TVN Focus On Advertising | Nets Look To Recoup Lost Sports Revenue
The broadcast and cable networks lost more than $3 billion in TV sports ad dollars due to COVID-19 cancellations between mid-March and into July, but a huge chunk of that was mitigated by not having to pay rights fees for the canceled events, as well as savings gleaned from no production costs and reduced on-air talent salaries.
That approximate $3 billion ad dollar total in lost revenue includes about $1 billion in ads committed to the Olympic Games on NBCU’s networks that were postponed until next summer, when the games will eventually be played. That revenue will not be lost in the long term.
And with the NBA and NHL resuming their seasons beginning in late July and extending them into September, which will include all the post-season playoffs being played, the networks will be able to recoup a large chunk of the earlier lost revenue. Virtually every one of the regular season games — up to five a day — are now being televised for both leagues, so more advertising can be sold by the networks.
TVNewsCheck used a comparison of iSpot.tv network ad data from 2019 and 2020 to glean the approximate ad dollars cumulatively lost by the networks between mid-March and into July and deducted the TV rights fees the networks normally would have had to pay the leagues had the events canceled been played and televised during that period.
While no TV network or media agency network executives would confirm those numbers on the record, a handful did say those numbers were basically in line with their own estimates.
Since the networks and agencies are still locked into continuous sales negotiations to get advertisers back and to also sell for the fall TV sports season startup, no executives wanted to speak for attribution.
In effect, they acknowledge however, that while it’s still a boatload of money, the lost TV sports ad revenue situation on the surface looks a lot worse than it was and could have been a lot worse yet.
“With the rights fees savings, and with the Olympics on NBC just being postponed until next summer so not really losing that ad revenue but just delaying it, the networks cumulatively at bottom line lost well less than $1 billion,” says one TV network sales executive. “The overall hit was still sizable, and more for some networks than others, but was not as bad as it seems it would be. And the NBA and NHL dollars will mostly be recovered with the extended seasons.”
The hit may have been harder on ESPN because all of the network’s programming is sports. ABC, CBS, NBC and Fox and even Turner all have other entertainment programming as part of their overall mix. Some of them were able to get advertisers to move some ad dollars into other dayparts of their networks.
A Break From Rights Fees
Another reality is that even though the networks take in a huge amount of ad dollars from live sports telecasts, they also pay huge TV rights fees that offset the bottom line profits they make from those ad dollars.
“In reality, a lot of these major sports telecasts are loss leaders for the networks,” says one media agency executive. “The networks are paying so much in rights fees that they barely take in enough advertising during a season or from week to week to break even, depending on the sport. Most make small profits or even lose money on their sports deals. But they use sports to build up the profile of their entire network in the eyes of advertisers and viewers.”
In the case of the COVID-19 pandemic and four months of cancellations of live games, he adds, “the networks lost a lot of revenue, but savings on rights fees and production costs made it close to a wash. They lost a lot of cash flow to the system but didn’t lose a lot of actual revenue in the long run.”
As for the NCAA Men’s Basketball Tournament, no rights fees were paid for this year, but sources said discussions are ongoing as to whether an additional year will be added at the end of the current TV rights contract to make the NCAA whole for that.
Multiyear-Deal Network Protection, Advertisers’ Pain
Another way the networks were protected was because of multiyear deals that include sponsorships of the pre-game, half-time and post-game shows, and well as in-game ad spending packages. A sizable number of big spending advertisers and official sponsors of the respective leagues have those deals with the networks, so they remained in place. The networks haven’t had to go back and re-sell those deals as part of future telecasts.
In actuality, advertisers were hurt more than the networks as many saw huge drops in their brands’ in-store sales during the lockdowns related to the pandemic and due to lack of ability to reach mass audiences via their usual spring and early summer sports telecast advertising.
That’s why in many instances, according to both network and agency executives, ad clients took ad refunds rather than keeping the dollars on the books for future use. But now with all the spring sports like MLB, NBA and NHL back on television, along with NASCAR and golf, most advertisers are coming back in and also buying ads for fall sports, particularly the NFL.
“The general pattern of our conversations with advertisers was if an event or league was cancelled, we gave them the option of getting their money back or relocating it to other sports down the road or even to other entertainment programming on the network,” one network executive says. “For the advertisers who kept their money with us, we reinstated their buys in those sports.”
The network exec added, “A vast majority of the advertisers are back in and the ones who aren’t back are out because they had seasonal products to promote just during the spring.”
Who’s Back, Who’s Still Gone
Other than some ad clients who were selling products based on spring and early summer, most ad categories are back, according to the networks. The two categories of sports advertisers not coming back at the same levels as before so far are movie studios and travel advertisers like airlines and resorts. However, some of the networks carrying NFL say that movie companies are trying to do deals for the fall and winter with some contingencies.
Usual big-spending NFL advertiser categories that are strong so far include insurance, wireless and tech, auto, beer, retail and pharmaceuticals.
Cooperation Is Key
When the leagues all shut down in March and April and the networks and advertisers were left holding the bag, the situation could have been highly chaotic. In fact, both the networks and agencies say things proceeded more smoothly than most would have thought.
“Our salespeople all have good relationships with the agencies they deal with,” says one network sales executive. “It was not ideal not seeing folks in person, but the system is still working well. Every one of our salespeople working remotely has had access to our main computer system and have been able to send out information, register budgets, negotiate pricing and do business as usual.”
