04/25/2017 05:18 EDT | Updated 04/25/2017 05:28 EDT

CBC Bet $80 Million On The Olympics And Lost

When Rogers swooped in and paid billions for the NHL, the dazed CBC responded like a concussed defenceman. To compensate, CBC acquired the rights to the 2014 Sochi and 2016 Rio Olympics and even before the 2016 games were in the books, the public broadcaster agreed to pay the IOC until 2024.

CBC TV has struggled ever since it lost NHL hockey to Rogers in 2013. Sports, especially hockey, have always been the CBC's fallback programming strategy and when Rogers swooped in and paid billions for the NHL, the dazed CBC responded like a concussed defenceman. To compensate, CBC acquired the rights to the 2014 Sochi and 2016 Rio Olympics and even before the 2016 games were in the books, the public broadcaster agreed to pay the IOC until 2024.

CBC management said that the Olympics would "break even" or "make a small profit" and that the decision was "fiscally responsible."

A man catches a tennis ball next to the rings in the Olympic Park on Aug. 13, 2016. (Photo: Kevin Coombs/Reuters)

It was a risky bet, given the dramatic changes in the way Canadians are consuming TV. When CBC first approached the IOC few Canadians had Netflix or were streaming video or had TV sets and smartphones that could bypass traditional channels to access content from not only CBC but also numerous sources covering the Olympics.

Just how much CBC paid for the Olympics has been a closely guarded secret, despite the fact that NBC and other broadcasters are quite open about how much they pay. CBC claims that the IOC prohibits broadcasters from releasing the costs but it seems to apply only to CBC.

Data recently released by the CRTC allows us to deduce how much CBC invested in the 2014 and 2016 Olympics. CBC English TV in 2015, the year between the two Olympics and the first year without the NHL, spent some $33 million on various minor sports. In 2016, the year of the Rio Games, sports expenditures soared to $96 million.

The CBC French TV network generally spends very little money on sports as the network ditched the NHL long ago and concentrates on information and entertainment. The French network however increased spending on sports in both Olympic years to roughly $20 million. Thus, in 2016 the combined English and French increase in sports expenditure was just over $80 million, virtually all of which would have been for the Olympics. It is worth noting that CBC French TV, despite having a much smaller total budget, outspends CBC English TV when it comes to entertainment. This may explain why it is considered more successful than the English network. The data show that CBC spent a similar amount for the games in 2014.

TSN and Sportsnet, owned by Bell and Rogers respectively, also carry some Olympic events under licence from CBC. Obviously, they embrace the idea of CBC paying millions for Olympic rights and yet they both can carry the opening and closing ceremonies and individual events for a small licencing fee. If CBC were to cease bidding on the Olympics, the IOC would have no option but to lower the price, perhaps making it profitable for the Canadian sports networks.

Did CBC make a good business decision for taxpayers, its 'shareholders'? Did the games break even or make a profit? CRTC data on CBC ad revenues show that the Olympics had a relatively modest impact on revenues in 2016. CBC English increased revenues by some $45 million in 2016 and the French network had basically no increase. So, overall, in 2016 the Olympics cost the CBC $80 million and generated incremental revenues of only about $45 million, creating a net loss of some $35 million.

This shortfall cannot be blamed on softness in the overall TV advertising market: CBC's main competitors, CTV and TVA, were able to all but maintain ad revenues in 2016. Nor can it be blamed on poor audiences, since the CBC claims the audiences were at record levels. The data show the 2014 Winter Olympics fared better in financial terms, presumably because of the NHL's participation, but the league has announced it will not participate in the next winter games.

Who eventually paid for the loss in 2016? Fortunately for CBC, the federal government kept its election promise to increase the CBC's budget and added $75 million to the Corporation's budget in 2016. The CBC's two TV networks saw their government funding increase by more than $25 million each in 2016 and this made up for the Olympic losses. It is unlikely that the government expected the new funding to be used to cover the Olympic shortfall.

The governance model of the CBC is flawed. For the better part of a decade the government-appointed CBC president, Hubert Lacroix and his board of directors, none with broadcasting experience, have made a series of poor business decisions. For example, they introduced ads on Radio 2 only to have the CRTC order them to stop because revenue fell so far below estimates; they cut local TV news programs, then expanded them, then cut them again; launched radio "stations" only available on the Internet and wondered why the audience was so small; launched a streaming music service with zero revenue in six years; competed for newspaper readers, ignoring it is the Canadian "Broadcasting" Corporation; announced that CBC will double revenues from digital services and never revealed results; and saw TV ad revenues plummet well below their competitors.

Clearly, professional broadcasters who understand the economics of the radio/TV industry should be running the CBC.

Currently, the only meaningful oversight of CBC is by the CRTC. But the latter only reviews CBC activities every decade or so and the last time it did so failed to address major issues facing the public broadcaster. The government could replace the CRTC's role and the CBC board of directors with a Public Broadcasting Commission. The commission would be comprised of persons with knowledge of the arts, broadcasting and journalism.

The PBC would hire professional broadcasting managers to run the CBC. The commission would evaluate programming plans proposed by managers and agree on the objectives and budgets for radio, TV and Internet services. Professional programmers would devise programming strategies, not a board of accountants and lawyers and others with political ties, who have little understanding of broadcasting and broadcasting economics. The PBC would review the performance of CBC transparently, replacing the current system where the president and the board review their strategies in secret. The PBC would be funded from savings by downsizing CBC's corporate office and a reduction in the size of CRTC.

The PBC would restore control of the public broadcaster to the public and ensure taxpayers' money is spent on fiscally responsible programming strategies.

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