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The myth of “the bad hockey deal” at Rogers

NHL in 2013 has been bad for the network. Why isn't anyone smiling? You're going to make millions! The Rogers NHL Deal announced in 2013, Photo credit: o.canada.com

In these increasingly dystopian times we live in, it has become pretty common to see relatively baseless information presented as fact. Most of us know how this works, right? A glance at politics in —INSERT NAME OF READER APPROPRIATE NATION HERE— provides the well thumbed-through playbook. Tell people what you want to tell them, tell them you just told them and then tell them again. Tic. Tac. Toe. Most people can’t be bothered to check. Say it enough and it will be accepted as fact:

“You need to drink 8 glasses of water a day.” A myth.

“You can see the Great Wall of China from space.” Wrong.

“Most people only use 10 per cent of their brain power.” Also wrong. Although, looking at the present world around us at times, I’m inclined to believe that one.

Here’s one that’s made the rounds for the last 4 or 5 years in the Canadian broadcast industry: “The 12-year, $5.232B rights deal Rogers Communications signed with the NHL in 2013 has been an unmitigated financial disaster for Rogers.” I’m not saying that the tall foreheads at the Rogers Death Star are happy with every aspect of the deal. There may well be aspects of the deal they don’t love. I don’t know. I can’t back up that statement. But what I can present is that, by any logical assessment, they should be happy. They should, in fact, be very happy with what the deal has accomplished.

Looking at publicly available data (CRTC Financial Summaries), in 2013 (the year Rogers Communications signed the deal, and the last calendar year during which they were not national rights holders) total revenue for Sportsnet was just under $253.4M (please note that I’ve rounded figures for easier consumption). Total national advertising revenue was $68.9M. Expenses came in at $194.6M. After interest expenses and other adjustments Sportsnet posted a pre NHL deal profit of $56.8M. Fast forward to 2018 (the last year for which financials are available) and the numbers look like this: Total revenues of $574.6M, total expenses of $435.8M and a pre-tax profit of $130.5M. That’s an increase in pre-tax profits of 143% from the last full year during which the network didn’t have the NHL deal (2013) up until the conclusion of 2018. National advertising revenues rose from $68.9M to $230.4M (an increase of 234%). Doesn’t sound bad to me. If your broker was getting you that rate of return you’d be ordering the granite and commissioning a statue of you on your knees thanking him or her. Here’s how pre-tax profit has filtered down since 2015 (the first full calendar year of the NHL deal) up until the end of 2018:

  • 2015: $53.8M
  • 2016: $93.6M
  • 2017: $106.5M
  • 2018: $130.5M

So, a massive increase in pre-tax profits and advertising revenue for Sportsnet since the start of the deal and, in fact, an increase every single season of the deal so far in pre-tax profit. Advertising revenue has been less consistent, climbing to a high of $259.8M in 2017 and then dropping off by 11.3% in 2018. Numbers for 2019 aren’t available yet. Financials aside, what the deal has also done, without question, is elevate Sportsnet equal to, or past (depending on whose interpretation you go with) The Sports Network in terms of ratings. Starting in 2015, Sportsnet became Canada’s number one specialty network in a number of key demographics. Prior to Rogers signing the NHL deal, it wasn’t even close. TSN was, by far, the superior sports channel in Canada both in terms of perception and ratings. Now, at worst it’s “1 and 1a” or, again, depending on whether you buy the Sportsnet spin or the TSN spin, Sportsnet number one and TSN a close second. There’s more to be proud of for Sportsnet. Their website, sportsnet.ca, was an afterthought to most Canadian sports fans prior to 2014-15. Now, although TSN’s site is still number one in terms of total traffic per month, Sportsnet is providing tough competition. So, if you’re scoring along at home, that’s two pretty massive ticks in favour of the deal for Sportsnet (increased revenue and increase in viewers) and another half-tick (for sportsnet.ca being at least in the race as an online destination for sports fans). By any of those metrics, I believe most people would judge the deal to have been a successful one so far. But, clearly, we receive conflicting messages on that from Rogers. On the one hand, Sportsnet President Bart Yabsley made the rounds back in October proclaiming to all who would listen that “we love the deal”. But, by the same token, the media division, and the hockey department in particular, has been the media business equivalent of an abattoir since about 18 months into the NHL deal. Both on-air talent (myself included) and many behind the scenes people – producers, directors, story editors, unit managers, administrative staff – have been let go. As any good corporate president or CFO is aware, the easiest way to decrease “op-ex” (that’s operating expense to you and I) is to decrease “head count” (people to you and I) and either not hire people to replace them, pile more onto someone’s plate and either not pay them anymore or just provide a very slight increase in compensation, or hire people to do the same job for less. So, it’s a strange one. On the one hand, the actual numbers on the deal look great and the President of the company says they love the deal. But, the steady decrease in staff count since 2015 seems to send a different message. It’s confusing.

