News commentators, from XYZ network executives, and a football team owner discuss the

recent move of NFL Football from BSC to XYZ network. XYZ won the bidding war by agreeing

to pay $1.5billion for the rights to broadcast games for a four-year period. Observers estimate

that XYZ will lose $600 million on the deal. BSC has said that, at these prices, the contract is not

worth it. XYZ executives were ready to spend to acquire these rights because their objectives

went beyond profit considerations to making a statement that XYZ is a major network with full

programming choices. They plan to exploit the significant football audience by promoting other

XYZ programmes during the games. Through this tactic, they plan to increase their regular

audience during the week and therefore be able to ask advertisers for these other programs for

the higher rates for their commercials.

A football team owner points out that 64-65% of the revenues from XYZ contract will flow to

players, increasing the amount available for salaries each season from $32 million to $38-40

million per team. With higher salaries for the players, sports fans may also see better football

games as more aging veterans are able to be kept. XYZ TVS management contends that the

predicted losses are not important. They must also build a sports division from scratch. What

does matter is that six years ago XYZ outbid BAC for Monday Night Football but did not win

the contract because it was regarded as a start-up network? With the new deal, XYZ has finally

joined the league of the major networks which is an accomplishment that is central to their longterm plan. (ADAPTED)

A. Describe XYZs long term strategy in bidding so much for NFL football.

B. What are the major revenues and expenses likely to be included in XYZs annual budget

for NFL football broadcasts?

C. Industry observers think that XYZ may lose $150 million each year on the NFL contract.

XYZ TVs management believes the benefits will outweigh the costs. What are the

benefits and when will they be realised?

D. XYZ plans to advertise its own shows during football games. How will this affect its

budgeted profit or loss in the short term?

E. When does it make sense for companies to commit resources to activities where the

budgeted results do not result in profits? Give examples.