Mr. Bettman: CBC is Losing Money on the NHL

A lockout of NHL players may actually save CBC money this year.  In a typical year CBC TV will broadcast over 100 NHL regular season and playoff games, occupying about 350 hours in the schedule and generating relatively large audiences which are sold to advertisers.  CBC has aired hockey on Saturday nights for going on 60 winters and some believe CBC and Hockey Night in Canada are synonymous in the public’s mind.  CBC Sales refers to HNIC as “the longest running and most influential program in Canadian television history.”  CBC management seems determined to renew the contract for the NHL and its executives and former executives seem to believe CBC would collapse without HNIC.  A psychologist would likely say that if the CBC were a person, it is addicted to the NHL.

Here we examine some of the facts about the NHL on CBC TV and other networks and consider what the real cost of HNIC is to the CBC. 

While CBC airs 100 or more NHL games each year, including exclusive rights to the Stanley Cup finals, sports specialty networks air a surprising number of NHL games.  This was a result of recent CBC NHL contracts, especially the contract that started in 2008-09, which resulted in CBC losing more of its exclusive rights to hockey. We examined the years 2010-11 and 2011-12 to determine what other NHL hockey is available to Canadian viewers: 

·        Sportsnet annually broadcasts over 200 NHL games on one or another of its four regional networks. 

·        TSN, like CBC has national rights, and airs just under 200 games on either its original TSN or TSN2 services. 

·        RDS broadcasts over 200 NHL games in a typical season, including all the Montreal Canadiens games.

·        NHL games are also available on NBC stations imported by cable/satellite, U.S. superstations such as WGN, Chicago and the NHL network.

·        Virtually all NHL games are also available via NHL Center Ice which can be purchased from your local cable/satellite operator or directly from NHL.com.  

There was a time when CBC TV had a distinct advantage over TSN and Sportsnet, which are only available on cable and satellite.  When CBC abandoned over-the-air broadcasting on July 31^st, it lost that advantage.  In many communities the only way to receive CBC is via cable or satellite.  In effect, sports specialty channels are now almost as widely available as CBC and they too capture large NHL audiences, although some of their games involve U.S. team match-ups that normally do not draw audiences as large as HNIC.  It is apparent that if the 100 or so games that currently appear on CBC TV were to be carried by CTV, for example, it would represent a fairly minor change for Canadian hockey viewers.

Former CBC executive with NHL's Gary Bettman

CBC in recent years has lost the rights to all other major league sports. At one point in time CBC had CFL, NFL, MLB and other professional sports but over the years the Corporation has been pushed aside by deep-pocketed sports specialty channels.  CBC’s management structure which puts senior people with little broadcasting experience at the negotiating table with the NHL, etc. has also no doubt taken a toll.  Other than hockey, CBC TV airs only about 120 hours annually of minor professional sports, consisting of horse racing, the Calgary Stampede, one tennis tournament and other bits and pieces. Perhaps as a result CBC has gone to great lengths to conceal the financial terms of its NHL contract, which expires in 2014, two years hence. 

Other Canadian networks have generally followed suit, perhaps fearing ridicule from their competitors over what they paid for rights.  Having a publicly-funded network bid for sports rights has engendered a desire for secrecy.  When U.S. networks sign deals with the NFL, NBA, MLB or the NHL, they are quite open about the amounts paid for rights.  For example, the 10-year deal signed last year between the NHL and NBC Universal has a price tag of $200 million annually, a substantial increase from the previous contract.  A number of analysts put the price of CBC’s current NHL contract at $100 million per season and the total cost of NHL contracts in Canada at just north of $150 million.  The $100 million CBC pays currently represents an increase of about 50% over the previous contract.

What does CBC spend on sports in general?  CBC in 2008, the last year it held Olympic rights, spent $180 million on sports programming.  This declined to $139 million the following year, the first year of the current NHL deal, and increased to about $150 million by 2011.  The cost of the NHL contract is a large part of this $150 million.  Also included in the $150 million would be the minimal amount spent on the other sports aired by CBC and the cost of HNIC production, especially all the salaries associated with HNIC, including the salaries of Don Cherry and Ron MacLean.  HNIC costs more than just the rights money sent to Gary Bettman in New York.  Thus, making allowances for the cost of technicians, play-by-play announcers, etc., the total cost of HNIC is probably closer to $125 million annually ($100 million for rights and $25 million for production).

