The chief executive officer of Rogers Communications Inc. says the company's big bet on hockey broadcast rights will "absolutely, definitely" pay off for a second year in a row, despite a challenging season.
Ratings have been down, none of Canada's seven National Hockey League teams made the playoffs for the first time in decades and the popularity of the Rogers-owned Toronto Blue Jays prompted advertisers to move their ad dollars away from hockey and toward baseball.
But Rogers CEO Guy Laurence says the company is, nevertheless, likely to see a 10-per-cent return for the 2015-16 season on its investment in the Canadian NHL broadcast rights.
"It will absolutely, definitely, without any shadow of a doubt, make a profit, period," he told reporters in Toronto on Tuesday after the company's annual general meeting. "Trust me, it makes money. We're happy with it."
The company won the rights away from the CBC in late 2013, and since then many have wondered whether it could make enough from sublicensing rights, advertising and other spinoff benefits to pay for the 12-year, $5.2-billion contract.
In an interview with The Globe and Mail last year following the end of Rogers's first full season with the NHL rights, Mr. Laurence said, "Categorically, we will make a 10-per-cent margin this year and the deal has been profitable for us."
He said the company had learned a lot in its first year, adding, "I don't see why it won't be profitable ongoing."
The exact details of the contract are not public, but the amount Rogers must pay to the NHL escalates each year by a "single-digit percentage increment," Mr. Laurence said last year, meaning the company must make more each year to cover the cost of the rights.
"What we said last year is that we made in excess of 10-per-cent profit last year. So everyone quotes the 10 per cent; we actually said 'in excess of 10 per cent.' It actually makes a couple of per cent higher than that," the Rogers CEO said to reporters on Tuesday. "If I'm guessing – because I haven't seen how the playoffs go – [this year] it will come down, to around 10 per cent, as a consequence of the fact that Canadian teams aren't in."
The company doesn't disclose a specific breakdown of its NHL revenue or report dollar figures in its earnings.
With the disappointing performance of Canadian teams this season, television ratings have predictably fallen as well. By late March, the ratings for Hockey Night in Canada had declined by 16 per cent compared with the previous season. Advertisers have also shifted their spending away from hockey. "Interestingly, ad revenues are being redirected to the Blue Jays," Mr. Laurence said on an investor call on Monday after the company reported its first-quarter financials.
"Whilst I know we all wish Canadian teams were in the playoffs, that's just the nature of sports. They'll be back, I hope. We view the NHL as a long-term investment and we continue to be pleased with it," he said earlier during the AGM.
Mr. Laurence declined to comment in any detail on the recent departure of Gord Cutler, senior vice-president of NHL production, and whether management is considering changes to the production of Hockey Night in Canada for next season.
"There's no truth to it – I have nothing to add on that subject."
Rogers earns most of its revenue from its telecommunications divisions, where it relies on wireless subscribers and Internet customers to drive growth. With sales of $2.1-billion in 2015, Rogers Media accounted for about 15 per cent of the company's revenue, but its sports properties represent more than 50 per cent of that total, making them a central investment for the division.
The media division posted an adjusted operating loss of $49-million in the first quarter of 2016 as revenue slipped 3 per cent to $448-million, the company said on Monday.
Mr. Laurence said advertising for the company's conventional television and publishing properties is in "systemic" decline, and Rogers is focused on cutting costs in those businesses to align expenses with smaller revenues.
However, he said, Rogers is not considering closing any of its print magazines at this point. "I don't think that's where we're focused right now. My view is you don't go there first. Where you go first is you take every dollar you're spending and look at whether you can make it more efficient."
Macquarie Capital Markets analyst Greg MacDonald said that, in addition to the structural challenge of television advertising shifting to digital platforms – which Rogers management cited for the drop in first-quarter revenue – "we also blame lower hockey ratings and lack of a playoff boost."