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Aug 07

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Olympic Games Still a Loss Leader

Historically, the right to broadcast the Olympic Games has not been a stand alone money maker for the network that acquired it.  When NBC announced that the Olympic Games would be at “about breakeven”, some thought this trend had been broken.  It hasn’t.  Reportedly NBC paid about $1.2 billion for the U.S. rights to broadcast the Olympic games and sold approximately $1 billion in ads.  That is not a breakeven equation on its face.

In fact, the breakeven position only occurs because the broadcast rights asset was already written down to $1 billion in the accounting surrounding Comcast’s acquisition of NBC.  Purchased assets are recorded at fair value at the acquisition date, which was $1 billion based on the expected cash flows for the rights as described above.

Even if the purchase price exceeds the expected ad sales, the Olympics are believed to function as a “loss leader”, meaning that they are expected to lose money, but provide other valuable benefits that justify the cost, such as increased attention from an audience who otherwise tunes into another network.  It remains to be seen whether some portion of the Olympic audience will stick with NBC after games are over.

About the author

Renee Howdeshell

Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2012/08/olympic-games-still-a-loss-leader/

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