NFL Lockout Hits Media Giants


We're in day three of the NFL Lockout and media giants — and Wall Street analysts — are starting to tally the impact of the shutdown. Billions of dollars are at stake. The biggest advertisers spent a total of $3.4 billion on NFL games this past season and NFL games are the linchpin of ad campaigns for everything from beer and cars, to financial services to electronics.

Advertisers will have to start scrambling for alternatives to the highest-rated franchise on TV and this fall networks will struggle to figure out how to promote their new lineup without the NFL platform. And that likely means that advertisers will shift dollars into prime-time shows with huge reach, like Fox's American Idol or highly rated sitcoms like CBS' 'Two and a Half Men' — we'll see if the network finds a star to replace Charlie Sheen to grab some of those ad dollars.

Losing the NFL season would eliminate some $3 billion in advertising revenue from the four networks. Fox has the most at stake — this year its Sunday NFC package generated nearly a billion dollars in ad dollars. Sunday Night football generated $850 million for NBC, and CBS generated just less than that.

And then there's the $4 billion in TV rights paid by TV networks. But the good news for the networks is that they won't have to pay the $4 billion they pay in rights fees — a judge ruled that they don't have to pay the NFL during a lockout. And even if the networks did have to pay the fees, the NFL would have to pay them back with interest and extend their contracts by a year once the lockout was over.

In fact missing games could actually give the TV networks a short-term boost in earnings. Fitch Ratings says missing games would give a boost in EBITDA because high license fees mean that sports programming is only marginally profitable while replacement content, which would inevitably cost a whole lot less, would be more profitable.

But that would be very much *short-term* relief. There are a number of outstanding issues-- like the decision about what to put on the air to replace football games. And with the upfront ad sales season looming ahead in early May, there's the bigger question about what this will do with ad commitments. Will advertisers look to spend money elsewhere or shift their dollars more online? And the NFL isn't the only problem broadcasters have on their hands — they could lose the NBA as well, worth about $1 billion in network advertising on ABC/ESPN and TNT.

Questions? Comments?