NEW YORK -- Disastrous wagers on football and baseball led to a massive third-quarter loss for CBS Inc.
Yesterday's announcement showed a write-down of $195.5 million for the quarter to cover losses on sports broadcasting contracts. It was CBS's second write-down in a year on sports and reflected a pretax loss of $614 million on $2.1 billion worth of contracts extending through 1993.
In all of broadcast history, said John Reidy, a longtime industry analyst at Smith Barney, "I can't think of anything that lost this kind of money."
In a statement that threatened leaner times ahead for free-spending sports team owners, CBS Chief Executive Laurence A. Tisch said yesterday that as a result of the debacle, "it has become imperative that future sports rights contracts recognize the new economic order."
The proliferation of sports programming, particularly on cable TV, has undermined the networks' market for sports at the same time traditional sports advertisers have begun shifting dollars to other forms of media, including entertainment shows, Mr. Tisch said.
Overall, CBS said that it lost $169.1 million, or $11.11 a share, for the quarter, amounting to approximately one-third of its total net worth.
Exacerbating CBS's problems was an unprecedentedly vicious advertising climate. In the past, television advertising has grown by approximately the nominal rate of gross national product growth plus 1 percentage point, a relationship that would suggest more than a 5 percent revenue increase for 1991.
This year, Mr. Reidy said, all historical relationships are out of whack. CBS's sales declined in the third quarter by 5 percent, and similar or greater revenue declines were evident for almost every business depending on advertising. If not for its write-down from sports, CBS would have eked out a $26.9 million profit on "modestly better" results from network operations, largely because of reduced costs, the company said.
While CBS did not disclose expense reductions, Jessica Reif, an analyst at Oppenheimer & Co., said that the cuts were almost certainly extensive and that these, along with perhaps $30 million in additional revenue from a seven-game World Series -- as opposed to a minimum of four games -- rescued the company from even more dire results.
Despite the bleak picture, several analysts and major investors were almost upbeat. This fall, CBS has become the No. 1-rated broadcaster during the critical prime-time viewing hours, and there is some indication that even if advertising isn't rebounding, it is at least stabilizing.
"I believe that the worst is behind CBS," said David Wargo, a managing director and senior analyst at the Putnam Group in Boston. "Their past problems related to overpayment in sports rights, poor ratings in prime time and cost structure for their entire company that didn't relate to today's economics. Management has been extremely successful attacking each of those elements."