For their part, the agencies say the networks mostly have been fair about ad pricing as the sports have come back on the air, both for those placing ads for the first time, and for those who took ad dollars back and now want to reinvest.
“The networks dealt with every client on a case by case basis,” one agency executive says. “Some of our clients took money back, some reallocated it to other programming on the network. Some left it in to be used in the future. But the networks were fair.”
Another agency executive added, “Most of our sports clients left the ad dollars with the networks and if we wanted it back we could have asked for it at any time and the networks would have returned it. The networks were incredibly compliant.”
A third agency buyer says, “It was pretty black and white as far as our options went. The money could just sit on the sideline with no need to repurpose it or take it back. Most of our clients just let it sit there and are now moving it into the resumed sports programming.”
There was one agency executive who says options varied depending on the network. “Getting money returned from some of the networks wasn’t as easy as it might seem. It was a negotiation.”
Sources described CBS and Turner as the easiest from which to negotiate refunds of ad dollars. At the other end of the spectrum, ad buyers interviewed for this story said ABC/ESPN were the most difficult in agreeing to return ad dollars, particularly for NBA deals.
NFL Ad Sales In Full Swing
With three major sports leagues along with NASCAR and golf all back on the air and the networks selling advertising once again, the big question mark now is what will happen with fall college and NFL football telecasts. This has both the networks and ad buyers nervous.
A few college conferences have canceled football for this fall — most notably the Big Ten and Pac-12 — and some others have cut back on their schedules, although leaving in place the most prominent matchups that would be shown on TV. The fate of the college football season overall is still in a state of flux.
As for the NFL, plans right now call for the season to start Sept. 10, although many players have opted out and others have tested positive for COVID-19 since training resumed. Much can happen in the next month.
While ad selling for both the NFL and college football is proceeding, many advertisers are looking for contingency language in their deals in case the seasons don’t start on time, are canceled mid-stream or aren’t played at all.
The NFL brings in an ad revenue stream for networks CBS, NBC, Fox and ESPN to the tune of about $5.2 billion a year for the regular season, according to iSpot.tv data. But once again, the networks’ cumulative TV rights fees paid to the leagues top that at about $7.5 billion a year.
While the networks would lose all that live NFL sports programming and viewership, should the season be canceled before it starts or if ends prematurely, the financial hit would not be as massive as it seems, assuming no rights fees are paid out for games not played. And replacement programming would make up for at least some of the loses, even if most advertisers get their money back.
As for college football, the networks take in around $1.5 billion in advertising during the regular season according to Standard Media Index data, and that is somewhere in the range of the cumulative rights fees networks pay out. Once again, ESPN would take the biggest hit because it carries the most college football, including more than 30 bowl games and the national championship game.
NFL Sales Slower Than Last Season
NFL ad sales talks have been slowed by the agencies’ desire to make it easier to get refunds if games are not played, buyers say. And some agencies are still in the process of registering NFL ad budgets with the networks.
“Our clients want flexibility for any new deals we are doing, particularly for the NFL,” says one ad buyer. “That’s the most important thing for our clients. If games aren’t played or a season is canceled, they want to be assured their money will be returned in a timely fashion.”
Right now, NFL ad sales are running about 20% behind where they usually are at this point less than a month before the start of the regular season, assuming it starts on time.
Last August, upfront commercial time for NFL games was about 70% sold and buyers say that percentage is probably only about 60% now. They are projecting that percentage to reach 70% by start of the season in early September. That means more inventory will be available for in-season scatter sales. That, however, could be a good thing for the networks if viewership is up, which will in turn drive up pricing.
“We are writing NFL ad business now but are about a month behind where we would normally be,” says one network executive. “We do have a lot of multiyear deals on the books and our sponsorships are done, but we have a lot of in-game inventory to sell. Still, I think by the start of the season we will be at the same sellout level as last year.”
NFL pricing so far is up about mid-single digits compared to last year and both the agencies and networks believe that is where it will stay heading into the season.
“All of our NFL clients are back this season,” says one ad buyer. “And rate increases the networks are getting for NFL commercials are less than the15%-20% increases the networks’ entertainment programmers are asking.”
One buyer says the large amount of commercial time the networks have to sell for the NFL puts them at a bit of a disadvantage during pricing negotiations. “In reality, there is so much NFL inventory now, and a shorter period to sell it, that if the networks try strong arm sales tactics, we can play one against the other and threaten to move money from one network to another.”
Super Bowl Questions
CBS has the next Super Bowl, so it is currently selling both regular season NFL and the big game scheduled for the first week in February. Sources say CBS is running behind where it should be as far as Super Bowl units sold but is having conversations with all the usual big-spending Super Bowl advertisers.
One agency buyer says Super Bowl ad buying will be later this year because running a Super Bowl commercial requires spending “millions more on all sorts of disciplines surrounding the ad like activating consumer contests and experiences and that is hard to do right now with social distancing.”
Super Bowl ads also start to be created now and agencies and clients are hesitant over uncertainties as to what the environment will be in February, assuming the game is even played. Advertisers seem less willing to spend money now on hiring star talent and producing an ad that may fall flat in six months.
The bottom line with the NFL, both regular season and Super Bowl, is that as long as the games are played, mass reach will always be there for advertisers. And while the networks would lose that large chunk of ad dollars if the season were canceled, the savings from lack of rights fee payments and production costs would limit losses like it did for the spring sports telecasts.