COVER

THE BIG MONEY BATTLE

PAMELA YOUNG March 23 1987
COVER

THE BIG MONEY BATTLE

PAMELA YOUNG March 23 1987

THE BIG MONEY BATTLE

Barry Frank, a media consultant who specializes in maximizing revenues from televised sports events, has an unusual memento—a framed ace of spades—on the wall of his spacious East Side Manhattan office. For Frank, senior group vice-president of Trans World International (TWI), a division of the International Management Group, the playing card is a souvenir of the day he helped the Calgary Winter Olympics organizers obtain $309 million (U.S.) for the U.S. television rights to the 1988 Calgary Winter Olympics. On Jan. 24, 1984, in a Lausanne, Switzerland, hotel room, the Olympic organizers and the TWI executives played bridge between rounds of marathon negotiating sessions with the three major U.S. television networks. Twelve hours after the blind auction began, ABC TV won the Calgary rights—making Frank’s ace of spades a memento of the most lucrative television contract in Olympic history.

Prize: In hindsight,

ABC’s victory was Pyrrhic. The network estimates that it will attract an audience of 180 million during the 16 days of the Games, starting with the opening ceremonies on Feb.

13, 1988. But ABC admits that it probably will not be able to recover its investment in advertising revenues. And the network will have to spend an estimated $67 million more to add its own American-oriented commentary to the basic feed provided by the host broadcaster, Canada’s CTV network.

Industry experts say that CTV won the bid to provide host broadcaster services for a nonprofit $43 millionundercutting the CBC by $6 million. At

the same time, the network captured the Canadian rights for a bargain price of $4.5 million.

Shortly after ABC captured its expensive prize, U.S. TV ad revenues for sports events fell into a slump; they have yet to fully recover. Indeed, ABC sports president Dennis Swanson has

said he expects the network’s Winter Olympics coverage to mean “significant losses”—estimated by industry insiders at between $60 million and $90 million.

The groundwork for the TV contract was laid in 1981, when the Calgary

Olympic Development Association succeeded in its bid for the Games and gave way to Olympiques Calgary Olympics (OCO), a body responsible to the Lausanne-based International Olympic Committee (IOC), in January, 1982. One of the first challenges facing OCO was to assess the Winter Olympics TV market. The organizers hired Frank, who advised them to stretch the Games to 16 days from 12 to gain an extra weekend of prime television coverage. He also convinced OCO to schedule the Olympics to coincide with the February Neilsen ratings sweeps —a comprehensive measure of all U.S. television markets undertaken three times yearly. TWl’s contract was for a percentage of the final rights price, if that price was over $200 million. The consulting firm, in fact, made an estimated $1.98 million on the Games deal.

Haggle: With the wish lists of the networks in hand, Frank required all three U.S. networks to sign identical contracts before the bidding began. In past Olympics coverage negotiations, a network and the organizers would agree on a price and then haggle over details. Said Frank: “The seller always lost those arguments because the big thing was the money,

and once that was set tled it would be very dif ficult to reopen. We took that possibility out of

the mix: the only issue left was the money.” Timing was also crucial. IOC president and former Spanish diplomat Juan Antonio Samaranch persuaded OCO to stage the sale of TV rights three weeks before the 1984 Sarajevo Winter Games began. With Olympics fever already in the air, the networks—particularly ABC, which

held rights for Sarajevo—were all the more keen to obtain rights for 1988. Observed OCO chairman Frank King: “ABC didn’t want to go to Yugoslavia and have to tell everybody on the air they wouldn’t be in Calgary.”

Sealed: As it turned out, scheduling the Calgary bidding before the Sarajevo Games worked in OCO’s favor for another reason. The network negotiators based their bids largely on the healthy ratings for live broadcasts from the 1980 Lake Placid, N.Y., Winter Games, which featured a stunning victory by the U.S. hockey team. But the six-hour time lag between Sarajevo and North America meant that taped events appeared on prime-time U.S. television—when viewers already knew their outcome. And the U.S. hockey team was knocked out of contention before the medal rounds. As a result, the ratings suffered. Admitted Frank: “Had we had the bidding after the Sarajevo Games, we wouldn’t have gotten as much.”

