Covering Big Fee in Basketball Deal Is Slam Dunk at NBC

When NBC agreed last November to pony up $600 million for the rights to broadcast National Basketball Assn. games, industry jaws dropped. How would the network ever recover its costs, let alone make a profit, from advertisers who were expected to balk at footing the bill?

But in the three months since NBC won the four-year NBA contract, the network has closed advertising sales totaling $518 million and shortly expects to have enough commitments in hand to cover its rights fee with nearly half of the advertising time left to sell.

The advertising deals are significant because they are the first indication that sponsors will go along with the quantum leap in fees paid by the networks over the past 15 months for rights to broadcast major sports events. Advertising agency executives, however, say there are several unique factors relating to the NBA that account for its advertising windfall, and other sports programs may not fare as well.

“This has been an undervalued property,” said Robert Blackmore, vice president of advertising sales for NBC. “Basketball is reaching its zenith right now. One of the reasons it’s at that point is the outstanding marketing job” done by NBA Commissioner David Stern. The NBA, which 10 years ago had one of the worst images of any sports league, is enjoying record attendance and revenue.

Spurred by Japanese auto makers, who did not get to advertise in the old NBA package on CBS, NBC has raked in $368 million from eight auto companies. Miller beer has bought about $150 million in advertising time, and network executives expect to generate an additional $100 million to $125 million from other brewers.

The auto companies are Chrysler, Ford, General Motors, Honda, Mazda, Mitsubishi, Nissan and Toyota. The automotive and beer categories will each account for about 25% of the advertising time sold in the NBA.

With just under half the commercial time left to sell, NBC officials privately say they could reach the $1-billion mark in NBA advertising after deals are wrapped up with financial service companies, soft drink bottlers, toiletries, athletic equipment manufacturers and other companies that customarily want to reach the male-dominated sports audience.

Advertising agency executives say NBC’s deal with the NBA benefits from several factors that do not come into play with other sports programs. The January through June NBA season, for example, occurs during one of the peak advertising periods for television, especially for brewers and soft drink bottlers, and at a time of relatively little competition among professional network sports programs.

One agency executive, who requested anonymity, said Japanese auto makers helped fuel the increase in dollars committed to the NBA. “The old three-year deals did not have imports, but they snapped it up this time, and that put pressure on the domestics” to respond, he said.

NBC’s Blackmore acknowledged that the robust advertising response for NBA games may not be there for other sports programs. Basketball is “turning into an entertainment event as well as a sports event, and this attracts people who would not normally be watching.”

But Gary Carr, senior vice president at Lintas USA, a New York advertising agency, says it may still be tough for the networks to match the NBA deals in other sports programs. “The sports marketplace right now is pretty healthy, but nobody knows about the next couple of years. It’s unclear where all the money is going to come from” to pay for the new contracts.

All three networks, led by aggressive bidding from last-place CBS, have pushed the cost of television rights for major sports franchises into the stratosphere in an effort to keep the games out of the hands of the emerging cable networks. Over the last month, ABC renewed its “NFL Monday Night Football” four-year contract for $900 million, and CBS and NBC renewed their Sunday NFL package for a combined $1.8 billion.

Many analysts have been predicting that, although sport events on television have a reliable ratings track record, the networks still stand to lose millions because sponsors won’t pay the sharp rate increases needed for the new sports contracts. Onerous major league baseball contracts negotiated by ABC in the early 1980s contributed to the network losing money several years later.

Advertising sources say NBC is getting an average of $100,000 per 30-second spot, compared to about $55,000 that CBS is said to have received. There are 50 available spots in each game and a total of 52 games in the first season, increasing to 56 games by the final season of the four-year contract.

The difference in rates reflects, in part, long-term agreements negotiated by CBS years ago, when basketball didn’t have the following it has today. Also, the rates advertisers pay for the remaining time will be lower if a competitor also buys time on the program.

NBC executives, however, are confident they will make money on the games, even after an estimated 15% is subtracted for agency commissions, plus production and promotion costs.

“We were astonished we had the opportunity to make this deal,” said Ken Shanzer, executive vice president at NBC Sports. “We were hoping the sales strategy would work and were right the property was undervalued.”

CBS, which has broadcast the NBA since the 1973-74 season and had been paying $44 million annually, turned down the same $600-million deal offered NBC. CBS was estimated to be making an annual operating profit of $40 million to $50 million on its NBA broadcasts.