NFL Lockout Worst-Case Scenario: $3 Billion in Network Ad Revenue

Harry How/Getty Images

SAN DIEGO, CA - DECEMBER 12:  Mike Tolbert #35 of the San Diego Chargers carries the ball as he is tackled by Brandon Flowers #24 of the Kansas City Chiefs during the second quarter at Qualcomm Stadium on December 12, 2010 in San Diego, California.

Amid a season of record-high ratings, the potential crisis could be devastating.

Sunday night’s Philadelphia Eagles/Dallas Cowboys game -- a fourth-quarter nail-biter -- was another high note in an NFL season marked by record tune-in. The game gave NBC its best overnight rating in Sunday Night Football history and its best primetime NFL rating in 12 years.
But as the 2010 NFL season chugs along on track to become the league’s most-watched in years, the NFL and the player’s association are embroiled in a labor dispute that could jeopardize the 2011 season.
At stake: billions in ad revenue for the networks that carry the games (CBS, ESPN, Fox, NBC and the NFL Network); the halo effect that those games have on related programming (what would they talk about on SportsCenter?); merchandising (forget about Madden NFL12); and the $5 billion Fantasy League business without its most popular fantasy players.
"The void would be impossible to fill," says Brad Adgate, senior vp research at Horizon Media. The NFL, he adds, is "far and away the most popular sport on television. There’s nothing in this multichannel, multiplatform world that could possibly come close to replacing it."
Indeed, the NFL has the top two programs in primetime this season (in the ad-centric 18-49 demographic): NBC’s Sunday Night Football and ESPN’s Monday Night Football. So far this season, NBC and Fox are each averaging more than 20 million viewers per game, according to live-plus-same-day ratings provided by Nielsen. CBS is averaging 18.5 million viewers for its Sunday afternoon games. And ESPN is clocking 14.4 million for MNF.

While a cancelation of the entire 2011 NFL season is highly unlikely, even a short interruption could cost the networks millions of dollars in lost revenue.
Last season, the NFL generated nearly $3 billion in ad revenue among CBS, ESPN, Fox and NBC, according to estimates provided by Kantar Media. Fox generated the most for the 2009 season at $944 million, followed by NBC ($817 million), CBS ($804 million) and ESPN ($144 million).
If a work stoppage does occur, it could throw sand in the networks' upfront negotiations this spring while also complicating lucrative sponsorship arrangements. And if a deal is not reached by the time players are due to report to summer training camp, the networks could see significant ad revenue losses, say analysts.
"There's an enormous amount of money on the table for both sides," notes Jon Swallen, senior vp research at Kantar Media. "The longer the uncertainty lasts, the more pressure it puts on advertisers to determine whether they wait and keep their fingers crossed or whether they begin to make alternate plans."
And with the 2010 season on track to be the best in years, networks that have NFL rights would be in a position of strength to negotiate CPM (cost per thousand viewers) increases next season.
But the impact of a strike would go beyond the ad revenue generated during the games. There is also the unrivaled promotional platform the games provide for networks’ entertainment fare. The pre- and post-game shows are also significant ad-revenue generators. And Fantasy Leagues are a burgeoning business for network sports divisions that cater to fantasy sports league players on their web sites.
"There are a lot of dominos that could fall," Adgate says. "Financially, there are so many different platforms that stand to lose a lot of money."
There hasn’t been an NFL work stoppage since 1987, when the league mounted three weeks of games with replacement players (some of whom were cut during training camp) and several high-profile scabs (among them the New York Jets defensive end Mark Gastineau and San Francisco 49ers quarterback Joe Montana). Those games notched a 20% ratings decline compared to pre-strike games.

The current collective bargaining agreement between the NFL and the player's union expires March 3, 2011. The player's union has advised its members to squirrel away their last three game checks from this season in the event of a work stoppage.
A "lockout watch" counts down the days until a potential work stoppage on the players' web site. The site also features a "Block the Lockout" petition and "Lockout Player Tweets of the Week." (Arizona Cardinals' Darnell Docket: "Maybe a personal trainer for a job when the #NFLLockout hits! What yall think?") And "The NFL's Lockout Checklist" sarcastically concludes with this: "Offer an even worse deal to the players union as the deadline approaches."