Wednesday, November 26, 2008

Why Ultimately You Are Paying For ESPN's Big TV Contracts


It was hard last year to try and really explain the overall strategic impact of the shift in NASCAR TV programming. ESPN acquired the ten Chase for the Championship races, the seven Sprint Cup races before the Chase and the entire Nationwide Series.

This effectively put ESPN in a tremendous position of power as far as the overall perception and impact of NASCAR in North America was concerned. While Fox makes a big deal out of the Daytona 500, that network is long gone before the real drama begins. TNT comes and goes very quickly, making the summer Daytona race the focus of their efforts.

It is ESPN that has surrounded NASCAR. They have the end of the regular season, all of the playoffs and the second-tier series. In addition, ESPN originates the only daily NASCAR news program and floods the Internet with NASCAR content through the ESPN.com website.

As most sports fans know, ESPN has made news by paying incredible amounts of money for the rights to SEC college events and most recently for BCS college football games. That leads to the question of where this large amount of money is coming from? The answer is easy to understand. It came from you.

Click here for the outstanding summary by Clay Travis over at Deadspin.com of the recent headline article in the New York Times. Clay summarizes for sports fans exactly how the ESPN financial engine works and what role cable TV customers play in that equation.

This is the original story from veteran sportswriter Richard Sandomir of the New York Times. Sandomir is factual and polite as he describes the sequence of events that ultimately led to ESPN winning the Bowl Championship Series TV contract.

It may come as a surprise that ESPN charges cable operators almost four dollars a month per viewer for channel access. The resulting four billion dollar annual windfall makes it pretty simple to outbid over-the-air broadcast TV networks that derive no additional income from cable TV carriage.

As NASCAR fans know, when the college football season starts, NASCAR moves to the back burner across the ESPN family of networks. The power of ESPN over NASCAR has been demonstrated since the contract first began in 2007.

Suddenly, practice sessions were not televised. The Nationwide Series races tried to survive between live college football games and the NASCAR coverage on ESPNEWS and SportsCenter effectively ended in September.

The balance of power was ultimately demonstrated in "the big switch" of the East and Central Time Zone audience from ABC to the ESPN2 cable TV network while the Phoenix Cup race was in-progress. Just a reminder, that was the next-to-last race of the season.

Both the Deadspin and NYT articles are much more effective than I could ever be in explaining the financial pathway that has enabled ESPN to become a media monopoly. It seems ironic that after paying billions of dollars for college sports contracts, ESPN is seeking to significantly downsize the NASCAR TV production costs for 2009.

Thanks for taking the time to read the linked articles and thanks to both Clay Travis and Richard Sandomir. The comments section is open for your views on this topic. Just click the COMMENTS button below and follow the easy instructions. Your comments will appear shortly after they are submitted.

12 comments:

majorshouse said...

It is quite apparent to this fan that we are getting screwed royally by a network that does not treat or value NASCAR or any other form of motorsports as an equal sport and wish that NASCAR could and would void its television contract with ESPN/ABC and let Speed do it. I have enjoyed the coverage by the Speed channel for its truck series races and Formula One races with a minimal crew that gives great information and exciting races and have even seen their viewership greatly expand this year.

Anonymous said...

Well, I guess there is no free lunch. As far as changing channels before the end of a race, The one thing that NASCAR and others have to do is to have good lawyers. There are some programs like "Desparate Housewives" that cannot be delayed, shown "already in progress", or preempted. Others like "60 Minutes," can be delayed but must be shown in full.

All the networks (NBC, Fox, ABC,etc) have cut off sporting events when they have lasted too long, and the program that follows has a contract with no wiggle room. I've seen it when networks switch to infomercials, of all things!

Fox has changed its lineup so that the program that follows a sporting event is one that can be "shown in progress."

The money is all conected to the public and the players. I see that the Yankees may want to offer CC Sabathia some $140M contract, well that means the Yankees have to make more money in order to pay him. That means everything, including tv rights to their games. The same is for NASCAR. Everyone wants more, and we, the public, just keep paying.

