by Jonathan Berr | February 6, 2014 2:46 pm
Comcast (CMCSA) caught the Olympics spirit in 2011, when it agreed to pay $4.38 billion to broadcast four games from 2014 to 2020 but investors are probably feeling less enthusiastic.
The Olympic games, which begin again this week, have given surprisingly poor returns for the Philadelphia-based company. Take 2012’s London games. Comcast barely broke even on those games, despite compelling story lines such as superstar swimmer Michael Phelps’ quest for Olympic glory. Comcast was lucky it didn’t lose money.
“We now have more confidence than ever the Olympics can be profitable,” Chief Executive Brian Roberts said at the time.
And make no mistake, Comcast’s bet on the 2014 Olympics is huge. Its 2011 deal was more than $1 billion higher than a rival offer from Rupert Murdoch’s News Corp, now 21st Century Fox (FOXA).
The Comcast deal grants television rights to subsidiary NBC Universal. It included a $775 million fee for the 2014 Olympics, $1.2 billion for the 2016 summer games in Rio de Janeiro, another $863 million for the winter games in 2018 and a whopping $1.4 billion for the games in 2020.
Speaking at a dinner for advertisers in November, NBC Sports Group Chairman Mark Lazarus confidently predicted, “We will be profitable comfortably.”
Lazarus, of course, didn’t provide specifics. One reason for his optimism is that the Sochi rights are far cheaper than the $820 million NBC spent on 2010’s Vancouver games (where it lost $233 million). Advertiser interest also appears to be stronger for Sochi than it was for Vancouver, according to Sports Business Daily.
But there are still many reasons to be skeptical that NBC will break the cycle of middling financial performance.
First, there is there is problems of time zones. Sochi, which is shaping up to the most expensive Olympics in history at more than $50 billion, is nine hours ahead of the U.S. East Coast and 12 hours ahead of the West Coast. That may make it difficult for NBC Universal to attract live viewers, especially when U.S. fans can instantly find out the results from the previous night’s competition at the click of a mouse.
Sochi also is making headlines for all the wrong reasons — terrorism, persecution of gays, and a general lack of competence. Stories about exterminators shooting and poisoning stray dogs are bound to turn off viewers even further.
But can the athletes attract viewers?
There has been surprisingly little talk about the athletes, and what discussion there has been don’t bode well for NBC.
Skier Lindsey Vonn, one of the breakout stars from Vancouver, was sidelined from Sochi because of an injury, as were skater Evan Lysack and snowboarder Seth Westcott. Another Vancouver favorite, snowboarder-turned-fashion mogul Shaun White, is injured as well. He has already withdrawn from one event.
Really, the best hope for CMCSA stock is that Americans will take home a bunch of gold at the 2014 Olympics. But The Wall Street Journal is projecting that Norway will win the most gold medals (33) in the games. No offense to the Norwegian athletes, but Americans probably won’t tune in to watch Martin Sundby go for gold in cross-country skiing.
Comcast has always argued that the Olympics offers a unique promotional opportunity to promote its NBC television network and its array of cable channels such as Bravo, CNBC and MSNBC. But that hasn’t worked in past games, and it probably won’t work for the 2014 Olympics in Sochi.
NBC has struggled in the television ratings for years. Last year, it fell to fifth place in the sweeps period, falling behind Univison. CNBC’s ratings hit a 20-year low in 2013. As for cable news, Fox News attracts more viewers than MSNBC and Time Warner combined.
While rights to the Olympic games are a nice thing to brag about, they aren’t a reason to buy CMCSA stock. In fact, they’re probably more of a liability. The ever-increasing costs for sports programming are going to make it increasingly difficult for CMCSA and its rivals to make a profit on them.
CMCSA stock, which has surged more than 38% over the past year, is trading at a forward multiple of about 18 — a premium compared to rivals such as Viacom (VIAB), which trades at a 14.6 valuation and Disney, which trades at 17.
But CMCSA stock does have good things going for it, such as the surprising strength of its video business in the last quarter in the first time ever. If the company is able to join forces with Charter Communications (CHTR) to buy Time Warner (TWC), that would be an even bigger plus.
Prospective investors, however, may want to wait to buy the shares. If the 2014 Olympics turn out to be a gold-medal sized dud, CMCSA stock will become a lot cheaper.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.
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