Nigel Aplin on Rogers sports profit

Image: Canadian NHL teams shut out of the playoffs.

No Canadian Team in NHL playoffs

spells trouble for the telecom giant

Rogers takes an advertising beating as viewers deop

By Nigel Aplin
Sports Editor
True North Perspective

Bobby Orr was airborne with his arms fully extended in celebration right after he scored his famous Stanley Cup winning goal in overtime while being tripped as he flew past the front of the St. Louis Blues net, resulting in one of the most iconic photographic images in hockey history. The date was May 10, 1970.

No Canadian-based team (and there were only two in 1970) qualified for the NHL playoffs that year, something that would not happen again until this year. Well before the 2016 NHL playoffs began, we knew that the Stanley Cup would remain in the United States for a 23rd consecutive year.

In November, 2013, the NHL and Rogers Communications, one half of the much despised duopoly (along with Bell) of national Canadian telecommunications companies, announced a 12-year, $5.2 billion agreement for the exclusive Canadian broadcast rights for NHL games (portions of which Rogers sells to the CBC). As we approach the end of year two of the agreement, Rogers shareholders may be thinking that the company probably overpaid for these NHL broadcast rights.

Rogers reported earnings for its first quarter of this year on April 19 and the results were mixed at best. Earnings dipped by 3.8% which the company attributed mainly to vagaries of accounting, namely higher depreciation and amortization. Revenues from its cable television business continued to drop as more customers “cut the cord” on cable but the hockey deal certainly hasn’t delivered the revenue it was supposed to as far fewer of us have been watching hockey on television over the past two years.

The deal may eventually pay off for Rogers but through the first two years, it hasn’t — due to two main reasons: The first is the sorry state of the Toronto Maple Leafs who have recorded one playoff appearance in the last ten years and managed to finish the 2015-2016 regular season dead last in the league. Interest in the Maple Leafs drives television audiences not only in Canada’s largest city but across the country as well. As the regular season drew to a close in early April, the last home Saturday-night game of the Maple Leafs season drew only a little more than 700,000 viewers. The long term average for these Saturday night games involving the Maple Leafs is more than 2 million.

The second issue is that no Canadian based team qualified for post-season play this spring, meaning that viewership of playoff hockey will be reduced to only hard core fans of the game and casual fans who may tune in to an overtime game or a series deciding seventh game. Combined with the collapse of the Maple Leafs, this has served to dramatically reduce television viewership of hockey in Canada through the recently completed regular season and will continue to do so through the playoffs which will run into the first week of June. Regular season audiences this year were down by an average of 15% from last year and by almost 20% from two years ago. Playoff viewership will also be well down from a year ago when five Canadian teams were involved, at least for the first round (of four). Once the Montreal Canadians were eliminated from the second round of the playoffs last year, viewership in Canada dropped by 50% for the remaining series, including the Finals. Preliminary ratings for the first week of the 2016 playoffs indicate that there are almost 60% fewer Canadians watching the first round games than there were a year ago.  

Fewer eyeballs watching hockey on television means less revenue for Rogers from advertisers, many of whose advertising agreements include minimum audience guarantees. Broadcast industry sources report that Rogers has been providing free spots to some of their advertisers in order to make good on these viewership guarantees. The pain of low television ratings for Rogers is compounded by the reduced impact of its cross selling strategies for its wireless (cell phone), home phone, and cable television businesses. The ability to cross sell its other business lines to large audiences was a critical factor for Rogers in agreeing to pay $5.2 billion over 12 years for the broadcast rights. Viewership is what drives the deal for Rogers — in multiple ways — and so far, it isn’t paying off to nearly the extent it had hoped.

Before we shed too many tears for Rogers and its shareholders, there is some good news on the sports media front for them: The Blue Jays. As Rogers CEO Guy Laurence pointed out to analysts on a recent conference call, sports properties (teams and broadcast rights) are long-term investment plays which pay off in some years and fall short of expectations in others. After 22 years finishing out of the baseball playoffs, the Blue Jays finally experienced some on-field success last season which translated into a television ratings bonanza for Rogers which has carried through to this season.

Laurence claims that Rogers will still turn a profit on its hockey investment this year, albeit a smaller one than they had forecast. We may never really know if that’s true or not — thanks to the accounting wiggle room that companies like Rogers can use by adjusting formulas for depreciation and amortization.

If you liked this story, let us know! Comment below or donate now!
(Mention this story and 25% of your donation will go directly to the writer!)