NBC's New Olympics Deal: What the Experts Think

NBC has a new Olympics contract, and it's a whopper. What do industry experts think about the deal?

May 9, 2014 at 9:06AM

Comcast's (NASDAQ:CMCSA) NBC Universal will maintain its grip on U.S. Olympic broadcasting rights through 2032, the International Olympic Committee announced earlier this week. In full, the network's contract extension is worth $7.75 billion, a premium of almost 20% when compared to the annualized value of its previous deal. There's no question ten figures is a lot of money. But was it a smart decision? I chatted with a few sponsorship experts to find out.
Diving into the dollars and cents
With its latest contract, NBC has placed a valuation of $1.27 billion on each of the six Olympic Games between 2022 and 2032. That's up from the $1.09 billion average it agreed to pay the IOC for the 2014, 2016, 2018, and 2020 Games. And over a longer time horizon, it's about 50% more than it paid for the seven events that preceded Sochi.
It's worth pointing out that, due to audience size, the network typically pays more for Summer Olympics broadcast rights than it does during the winter. As the graph below illustrates, NBC paid $775 million for this year's Games in Sochi, Russia, and plans to pay $963 million for the 2018 Winter Olympics in Pyeongchang, South Korea. The upcoming Summer Olympics in Rio de Janeiro, by comparison, cost $1.23 billion, while Tokyo's 2020 Games cost the network almost $1.5 billion.
Screen Shot

Data via NBC, and graph compiled by author. Years 2022 through 2032 are averages. First image (above initial text) via David Holt, Flickr.

Annual values have not been reported for 2022 and beyond, as the host cities have yet to be chosen. It's this that might lead some to think NBC overpaid for its latest contract. A 20% premium is one thing, a high level of uncertainty is another.
The experts I've spoken with, though, believe it's fair. Rob Prazmark, the founder and CEO of 21 Marketing, thinks NBC "got an incredible deal." He shared the economics of the situation with me:

They [NBC] have been doing this a long time and know the economics. IOC got long-term security. One may ask: Why did the IOC do this in isolation, and not tender a bid? It was because in the previous two or three tenders, Fox and ESPN/ABC basically phoned in their bids, and CBS was not interested. Why not take the money while the money is good?

Steve Smith, of Bryan Cave, says that while the $7.75 billion figure is enormous, "the Olympics are an incredibly valuable property." As I wrote earlier this year, the event has the rare ability to capture over a billion viewers, and to say ad space is hot would be putting it lightly. Havas Sports & Entertainment, for example, finds that in the last Summer Games, consumers were 50% more likely to find Olympic sponsors "trustworthy" and "inspiring" than prior to the event.

There's also its prestige, and the fact that it's had a relationship with NBC since 1964. "The Olympic Games have consistently delivered high ratings and high ad revenues to the broadcaster," IEG's Jim Andrews told me. This, he says, makes "them both profitable and a major promotional platform for the network's other programming."

There are still risks
But that doesn't mean no risks remain. Andrews, for one, says, "the element of the deal that carries the most risk is its length. No one can predict the state of the Olympics, or of network television, in 2030 and 2032." While the agreement should allow NBC to make amendments depending on the availability of new technology, there's still no guarantee viewers will tune in.

Still, given recent history, the network has shown it can innovate when it needs to. In Sochi, for example, average primetime viewership was 21.4 million, according to the New York Times. That's between what Turin and Vancouver registered in 2006 and 2010, respectively. But as the Times points out, digital streaming viewership surpassed 60 million, a Winter Olympics record. 

Smith, on the other hand, sees another potential risk. "The one concern on the horizon is the lack of cities interested in bidding on the Winter Olympics," he says. Smith is still bullish on the Games' future, though it's tough to deny stagnancy in this marketplace is worrisome.
The U.S. Olympic Committee, for one, decided against bidding for the 2022 Winter Games, citing a desire to focus on 2024 and 2026 instead. Barcelona and Munich followed suit last year. Generally speaking, lower TV ratings and sponsorship payouts make it tougher to turn a profit when hosting the Winter Olympics. And although financial metrics are spotty at best, it's believed that four of the last six Olympics to lose money occurred during the winter.

The bottom line
At the end of the day, NBC's latest deal with the IOC is a smart one. There's uncertainty, sure. But given the network's Olympic history and the sheer enormity of the Games, it would've been foolish to allow a competitor to take its place. The greatest risk going forward -- technological change -- also represents NBC's biggest opportunity. Assuming it continues to innovate like it did in Sochi, the future looks very bright.

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Jake Mann has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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