The Reason Why NBC Universal is Losing So Much On The Olympics: It Paid Too Much For Them!
In light of big ratings a lot of people are questioning how NBC can possibly lose the reported $250 million dollars GE claims its NBC Universal unit will lose on the games.
The simple answer is that GE is predicting NBCU will generate $250 million less revenue in advertising than the cost to license and produce the games. The longer answer is that they probably paid too much for the games to begin with.
Licensing fees keep going up. NBC won the rights to the Atlanta summer games in 1996 for $456 million. Then NBC negotiated for the rights to all the games between 2000-2008 (3 summer Olympics 2000, 2004, and 2008 and two winter Olympics in 2002 and 2006) for $3.5 billion dollars. That averaged out to about $700 million per games but in reality the cost per the summer games were higher than the winter games.
For the 2010 Winter Olympics in Vancouver and 2012 summer Olympics in London NBC bid a total of $2 billion for the rights. $1.18 billion for the London games and $820 million for the Vancouver games. They outbid the nearest competitor, Fox, by a reported $700 million. Fox had reportedly bid $1.3 billion for the Vancouver/London package.
So you have ever escalating licensing fees to the point where the 2012 London games were more than twice as expensive to license as the 1996 Atlanta games. A couple of things you can be sure of:
1.) NBC thought Fox would bid more than $1.3 billion for the 2010 and 2012 games or it would not have outbid them by $700 million
2.) NBC talked itself into believing past trends would continue. Despite escalating licensing fees it had still managed to make money. Licensing fees kept escalating but so did advertising revenue.
No doubt NBC didn’t work a major recession into its prediction when it made the $2 billion bid in 2003. If it’s true that NBC’s nearest competitor Fox only bid $1.3 billion, NBC could’ve locked up the 2010 and 2012 games for $1.4 or $1.5 billion and there wouldn’t be any chatter about NBC losing money on the games.
Here’s an article from 2003 by Richard Sandomir in The New York Times covering the bids for the 2010 and 2012 games.