Upfront: Turner Quiet On March Madness, But Envisions Big Returns

What was upfront week's biggest upset? Perhaps how little Turner talked up the NCAA tournament at its presentation. Soon-to-be TBS host Conan O'Brien was the clear MVP with his stand-up routine.

The NCAA is set to appear on three Turner networks under a new deal next spring, yet its inclusion merited just two passing clips. Top executive David Levy said on stage: "We've showed just how much we're willing to invest in our networks."

So much that in a joint $10.8 billion deal to acquire NCAA rights with CBS, Turner has indemnified the broadcast partner. According to the contract, CBS' losses are limited to between $30 million and $90 million a year -- and $670 million total -- over the length of the 14-year deal.

Should the event continue to lose money, as it has for CBS, Turner would be on the hook for shortfalls above the fail-safe CBS has secured. Turner is expected to assume the majority of the $10.8 billion rights fees, but its share will be determined by a calculus involving ad revenue.



Levy, president of sales, distribution and sports at Turner, would not address specifics about its willingness to agree to the loss caps, but said after the event: "We don't believe it's a risk. We don't get into any ventures where we think we're going to lose money on any deal."

CBS, however, gets rights to nine Final Fours under the deal, while Turner has five starting in 2016 on TBS. Turner will air more first-round games annually -- 24 of the 32 -- across TBS, TNT and truTV.

Levy said the four play-in games will probably be on truTV. That could carry added value if the NCAA decides to place blue-chip teams in the round rather than upstarts hoping to get into the field of 64.

Turner will also share in revenues from online streaming of games, where CBS has had some success reaping ad dollars. Levy indicated that March Madness on Demand will be on multiple platforms, such as CBSSports.com, NCAA.com and SI.com (owned by Turner's parent), but the interface will be mostly the same.

While ad dollars -- which will be shared with CBS based on a formula -- are subject to market swings, Turner is banking on the tournament increasing affiliate revenues over the next 14 years as contracts are renewed. CBS, at least partly, looks to piggyback off that growth.

"It's clear that this play with Turner had a lot to do with distributors' fees," said John Skipper, executive vice president for content at ESPN, which tried to top CBS/Turner for the NCAA.

CBS declined comment on its negotiations with Turner.

Lee Berke, a sports programming consultant, said he was only aware of one other example of a rights deal where one partner agreed to give the other a cap on losses: the 1992 Olympics Triplecast. The pay-per-view co-venture between NBC and Cablevision limited Cablevision's losses to $50 million -- and NBC lost a bundle.

In negotiations with cable, satellite and telco TV providers, the NCAA tournament is only one element in Turner's leverage. But figures from SNL Kagan show TBS, TNT and truTV are expected to generate a combined $2.2 billion in affiliate fees in 2013, up 15% from this year.

ESPN's Skipper cited the simple math of a network in about 100 million homes (like TBS or TNT) getting 10 cents more a subscriber per month, collecting an extra $120 million a year. According to Kagan, TNT receives $1.02 now and is projected to make the jump to $1.12 in 2013.

ESPN's bid to capture NCAA rights was believed to be about 5% less than what CBS and Turner offered. After ESPN's upfront event last week, Skipper said: "We felt like we had a great plan, and we were outbid. I'm certainly not able to ascertain anything beyond money."

The NCAA did not return a call seeking comment.

"ESPN finally looks human in terms of actually not getting an event that they wanted," said Neal Pilson, a sports broadcasting consultant.

Pilson said Turner has some runway to increase its affiliate payments, but ESPN could have difficulty landing deals more favorable than its already-formidable ones. "All of a sudden, I see ESPN as a somewhat mature network," he added.

Even as Turner stands to gain, CBS company-wide is likely to garner its version of affiliate fees over the next 14 years, something it didn't have over the life of its previous NCAA agreement. CBS "has shown the ad dollars alone aren't making (it) work," Berke said.

Giving it a second revenue stream à la Turner, the slew of local stations CBS owns will no doubt collect higher retrans consent payments from distributors. It is moving to extract reverse compensation payments from its affiliate base.

Still, ad dollars will hardly be inconsequential for Turner and CBS. Joint selling between the two -- Levy said the structure is still in development -- could help Turner draft off higher CPMs CBS commands. Both parties also can leverage an NCAA corporate-marketing program to drive sales.

Levy said that unlike other programming, pricing for sports is similar between broadcast or cable. Larry Novenstern, a consultant for the Leverage Agency, said CPMs are "slightly less."

Turner and CBS will have more inventory than CBS has had with the event since 1982. With all games nationwide on four networks, fans will be able to watch their favorite teams without worrying whether CBS will cut away.

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