Seven's high price for sporting glory

Although the 2016 Olympic Games will be ratings gold for Seven West Media, will its bet on the next two Olympics be worth this year's financial pain?

On Saturday morning Australian time, the world’s elite athletes (who haven’t pulled out or been kidnapped by police) will walk into Rio’s Maracana stadium as Olympians. At some point the Olympic motto of ‘Citius — Altius — Fortius’ or ‘Faster — Higher — Stronger’ will no doubt be proclaimed.

Although that motto might be a good description of the psychology required by the athletes, it doesn’t appear to match the public’s attention to 'the games’.

After the 2008 Beijing Olympics was broadcast to a record audience of 4.7 billion, London’s audience in 2012 was reported to be only 3.6 billion, which puts it on a par with Sydney in 2000.

The Google trends chart below also shows how search activity for the term ‘Olympics’ also declined with London, recording a peak approximately 20% below the Athens and Beijing games.

Perhaps this was why, along with the difficult time zone, Nine Entertainment (ASX:NEC) and Ten Network (ASX:TEN) walked away from the Rio rights negotiations. Fomer Nine chief executive David Gyngell said he would only consider buying the Rio rights if ‘we aren’t doing very well’.

For Seven West Media (ASX:SWM) — which paid between $150m and $170m to ‘win’ the broadcasting rights — the question turns to how to make money from the event. It's not an easy thing to do considering Nine lost around $20 million on the London games even after teaming up with the News Corporation (ASX:NWS) owned Fox Sports.

Seven is already flagging a poor return despite launching a paid subscription service to generate extra revenue. In its results on Tuesday, Seven announced that 2017 earnings will be 15-20% lower on the back of lower advertising activity as well as higher costs from its AFL and Olympics content deals.

Despite this, Seven will still dominate the ratings for the next two weeks. Australians still love their sport and, apart from Ten betting that the audience for reality show ‘The Bachelor’ is different from the audience interested in the Olympics, the free-to-air networks have held back their popular shows until after the games. Won't it be embarrassing for Seven if more people tune in to see which girls are given roses on The Bachelor instead of watching what happens in the pools and on the athletics field?

With the Olympics and AFL — two events covered in the anti-siphoning legislation — putting a hole in Seven's 2017 earnings, we may be reaching the point where sporting content is becoming too expensive for the structurally challenged free-to-air networks. With Seven also owning the rights to the next two Olympics, shareholders must be wondering whether the high price is worth paying for two weeks of high ratings every four years, or whether that cash would be better off in their pockets.

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