Seven West Media Ltd (ASX: SWM) shares dived at the open today, falling 10% as the spread of coronavirus endangers the 2020 Olympic Games.
While the organising committee has thus far insisted the games will go ahead, there has been increasing speculation that the games will be at least postponed, if not cancelled. This would leave Seven without a guaranteed ratings bonanza.
What happens if the Olympics is cancelled?
Seven West Media will be repaid the cost of the Tokyo Olympics broadcasting rights if a cancellation does occur, according to The Sydney Morning Herald. Television sources familiar with the agreement between Seven and the International Olympic Committee told the Sydney Morning Herald that Seven would receive a refund on the money it has paid to broadcast the event if the spread of coronavirus forces its cancellation.
With nearly $700 million in debt as at the end of December, an Olympic cancellation could prove a bonus to Seven West Media as it attempts to pay down its debt. Weaker advertising markets saw group revenue decline by 3.2% in the first half, leading to a 22.5% drop in profit which fell to $69.3 million.
While a huge audience drawcard, broadcasting the Olympics is actually a loss-making exercise, according to The Sydney Morning Herald. There are huge costs involved in obtaining the broadcasting rights and production, which advertising revenue does not make up for. Nonetheless, broadcasters use the screening of such events to cross-promote other television programs.
The loss of such a major event would no doubt come as a blow to Seven, which saw earnings per share decline to 4.4 cents in 1HFY20, down from 5.6 cents in the prior corresponding period. Insiders, however, think the struggling broadcaster may be financially better off if the event were cancelled.
The Sydney Morning Herald reports that Seven has predicted it will have 70% of the television audiences during the two weeks of the Olympics, aided by the favourable Tokyo time zone. More than $90 million in revenue has been booked for the event, and it is unclear how Seven will replace this if the event is cancelled.
Seven secured the rights to broadcast three Olympic Games back in 2014, with the deal rumoured to be worth some $200 million at the time. It gave Seven the right to broadcast the Tokyo Games, Rio de Janeiro Games, and the 2018 Winter Olympics. The International Olympic Committee set aside around $1.365 billion in February to manage the financial fallout if the games were cancelled.