Richard in N.C. said...

JD- Thank you. Super article. In my view the perfect description for ESPN is bloated and arrogant, like CNN was 10 years ago.

Anonymous said...

The three networks that bought NASCAR paid a boatload of money to do it--in fact, some might say, given the current situation, too much money.

I suspect that big money came iwth concessions on NASCAR's part, like NOT codifying that all Cup races will be shown live in their entirety on the primary network.

What I don't get is, why did ESPN pay all the money just to withhold certain events that viewers would like to see (practice, qualifying)? Was this an attempt on the part of a network to tie upt the rights so no one else could broadcast the events?

If it is, then NASCAR has learned yet another lesson about contractual obligations and what it should have required from the purchasers of the broadcast rights.

alex said...

ESPN may claim to try and save money on Nascar and other sports, but does anyone think they'll pass that on by lowering cable subscriber fees? Nope. It will be the opposite

AMS fan said...

I sure hate knowing that $3.65 of my satellite payment goes to ESPN. I guess I'm really dumb when it comes to the TV game.
I would think that any network that wants viewers would be PAYING the cable or satellite companies to carry their channel(s).
I guess I couldn't be more wrong.
I realize $3.65 is pretty cheap for me to watch approx 43 NASCAR races, but I still think the money is going the wrong way.
I would be overjoyed if FOX could get the complete cup series, and split it up with Speed. But obviously FOX cannot compete with ESPN with that difference is income.
JD, I am curious if you have some kind of breakdown of how much cable and satellite companies have to pay for our GOOD channels. Asking that just seems so wrong. It makes no sense to me. I pay the satellite company for them to pay a network to carry their channel. Somewhere, someone found a sucker and they really won the battle and war.
Well JD, just let me say thanks again for this web site. It has broadened my knowledge of so many things. (pretty good stuff)

Daly Planet Editor said...

AMS Fan,

Thanks for the good words. By the way, that is $3.65 a month, so your ten months of NASCAR viewing cost you $36.50 directly to ESPN from your cable bill.

JD

AMS fan said...

Thanks JD for making it sound even worse!
It just ain't right.

Dot said...

Interesting about ESPN.

How come they're on the basic tier and not an upper one like SPEED, et al? Do the upper tiers cost more? As you can guess, I know next to nothing about cable charging. I just pay the bill.

I know a few years ago they wanted to charge my cable company more money. Others, too? I don't know what the outcome was.

Daly Planet Editor said...

Dot,

Those are some of the reasons I published this story. ESPN and ESPN2 are basic cable channels.

The cable system pays ESPN per household a monthly fee to get the ESPN and ESPN2 channels.

This fee has been used to pay the high costs that ESPN bid to get the programming away from free over-the-air networks that do not get cable fees.

It is basically a big circle of dollars. ESPN uses the cable TV viewer fees to bid higher, get the big sports events and then eventually turns around and raises the fee for the cable users again.

That is the ultimate irony of the situation. This scenario is going to come into play shortly when NASCAR faces a shortfall with few ad dollars coming in and the cable user money already spent on other sport properties.

It could make for a very interesting season at the racetrack.

JD

Anonymous said...

The money doesn't come from the fans. It comes from the advertisers. If you want to extrapolate that and say the advertisers sell products we buy, so we pay for the advertisers who pay for the airtime that makes airing NASCAR profitable. And if you want to go that far, then we pay for everything.

If ESPN couldn't make more money than they pay on the TV contract, they wouldn't pay it. But they can, and the millions they get in profit do NOT come from me. That's kinda like going up to a school teacher and because you pay property tax start saying "I pay your salary!"

Daly Planet Editor said...

Anon 12:45AM,

I appreciate your view on the issue, but disagree.

What the article is saying is that ESPN enjoys the same advertising revenue stream as the broadcast TV networks and then has a "war chest" of cash in addition to that from the cable TV fees.

The cable TV fees alone total over four billion dollars per year. That is the primary reason why we have seen so many top sports TV properties migrating to ESPN.

Thanks for the comment.

JD