Critics have characterized media mogul Rupert Murdoch's recent foray into local sports ownership as the act of a willful billionaire looking to conquer a new industry. But close observers of the News Corp. chairman and chief executive say that Murdoch is working on a much more tactical level.
It's all about synergy.
To Murdoch, owning a sports team translates into broadcast rights. And in the News Corp. empire, sports broadcasting functions as the cornerstone for regional, national, and even international television endeavors.
"Sports is a driving force behind our television business," said Chase Carey, co-chief operating officer of News Corp. and chairman of Fox Television.
Carey echoes his boss Murdoch, who said at a 1996 annual meeting that he intended to use sports as a "battering ram and a lead offering" in its television operations, especially pay TV.
Analysts say that for News Corp., which has television empires reaching five continents, this has been an effective approach.
"Murdoch has successfully used sports to be the marquee component in launching satellite and cable systems around the world," said Neal Pilson, a former CBS Sports president who is now a private consultant.
"There is a perception in the industry that you need to have sports on your channels to be a major player," said David Carter, a sports management consultant and instructor at the University of Southern California's business school. "Sports delivers the best package of viewers out there, so you need to make sure that you have enough teams to broadcast."
But with the cost of broadcast rights spiraling through the roof, as the recent sale of NFL rights demonstrated, what's a media giant to do?
The answer is to buy sports teams.
The Michael Eisner-led Walt Disney Co. holds both the broadcast rights for the local Mighty Ducks hockey team and the Anaheim Angels baseball team as well as the teams themselves. Ted Turner's Time-Warner Inc. has the same deal with the Atlanta Braves. Now, Murdoch has the Dodgers in his pocket, and is pursuing a percentage of the Lakers. And Fox already holds a minority stake in the New York Knicks and the NHL's Rangers through owning a 20 percent share of Madison Square Garden.
Owning sports teams may be a costly way to guarantee broadcast rights, but it is in fact a savvy move in the increasingly cutthroat world of television.
"Built into the $311 million price of the Dodgers is the price of carrying Dodger games on Fox forever," Pilson said. "That's a pretty good deal. Murdoch essentially is betting with his pocketbook that these (broadcast) rights will only grow more expensive in the future, so he's nailing down the teams now."
Larry Petrella, an analyst at Lehman Bros., agreed.
"The cost of the team is justified by the asset value of the programming," he said. "Murdoch is protecting himself, particularly in the L.A. market, by buying up teams so he can grant broadcast rights to his own companies. Instead of having ESPN West going after broadcast rights, Murdoch had Fox sew it up now. Perhaps safety is a better word than synergy in this case."
Murdoch has tried before to guarantee broadcast rights through owning sports teams, but with disastrous results.
Having had his Australian network shut out of the broadcast rights for the Australian Rugby League, Murdoch decided to establish a rival rugby league. With his son and heir-apparent Lachlan Murdoch overseeing the several hundred million-dollar venture, News Corp. scouts lured away top rugby stars from the existing league. Soon, with attendance disastrously low and resentment high, both old and new leagues were on the verge of collapse. The leagues only recently combined in a truce.
Despite the Australian fiasco, Murdoch and his lieutenants show no sign of a once-bitten, twice-shy syndrome. Moreover, pundits do not expect similar problems to arise in the U.S.
"What he's doing here is much less risky than what he did in Australian rugby," Pilson said. "Here, he hasn't been shut out by a league and started one of his own. Instead, he's buying up established teams with well-established fan bases around the world."
In other words, Murdoch and his enterprises are sitting pretty. Fox Sports has a lock on L.A. sports, holding cable broadcast rights to the Dodgers, Lakers, Kings and Clippers. Nationally, the Fox/Liberty Networks control over 20 regional networks and thus the majority of local sports programming. Internationally, Fox executives have said that they want to help develop baseball's appeal across the globe.
"We certainly hope to work with the 30 owners (of Major League Baseball) to develop the national and international potential of baseball," Carey said. "It has great potential in Asia and Latin America."
And Fox International no doubt will be ready and willing when it comes time to negotiate international broadcast rights.
The bottom line is that Murdoch's strategy revolves around leverage. Roll over the audience from one event to another, from one News Corp. channel to another. Advertise to get the people watching local sports to watch national sports. Get the national sports audience to tune into "The X-Files." Get the Dodger junkies in Japan to tune in to Murdoch's satellite sports channels and advertise Twentieth Century Fox movies.
"Fox's end game is to be in total control, controlling franchises and programming, cross-leveraging their holdings," Carter said. "By controlling a major media market like L.A., Murdoch believes that he will have a better platform on which to balance his company internationally."
In the end, Murdoch sees sports ownership as another step in "his lifelong war to become communications czar of the world," as author William Shawcross wrote in his 1992 biography of the media mogul.
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