Thrown for a Loss by the NFL

When it's late in the football game and you're falling behind, the best strategy is often to go deep and hope something good happens. And that's exactly what three television networks did last week, reaching deep into their pockets to pay $17.6 billion for the right to broadcast National Football League games until 2005. Says Robert Iger, president of ABC Inc., the Walt Disney Co.-owned media firm, which spent $9.2 billion on both network and cable-television rights: "Losing would have been devastating."

Winning might not be much better. Although the entertainment business often makes deals that seem right out of Fantasyland, the money that ABC, CBS and Fox are paying demonstrates just how desperate the network-television business has become. CBS paid $4 billion to get back in the game, intercepting rights to the American Football Conference previously held by NBC. A day later ABC, the No. 3 network, outbid NBC with a $4.4 billion deal to retain Monday Night Football. Its cable unit, ESPN (which shared Sunday-night games with Turner Broadcasting's TNT for eight years), dropped $4.8 billion to acquire the entire NFL cable-television package through the 2005 season, giving Team Mouse a sweep. Not to be outrun, News Corp.'s Fox Broadcasting extended its National Football Conference deal with a $4.4 billion contract, a 39% increase over its current one.

The networks essentially paid double the previous contract for programming that is steadily losing viewership. NFL ratings have tumbled about 33% since their peak in the early 1980s. And overall network viewership continues to dwindle: the prime-time ratings on ABC, CBS and NBC have fallen 47% over the same period. "What this shows you is that it's not football that is the draw," says Porter Bibb, a media analyst with Ladenburg, Thalmann & Co., "but that the networks are struggling for survival."

NBC, sent to the bench as a result of CBS's acquisition of its AFC rights, had to resort to claiming rational behavior to explain coming up empty-handed. Executives at the unit of giant General Electric called the contract bids "reckless," saying it wasn't worth more than $340 million a year to keep the AFC rights, the weakest in the package, or more than $500 million a year to obtain Monday Night, considered the strongest. "There was no chance of making money in this deal," said Dick Ebersol, president of NBC Sports, after the announcements. "I'll guess [it's] a loss of $150 million to $175 million a year. We simply don't believe in being associated with that kind of loss." The Peacock will have to console itself with other sports, such as the Olympic Games. Not to be outdone in the spending department, the company renewed its top-rated show, ER, for three years at an astonishing $13 million an episode, up from almost $2 million.

For the NFL, whose owners routinely hold up municipalities for new stadium deals--or bolt town in the middle of the night for more remunerative burgs--the $17.6 billion is just another example of its ability to play hardball. Each team will get a windfall of about $75 million a team per season, although much of that will go into players' salaries. After five years the NFL can renegotiate for even higher payoffs.