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NBC Universal’s $7.75 billion Olympics broadcast contract boosts sports values

IOC President Thomas Bach (left) initiated this landmark financing plan during his November 2013 visit to New York.
IOC President Thomas Bach (left) initiated this landmark financing plan during his November 2013 visit to New York.
Photo by Max Donner

The prices paid for many sports teams and sports broadcast rights have sprinted ahead of the rest of the economy. Benchmarks such as the sales of the San Diego Padres and Los Angeles Dodgers baseball teams show the value of popular teams doubled while the general economy struggled to recover from a recession. MSG Sports, one of the few publicly listed companies that is a holding company for sports teams, has seen its share price double in the past two years. The $7.75 million broadcast rights contract announced by NBC Universal May 9 for a twelve year extension of its Olympics coverage confirms that higher values for sports business are based on solid fundamentals and that values are likely to continue to increase for the rest of the decade.

The foundation of large increases in the prices paid for sports teams and marquis sports events is called “audience aggregation” by marketing experts. Facebook, podcasts, webcasts, YouTube Channels and repackaged material from foreign broadcasters have all eroded the large audiences national broadcast networks once enjoyed. But there are still many marketing campaigns for which advertisers and sponsors want to reach a large, dependable audience all at one time, in particular for new product launches. The NFL SuperBowl commands this kind of premium for a large national audience. Specialty networks like the Ice Network aggregate a high percentage of viewers in a specific category that advertisers want to reach. In both instances, marketing professionals find it is well work paying more to reach exactly the audience they want to communication with, an audience they will not reach with a sitcom or movie rerun.

No sports event aggregates a larger or more loyal audience than the Olympics. Comcast, the parent company of NBC Universal, reported a 30% increase in net income for the 2014 winter quarter, boosted by record setting Olympics revenues. And very effective blocking of webcasting of Olympic events into the U.S. available on foreign channels like the BBC gave many more households a good reason to sign up for Comcast cable services. So Comcast considers it well worthwhile to pay $7.75 billion for the rights to broadcast the Olympics in the U.S. for the six Olympic Games between 2022 and 2032. The $7.75 total price tag pegs the value of U.S. broadcast rights for the Winter Olympics at about $ 1 billion and for each Summer Olympics at about $1.6 million. By comparison, the amount paid for the rights to broadcast the 1972 Summer Olympics was only $7.5 million dollars; that is less than half of one-percent of the current market value.

This landmark investment in the future of sports business can also have a very beneficial impact for smaller sports federations in primarily amateur sports that still face major challenges to get large commitments from sponsors and ticket sales promoters. This large amount of capital that the International Olympic Committee can count on for future growth plans will assure sponsors of smaller audience sports like field hockey, bobsledding, and gymnastics that they can count on important visibility and a large fan base as the infrastructure for Olympic sports continues to grow.

This large guarantee for the future financial health of the International Olympic Committee and the many affiliated organizations it supports can also make it easier for local host cities to arrange the financing they need to deliver a quality product. Voters in St. Moritz, Switzerland and Munich, Germany voted against proposals to host the Winter Olympics because taxpayers were not convinced the events would not become a financial burden. With this good news from NBC Universal, there are now more reasons to be confident that every future Olympic event will be a financial success.