Just as networks ramped up their spending on sports programming, the ad market is slowing down.
Recently, cable and broadcast networks have agreed to huge hikes to air professional and college sports under the assumption that they can keep charging advertisers and consumers more and more to watch.
With the ad market in a slump, however, that is starting to look like a risky game.
ESPN, which spent big to secure the rights to National Football League, Major League Baseball and college football games, said this week that ad sales were “pacing down modestly” in the current quarter after coming in flat in the third quarter. Time Warner, whose Turner Sports lineup includes NBA and MLB games, also noted that the sports market looked soft.
That’s spooking some Wall Street analysts given the soaring increase in sports rights costs.
“We haven’t seen sports and soft in the same sentence for almost three years,” said UBS media analyst John Janedis.
“Are we beginning to see a longer term trend? Is there too much sports for sales across the marketplace? It’s too soon to tell,” he said.
Disney, the owner of ESPN, set off the alarms on Thursday when CFO Jay Rasulo warned that the fourth quarter would be weak at ESPN at a time when advertisers have traditionally been keenly interested in sports TV.
“Advertising revenue at ESPN was flat for the quarter as higher rates were offset by lower ratings,” said Rasulo, adding that ESPN ad sales are pacing slightly down.
Disney, which blamed NBC’s broadcast of the Summer Olympics for drawing away eyeballs and ad dollars, didn’t get a post-Games boost either.
“We experienced a less robust marketplace around the Olympics, and we did not see as strong a pickup in demand as we expected after the Olympics ended,” Rasulo said.
At the same time, ESPN is facing $170 million in additional sports programming costs in the current quarter.
Barclays Capital media analyst Anthony DiClemente said ESPN’s weakness was surprising given the network had the NBA back on air after last year’s strike and “management had expressed nothing but bullishness about ESPN ad sales trends last quarter.”
Shares of Disney fell 6 percent yesterday to close at $47.06.
The NFL Network seems to be taking the blame for adding to a glut of sports inventory on Madison Avenue at a time when the ad market is just bumping along.
The overall ad climate this year has been lackluster, despite the double boost of the Olympics and the election.
Still, must-watch live sports programming has been seen as almost immune to the vagaries of the ad market.
“It’s soft, that’s not a secret,” said Gary Carr, chief buyer at TargetCast. “Sports has been the last to fall.”
Even so, Carr thinks there’s still huge demand for the big events, pointing out that CBS is getting top dollar for Super Bowl spots.
“Super Bowl is still getting $4 million a spot and Thanksgiving Day NFL games are $660,000 and no one’s trying to knock them down,” he said.