My theory? I really do believe the deal has been a good one for Rogers Communications but not as good as they thought or were led to believe it would be at the time they signed it. I believe that a key aspect of the deal was that they expected to be able to leverage the deal into more subscribers for Sportsnet as well as using it as an incentive to get greater numbers of people to sign on to mobile and broadband packages. Having the NHL certainly hasn’t increased subscribers for Sportsnet. Since 2014 Sportsnet has lost 1.13M subs. It hasn’t been a picnic for TSN either, they’ve shed 1.25M over the same time period. So, perhaps that’s simply more of an industry wide trend as people cord-cut, rather than anything to do with the on-air product of either channel. But, hold the phone (or, perhaps more appropriately, hold the cell phone). As a company, Rogers Communications appears to be doing very well. Here are some numbers from their annual reports from 2014 and 2018:

  • 2014
  • Total Operating Revenue $12.9B, Adjusted Profit $5.02B, Profit Margin of 39%
  • 2018
  • Total Operating Revenue $15.1B, Adjusted Profit $5.98B, Profit Margin of 39.6%

What about customers? Again, numbers from the 2014 and 2018 annual reports:

  • 2014
  • Wireless (cell phone) subscribers: 9,450,000, Internet subs: 2,011,000, Cable subs: 2,024,000
  • 2018
  • Wireless subs: 10,783,000, Internet subs: 2,430,000, Cable subs: 1,685,000

What I would call reasonable growth in wireless and internet over the course of the NHL deal and a drop in cable subs. Again, I don’t think cable has anything to do with having or not having NHL hockey. Sports fans and non-sports fans alike are cutting the cord. I guess the question is: Did Rogers executives, when they were sold internally on the value of this deal, expect to see greater growth in wireless and internet subs than they have? I think the answer would be: probably.

I’m no forensic accountant (you think I’d have spent 30 years as a sportscaster if I had that skill set?), but I don’t see one negative number for Rogers Communications over the course of this deal so far that you could attribute to the much maligned (in unknowing circles) hockey deal. The company, overall, has increased revenues and profits. Sportsnet itself (as a small part of that company) has increased revenues and profits too. So then, why the layoffs (according to figures in the Rogers Annual Reports, the company has shed 900 jobs since 2014). Why would you not make more of a big deal about how financially successful this deal has been for the company? The numbers are right there. Two answers: The deal has been very good for Rogers (or, so it would seem looking at the data), but, as I said earlier, probably not as good as they had expected. And, also, in more of a big picture explanation, that’s capitalism baby. It. Is. Never. Enough. No matter how much a company makes, no matter how much profit it generates, no matter the dividend – it will never be enough. Investors demand more. The board and senior management are incentivized by hitting targets to collect large bonuses; so they’ll fire people and cut expenses to hit those numbers (knowing that they’ll be out the door if they don’t). This is hardly unique to Rogers. It’s the way the system we’ve all created and bought into works, for better or worse. I want to stress, Rogers is doing nothing wrong. They’re running as profitable a business as they possibly can and doing whatever they judge they have to do to grow it – just like every other big company. That’s why companies that make billions of dollars can fire people with impunity. That’s just capitalism. Rogers has never publicly claimed the NHL deal to be anything other than a success. But, I don’t think having the false narrative, that circulates in the media world, that the hockey deal has been a financial hardship on the company hurts them. In fact, having that narrative out there makes cuts and firings far more palatable internally and externally than a narrative of “they’re making loads of money but are still going to cut people and cut expenses because they want to make more money“. That’s the way of the world and that’s capitalism in the 21st century. That’s reality. But what isn’t reality is that the deal has been bad for Rogers. The numbers simply don’t back it up.

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