believed that the network “‘could even offer a pre-emptive bid’ during the league’s exclusive negotiating period that began Saturday and runs through October 18.” Richard Sandomir of the New York Times noted that “it would be ‘difficult to imagine the N.B.A. being so overwhelmed by an ESPN offer that it would let [ESPN] team up for a broadcast deal with ABC that would yield fewer games, promotion and exposure’ than on NBC.”
Especially considering the economic climate, NBC Sports Dick Ebersol lamented “[i]t’s very tough for both [NBC and the NBA]. I have been in this business for 34 years and there has never been a marketplace like this. … We are losing money with the NBA package, they are aware of that. So I don’t think there is any high expectation for any enormous increases this time“. The league suddenly found itself in the position where it would be “fortunate to come away with a modest decrease in network TV money.”
Winter 2001.
October 18 was too soon for NBC and TNT to complete new television deal; the league gave the networks a thirty-day extension. “The incumbents have expressed great interest in retaining [NBA TV rights] and I would say that we’re going to have to be collectively imaginative to continue our strong network revenues in light of what current conditions seem to be. Literally on a daily basis they seem to be changing, and I would say not necessarily for the positive. … But we remain optimistic that our future television arrangements will be valued higher than our current contract.” By early November, reports indicated that TNT would pay a “modest increase” for NBA rights, while NBC, “with no apparent broadcast network competition, figures to keep its rights fee near its current 4-year, $1.75[B] price. … The networks would keep prices stable while the NBA would stave off a rights fee decline after more than a one-third drop in TV ratings.”
By mid-December, talk of ‘no competition’ for NBC had changed; ABC/ESPN was reported to be “prepared to make a strong play to unseat NBC and/or TNT/TBS for national TV rights to the NBA“, and after the exclusive negotation period for NBC and Turner expired, the Disney networks pounced. After the NBA approached Disney, ABC/ESPN made a “combined, 4-year offer for the NBA’s TV rights, beginning with next season,” for “‘a sum exceeding’ the current $2.6B deal. … ‘If the ABC-ESPN bid succeeds, it will mean considerable schedule shifting by ESPN and ESPN2 to equal the weight of the three weeknights of coverage Turner provides on TNT and TBS.’” The deal was “around the same $2.64[B] figure that NBC and Turner are paying together in their current contract,” and would call for games to air on ABC, ESPN, ESPN2 and ABC Family.
Instead of placing all games on Disney networks, however, the NBA managed to buck all expectations — and the downtrodden economy itself. The league worked out a deal with Turner — one that Turner officials expected was for exclusive cable rights, with NBC retaining the broadcast rights. Once Turner was brought back into the fold, ESPN and NBC were left to bid for the remaining broadcast package. NBC was “considered the favorite because it has televised 34 regular-season games each season while ESPN only figures to be able to place about 20 games on ABC.” The network offered to pay 1.4 billion dollars over four years, down from 1.7 billion during the previous contract. The day after NBC made that offer, NBA officials met with Disney to discuss “an ESPN-led proposal” that offered “‘a figure closer to the’ $1.75M that NBC’s current deal is worth.”
Following that meeting, reports indicated that ESPN officials believed they were “in a solid position to edge incumbent NBC to become partners with Turner in a 4-year NBA deal“. With Turner paying a substantial amount for cable exclusivity, it appeared that there would be a conflict by adding ESPN. “It’s hard to imagine that Turner would make a deal for cable at the dollars reported and not get cable exclusivity. If it’s non-exclusive and ESPN does get in, Turner’s number figures to go down. It seems unlikely there will be two cable packages and a significantly reduced broadcast schedule on ABC.”
Within days of this, the announcement came. Disney would “pay nearly $1.6[B] over four years to televise NBA games”, by comparison to the 1.3 billion NBC offered. The move was “a stunning blow to NBC,” which was “offered the opportunity to match the ESPN/ABC bid ? which will run for more than four years ? but declined.”
Many media analysts complained of potential overexposure watering down the NBA product and making less of a television draw. Others worried about moving the majority of games to cable. “With the NBA’s new TV deal, Stern has betrayed his own philosophy in order to satisfy the league’s owners. He has also sold out every NBA fan who is not wired for cable or can’t afford it.” Some particularly prescient observations took a look at the long-term impact on the league. “What the NBA should do to avoid becoming like the NHL, which has a relatively narrow fan base, is leave some cash on the table and stick with a more network-oriented plan. After all, cable subscriber green may wow league owners, but it dilutes the appeal of the game and would likely stifle the long-term financial growth of the league.”
The last road-block to getting the deal done was the apparent reticence of Turner to get involved in a deal where instead of complementing broadcast partner NBC, it would be competing with rival ESPN. That did not prove to be much of a stumbling block; the deal was finalized on January 22, 2002.
Summary.
While the NBA’s television deal was a rousing success considering the circumstances, such as a terrible economy and bad ratings, the fact is that the results of the deal have been negative for the league. In the five years since the deal was signed, the NBA Finals have set record low ratings twice, and four of five NBA Finals have drawn single-digit ratings. Regular season ratings are down to a 2.0 on ABC; the network could only muster a 2.9 average for ten playoff games this year.
The NBA seems to have traded good ratings on cable for terrible ratings on broadcast. While NBA games dominate the cable airwaves every spring, the marquee event of the league, the NBA Finals, has now fallen to the point where it can be easily defeated in the ratings by summer reality shows. Games are rarely promoted on broadcast, as the advertising for NBA games on ABC usually falls to ESPN or ESPN2.
The NBA was only the first league to make a major jump to cable. The NFL moved Monday Night Football to ESPN, starting last season. The first season of Monday Night Football on ESPN was the highest rated series in the history of cable television. Nine of the top ten most watched events on cable are Monday Night Football games, including the most watched event ever on cable. Major League Baseball this season begins a new television deal that shifts the entire Division Series and one League Championship Series to TBS.
The NBA became a trendsetter, but at what cost? With so many games on cable, and with three networks alternating coverage in the Conference Finals, viewers have become confused to the point where some do not know what network a game is airing on. With fewer than twenty regular season games broadcast on ABC each year, viewers are not coming in contact with the NBA until the playoffs begin. Ratings have gone down each and every season, and barring a significant change in strategy, the numbers will continue to go down. The NBA is not dead yet, as even its worst numbers compare favorably to other sporting events such as the U.S. Open or the Stanley Cup Finals. Still, considering the significant drop-off in numbers since the beginning of this television deal, one wonders what the state of the league will be ten years down the line.
The NBA is expected to sign an eight-year extension with its current broadcast partners in the next few days. Commissioner Stern early this month set a deadline of June 21.
