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June’s Montreal Grand Prix, won by Red Bull driver Max Verstappen, ranked as the most-watched Formula One race on record.Dan Mullan/Getty Images

Last month, Bell parent BCE Inc. BCE-T announced financial results that featured all the information investors expect – revenue, profit, subscriber gains – but also something unexpected.

Bell devoted a portion of its quarterly presentation to telling investors that June’s Montreal Grand Prix, won by Red Bull driver Max Verstappen, ranked as the most-watched Formula One race on record.

Is Bell chief executive officer Mirko Bibic a massive F1 fan who just had to share his passion? Not at all.

Rather, Mr. Bibic highlighted the massive audience for the race on Bell-owned CTV and TSN television networks as proof that the telecom company’s sports-anchored, digital-first media strategy is a winner. Just how much Mr. Verstappen’s victory meant to Bell became clear on Monday, in a report from BMO Capital Markets that detailed the lucrative but challenging dynamics of the country’s sports broadcasting industry.

F1 races, hockey playoffs and the Toronto Blue Jays’ wildcard battle are increasingly the engine driving an otherwise low-growth media businesses at Bell and Rogers Communications Inc. RCI-B-T, according to BMO analyst Tim Casey.

The downside to sports, BMO revealed, is that the margins earned on broadcasts are in free fall at both Bell and Rogers, reflecting the soaring cost of content. For example, the cost of broadcasting of an NBA game jumps 9 per cent each year, while NFL rights are rising 5 per cent annually. To reverse this trend, the telecoms need to keep cutting costs, while finding new ways to earn revenue from subscribers.

Wondering why last year saw TSN’s flagship sports show switch from two hosts, Jay Onrait and Dan O’Toole, to just Mr. Onrait? Wonder no longer.

Bell and Rogers have committed significant capital to media in general and sports in particular. In 2012, the two companies spent $1.32-billion to acquire a 75 per cent stake in Maple Leaf Sports and Entertainment (MLSE), parent to Toronto’s pro hockey, basketball, football and soccer franchises. In 2010, Bell paid $1.3-billion to take full control of CTV.

Bell and Rogers choose to report financial results from sports investments as part of their media divisions, making it difficult for outsiders to gauge just how much money the telecoms are making on the Toronto Maple Leaf’s all-too-short playoff runs and other big league events.

However, ahead of a telecom and media conference on Tuesday, Mr. Casey published a detailed report on the economics of sports broadcasting. He tapped regulatory filings to ferret out previously undisclosed revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) from Bell and Rogers.

In a line, BMO found sports broadcast revenues are rising in absolute term, and as percentage of the total media business, which is all good for the two dominant media platforms. However, EBITDA margins are on a five-year slide, an issue both companies must address.

Last year, Bell’s media revenues were $3.3-billion and sports programs made up for a quarter of the business, according to BMO. Over the past five years, the EBITDA margin from sports dropped seven percentage points to 16 per cent. EBITDA is the key driver of valuation at a telecom company, so reversing that trend is a priority for Mr. Bibic.

At Rogers, sports accounted for slightly more than a third of the company’s $2.3-billion in media revenues. Over the past five years, the company’s EBITDA margin has been cut in half, down 10 percentage points to 11 per cent.

Rogers’ lower margins, compared with BCE, reflect the company’s ownership of baseball’s Blue Jays, according to Mr. Casey. The cost of running the team dilutes EBITDA, which is “not surprising given the economics of the sports business,” he said. “Simply put, most professional sports franchises are an equity play rather than a cash flow business.”

Conventional TV channels face serious headwinds, with both subscriber and advertising revenues declining. The one bright spot in Bell and Rogers’ media divisions are their sports channels. Over the past five years, advertising revenue at TSN and Roger’s Sportsnet have increased by 15 per cent, while subscriber fees rose 14 per cent, even as an increasing number of customer cut the cable cord.

To keep the engine revving from must-see TV, such as Red Bull winning on a Montreal track, Mr. Casey predicts that Bell and Rogers will keep bidding for broadcast rights, keep increasing monthly subscriber fees for TSN and Sportsnet, and keep chopping costs. A Blue Jays World Series or a Stanley Cup final with a Canadian team would be the cherry on the top of the sports sundae.

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