Wednesday, January 23, 2008

The National Hockey League – the cable TV deal that makes no sense (or does it)?

The NHL All-Star Weekend is set for Atlanta with Versus providing America with its television window. Tuesday, the league and Versus the Comcast owned cable sports network announced their current cable television agreement will be extended for another three years. Published reports suggest the cable sports network, which is paying $72.5 million for the league’s rights this season, will pay inflationary increases over the next three years.

“We’ve really benefited from our relationship with the N.H.L.,” said Gavin Harvey, the president of Versus in a New York Times report. “It was a game-changer for us. We certainly feel we’ve seen great growth, but there’s major growth ahead. We feel positive momentum.”

Ratings remain somewhat of a mystery (at least when it comes to determining if anyone is watching the NHL on Versus). According to report in Wednesday’s New York Times: through 29 games during the 2007-08 NHL season thus far, Versus’s 0.3 rating is modest, but it is 50 percent higher than the 0.2 average at the same time last season. In that period, viewership swelled to an average of 261,760 a game from an average of 195,666 a game last season.

During the 2006-7 season, Versus’s N.H.L. rating stayed flat at a 0.2, but because of the overall growth of subscribers, viewership rose 31 percent to 212,366.

“You don’t renew at these levels unless you feel you have a property that’s reached the objectives you’ve set,” said Bill Daly, the N.H.L.’s deputy commissioner. “Versus exercising its option tells you a lot about how they value the league.”

But is it really a good deal for The Lords of the Rink. At $72.5 million each NHL team receives a little more than $2.4 million annually.

The NHL biggest problem remains what it has been since the league agreed to its initial three year contract with Versus after the NHL’s missed the entire 2004-05 season – Versus remains the cable sports network that sports fans cannot find.

Versus paid the NHL a $65 million rights fee in the first year of the agreement, $2.1 million per team. As ludicrous as it may have seemed at the time, NHL owners believed it made more sense to accept a paltry sum from a fledging cable network that no one had ever heard of, instead of ESPN – the cable sports network that ate the sports industry.

ESPN wanted the NHL under the same terms and conditions the league agreed to with NBC coming out of the 2004-05 lockout, a no money down revenue sharing plan. In an era when NFL teams ($106 million), NBA teams ($26 million) and MLB teams ($25 million) are each receiving from their national TV partners $2.4 million may not seem like much of anything, but in a gate driven league like the NHL $2.4 million could be the difference between being able to afford to keep the lights on or facing some serious power issues.

In December 2006, The New York Post’s Larry Brooks reported that ESPN refused to accept paid advertising from the National Hockey League. Was it because ESPN’s available commercial inventory was sold out at the time? Ask any ESPN sales representative – there’s always room at the inn for anyone willing to buy advertising, except the pariah better known to ESPN officials as the National Hockey League. NHL deputy commissioner Bill Daly and NHL Enterprises president Ed Horne each told Brooks that ESPN wasn’t interested in doing business with the National Hockey League.

It’s almost as if ESPN was mocking the National Hockey League. When was the first time any advertising driven media (ESPN or any media outlet) suggested an organization’s money wasn’t good enough. It’s inconceivable that ESPN had the gall to refuse to accept the NHL’s money and advertising content. ESPN sent a message in no uncertain terms to the National Hockey League – ESPN doesn’t want anything more to do with the National Hockey League. If ever there was an indication that represented how little ESPN respects the NHL, it’s sending a message to NHL officials that their money and commercials aren’t good enough for ESPN to accept.

Which brings the NHL back to where they are with American cable television current agreements, the one that locked out ESPN, and the one that saw ABC end their long-standing agreement with the NHL. Versus, owned by Comcast, are expected to extend their current agreement for one year. All that will serve to accomplish is illustrating how terrible the decision was to leave ESPN.

Versus reached 65 million homes two year ago. A year later, according to a Los Angeles Times report the fledging cable network reached 71 million homes. Meanwhile ESPN and ESPN2 each reach more than 100 million homes. ESPN had planned on placing NHL games on ESPN2. ESPN has taken cable television to another level averaging more than 10 million viewers weekly through the first ten weeks of ESPN’s Monday Night Football coverage. While ESPN and their family of networks report on NHL games, without NHL hockey ESPN canceled their nightly NHL magazine show “NHL Tonight” last year.

"ESPN provides the sort of Good Housekeeping stamp of approval," said Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon and a hockey fan in a Los Angeles Times report. The NHL, he said, "would be better off finding a working partnership between themselves and ESPN. If it were my decision, and not knowing the reason, this league needs as many symbolic attachments to maintain their position as a major professional sport."

A few years ago, there was a belief Comcast was going to attempt to build a second national sports network to compete directly against Disney owned ESPN. Versus had talked about securing the last available NFL TV package, the eight late season Thursday/Saturday night games the NFL kept for themselves to build the NFL Network. Whatever reasonable opportunity Comcast had to create a major national sports cable network all but ended in January when the NFL made the best move they could for their cable network, putting actual live NFL games (sports most valuable property) on their own network. Cable operators are balking at paying the NFL the carrier rights they are demanding to carry the NFL Network. Versus may be much cheaper but with a menu of NHL games and little else, Versus is doomed to failure.

The problem went from bad to worse during last year’s NHL playoffs. The NBA playoffs (which run in roughly the same time period the NHL playoffs run) are on TNT and ESPN in 100 percent of the cable ready homes in America. NBA fans can follow their favorite NBA teams’ pursuit of the NBA title.