Bidding opened at 1:00 p.m. on Jan. 24, 1984. Seated at a long table in Lausanne’s elegant Palace Hotel were the Games’ representatives, including King, OCO marketing vice-president William Wardle and IOC executive board member Richard Pound, a Montreal lawyer. Pound held three identical contracts—one signed by each of the networks—each with a blank spot where the final price would be recorded. Network representatives present included ABC’s then-news-andsports president Roone Arledge; NBC sports president Arthur Watson and CBS’s Broadcast Group executive vice-president Neal Pilson.

The rules were simple: for each round, OCO set a minimum in U.S. dollars, and the networks were required to submit their bids in sealed envelopes at a prearranged time. In each round, the minimum went up by at least $20 million to $30 million (U.S.), even when one of the networks bid the asking price. CBS was the first to drop out.

Bracing: While executives of the other networks caucused feverishly in separate suites, the Games organizers continued their bridge game—except for OCO’s Wardle, who curled up in a soft armchair and read a paperback edition of Robert Ruark’s novel, Poor No More. In the sixth round, both NBC and ABC bid $300 million (U.S.). At that point, Pound recalls, “we said, ‘It is much

more than we expected, more than the Games are probably worth, but one of you is going to have to eliminate the other.’ ” In the final round, the only rule was that a network’s bid had to be at least $1 million above the previous round. Said Pound: ‘We said, ‘Who’s gonna go first?’ and ended up flipping a coin. NBC won and said $304 million, so ABC retired, came back and said, We see your four and raise ya five,’ at which point NBC said, ‘That’s it.’ ”

The rights holders at ABC did not celebrate. ABC’s Arledge refused to leave his private suite and departed for New York the next morning without a word to OCO. Two years later, in January, 1986, when the budget-minded Capital Cities management group bought ABC,

Dennis Swanson replaced Arledge as head of sports; Arledge’s title changed to group president of ABC news and sports, and president of ABC news. Recent reports indicate that ABC sports is bracing itself for heavy losses on both its six-year $759-million baseball contract and its Calgary Olympics coverage.

In contrast, CTV stands to profit from its dealings with OCO. For $4.5 million, it acquired English and French domestic television rights; it subsequently sold the latter to Quebec’s TVA network. In return it agreed to provide, for the nonprofit fee of $43 million, the basic television feed for in-

ternational broadcasters covering the Games. After OCO extended the Games to 16 days from 12 in February, 1984, the network renegotiated the sum upward by about $1.5 million.

To produce as many as eight simultaneous feeds, CTV will use 13 $2-million mobile units, most belonging to CTV’s owner-affiliate stations. More than 500 hours of feed will be carried by fibre-optic cable or bounced via satellite to the International Broadcast Centre, housed in a renovated curling rink at Stampede Park in downtown Calgary. At the centre, international broadcasters will take whatever feeds they want, add their own commentary and transmit. While its host duties are nonprofit, CTV declines to speculate on what it will clear as the Games’ domestic carrier. But the Royal Bank has paid CTV $1.8 million for l/15th of the total advertising rights, so the network could gross $25 million.

Record: As well, the Canadian network will work closely with the veterans at ABC. Said Phyllis Switzer, managing director of CTV’s 50-member Calgary-based Olympic host broadcasting crew: “They’ve done nine Olympics. We don’t mind listening for the world’s benefit.” ABC’s Swanson says that, despite the financial problems, there will be “no significant cost cutting” in its Olympics coverage. But OCO insiders say that ABC indeed has trimmed production costs —and last week introduced a second price increase for commercial spots, estimated by industry insiders to be $330,000 for 30 seconds of commercial time, The extraordinary auction in Lausanne for the U.S. rights to the Calgary Olympics may prove a high water mark for Games organizers.

Now, network advertising revenues are waning as cable companies and pay TV stations continue to fragment the market. Looking back on ABC’s $309-million bid, IOC’s Pound observed, “It may no longer be practical for single networks to put out that kind of money.” He added: “It is easy to be an expert in retrospect. But at the time, the sportsTV market was almost at its peak.” Indeed, the record established by organizers of the Calgary Games may stand for a long time to come.

PAMELA YOUNG

JOHN HOWSE

ANTHONY WILSON SMITH

DANIELLE KEEFLER

ANN SHORTELL