What ad revenues do HNIC generate?  For years CBC has claimed that HNIC is a revenue generator, not only pays for itself but makes a profit and pays for other programming and is the jewel in CBC’s crown.  Given the management structure of CBC, it is unlikely that anyone, including the president of CBC, knows precisely how much revenue HNIC generates (and almost certainly not the total cost of HNIC).  In 2008, with the help of the Beijing Olympics, CBC had ad revenues of $253 million.  Revenues declined precipitously in 2009, as did the revenues of most companies during the 2008-09 financial crisis; they rebounded in 2010.  Last year total ad revenues of CBC were $246 million.  Does HNIC account for half of the total ad revenues of CBC TV?  Probably more like a third of the total revenues, with the hundreds of other programs on CBC accounting for the other two-thirds. 

Let’s say that HNIC accounted for 40% of 2011 total revenues, or roughly $100 million.  We have seen that the cost of the NHL rights and production of the NHL games is in the range of $125 million.  So, even with the generous assumption that 40% of all revenues are generated by 350 hours of hockey and the other 8,000 hours or so of the CBC schedule only generate the other $146 million, HNIC must be losing money today. 

The true cost of HNIC can’t be measured without considering the cost of selling the ads in hockey and other CBC programs.  CBC’s sales and promotion expenses have increased markedly since 2008, from under $50 million to over $80 million in 2011.  Some of the $80 million that CBC spends on sales, which, according to their sales department’s web site, has almost 100 managers, is spent on HNIC, perhaps $20-30 million.  This amount should be added to the real cost of HNIC to CBC. Adding in the cost of sales means CBC’s HNIC is losing tens of millions of dollars with the current NHL contract, perhaps as much as $50 million.

These expenditure and revenue data raise an interesting question. If HNIC is currently losing money on CBC is the current NHL contract affordable for CBC or any broadcaster?  The contract CBC negotiated with the NHL in 2008 gave CBC 100 or so regular season and playoff games and gave hundreds of games to TSN/Sportsnet/RDS at a combined rights cost of roughly half what the CBC pays.  CBC paid a very high a price and unleashed market forces that make the current NHL contract unworkable.  CBC may have priced everyone, including itself out of the future market for NHL games.  If CBC can’t make a profit on HNIC, how could CTV, Rogers or Global?  Gary Bettman, like the IOC, which sold the Vancouver-London Olympics at a price the Canadian market can’t support, faces a dilemma.  Neither CBC, CTV, Rogers or Global will want to pay the current fees for conventional TV rights.

CBC did without hockey when the players were locked-out in 2004-05 and fared surprisingly well, losing only a small proportion of  its audience that year, according to the CBC.  Of course, it wasn't competing against hockey and results would be more modest if it were.  As it approaches 2014 the CBC would be wise to think about programming strategies that do not include NHL hockey, as Radio Canada did years ago, which made SRC a distinctive and more vital service.  Initially there was a public (read: media) outcry and the CBC president was hauled before a Parliamentary committee to explain this horrible decision but within weeks it was all but forgotten.  CBC is losing money now on HNIC and will for another two years, if the players and owners can agree on a new contract. 

The good news is that by ending HNIC and assuming replacement programs can eventually generate the same revenue it will free up something like $150 million (rights costs, production costs and sales and promotion expenses).  That $150 million could be spent on new Canadian drama and other entertainment. CBC executives will argue of course that replacement programs for the 350 hours of hockey will cost hundreds of millions of dollars and bring in much less ad revenue.  They might even suggest that all this expensive programming has to go into the HNIC time slot. What they fail to recognize is that the replacement hours don't all have to be original drama that cost $500,000 an hour and new programs can be strategically placed in the schedule. Even if it is only $75 million in savings that would actually double the budget that CBC currently spends on Canadian drama and comedy and perhaps lead to a CBC television service that appeals to a broader spectrum of viewers.   

Note: all financial data provided by CRTC.