And the NHL? According to a report in New York Newsday during last spring’s NHL playoffs: Versus was in only 61 percent of homes in metro Detroit, the nation's foremost hockey hotbed. Versus was in only 59 percent of the cable ready homes in the Los Angeles market forcing Anaheim Ducks fans to search for ways to watch their teams’ second round series against the Vancouver Canucks. In New York games one and four of the Rangers/Buffalo second round series appeared on Versus, ran on Cablevision’s digital basic service which was only in 80 percent of the cable ready homes in New York. That 20 percent may not seem like a great deal, but if you’re a major sports league you’re either in all the homes in each market (let alone major markets where teams have made the playoffs) or you’re not a major sports league.

Versus remains the exclusive NHL cable rights holder for NHL games in the conference finals and for the first two games of the Stanley Cup Finals. The Anaheim Ducks hosted the first two games of the Stanley Cup Final at the Duck Pond, 41 percent of the greater Los Angeles market couldn’t watch their home team play games in their home – that is not how you run a sports league in 2007.

Versus Executive Producer Mike Baker during last spring’s NHL playoffs told The Palm Beach Post he "couldn't be happier" with how it's gone."

"The games have just been incredible," Baker said. "It's actually made our job tougher because the games are so fluid, with the increased intensity, we have to stay on top of it from a production standpoint. It's a fantastic sport. If we can get people out of that mind-set that, 'If the local team isn't playing, I'm not watching,' it doesn't get any better than right now."

Fair enough Mr. Baker we agree with you on how great the games have been, too bad the network that no one can find was missing in action when the Conference Finals took place along with the first two games of the Stanley Cup Finals. The NHL’s CBA directly links hockey generated revenue (54 percent) to the league’s salary cap. How important is the three year $200 million Versus agreement to the leagues’ players?

"The players have a direct relationship to what's going on with revenue. There has to be a voice from the players' side to some extent," said former Carolina Hurricanes forward Kevyn Adams, a member of the NHL Players' Association's executive committee in a report in The Raleigh News & Observer.

"The ultimate question comes to, 'How can the game in the long run be the best?' When the deal was signed with Versus, there were a lot of things out there they were going to do to help promote and grow the game that ESPN wasn't willing to do. It became a situation where it was a natural fit.

"What I hope to see going forward is Versus being a channel that when you get into a hotel room, you turn it on. That's the way it is with ESPN in a hotel or bar."

The issue isn’t the original agreement the NHL signed with Comcast, Versus parent company but the three year extension. Three years ago Comcast talked the talk in regard to Versus (then known as the Outdoor Life Network).

Comcast talked about building a national cable sports network that would rival ESPN. The NHL would anchor Comcast’s ambitious plan that reportedly included securing the eight game late season NFL games the NFL awarded to their own NFL Network and the MLB regular and post season package TBS secured. It would have been reasonable for the NHL to have made it clear to Versus if at the end of their first three agreement if Versus and Comcast hadn’t moved forward and secured additional major sports properties and/or wasn’t in 100 percent of America’s cable ready homes, the NHL would have the option of taking their product elsewhere. Instead for some inexplicable reason the NHL remains the ‘fools on the hill’ stuck in what is now a six year agreement with a cable network that features bull-riding, the World Combat League, the National Lacrosse League, the Tour de France along with various fishing and outdoor life programming.

In early February 2007, ESPN announced phase two of their marketing efforts with NASCAR’s Busch Series. Not only is ESPN committing their marketing resources to NASCAR’s “B” series, ESPN and NASCAR officials are working together on securing a lead sponsor to replace Anheuser-Busch who will be ending their title sponsorship at the end of the year. ESPN who purchased a minority stake in the Arena Football League on December 19 now have a vested interest in moving the AFL forward. In early August, ESPN and Major League Soccer announced a comprehensive agreement that includes a minimum of 26 regular season games on ESPN2. Those are benefits ESPN extends to all of their “partners” and while Versus has been good for the NHL in terms of their programming commitment at 71 million homes Versus doesn’t have the reach ESPN does.

What’s essential in understanding the error in judgment the Gary Bettman led National Hockey League is the nature of the recent rights agreements ESPN has reached with Tier II sports like the National Hockey League. The National Football League, National Basketball, Major League Baseball, the Nextel Cup and the NCAA men’s basketball and football do not need ESPN, ESPN needs those sports properties as their partners. ESPN have taken the next level of sports properties (Tier II where the NHL resides) and created marketing and broadcast partnerships. That’s what the NHL needs, to realize it’s no longer a major sports in America and must follow the lead of other Tier II sports properties.

Let’s get back and focus on “the bottom line” and for argument sake let’s use one of the small market NHL franchises (small market in terms of revenue generation), the Nashville Predators. Does it make more sense for the Nashville Predators to add $2.4 million to their bottom line or does it make more sense for the Nashville Predators to enjoy the promotional value in a partnership with ESPN? To a big market team (the Detroit Red Wings) it’s a rhetorical question – it makes much more sense to be on ESPN. But to the Nashville Predators the $2.4 million might represent the teams’ ability to sign a free agent.

Nonetheless – if you’re a North American based sports league in 2008 and you’re not on ESPN – you’re not a North American sports league. The dollars may have made sense to the Lords of the Rink – but at the end of the day there’s more to managing a sports league than $2.4 million per team.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: The New York Times

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