Carrying the Torch for Big Deals
Tina Fey’s award-winning television satire “30 Rock,” an NBC comedy about an NBC show, continually mocks the network’s new owner, Kabletown and its CEO, a veiled reference to the Comcast takeover of NBC. But nobody is laughing at Comcast dealmaker CEO Brian Roberts these days.
Roberts believes in deal making it pays to go big – really big. More than a year ago Roberts displayed Olympian-sized ambition. He raced past Fox and Walt Disney’s ABC and ESPN networks with his winning bid of $4.38 billion for the broadcast rights to the next four Olympic Games.
When you are making big deals, it is most important to understand the numbers and the goals before you understand the price. Remember, if you think like your competitors only, and you calculate like your competitors only, then you are just a competitor, not a winner. Winners think like competitors…plus something more.
1. The goal – Roberts has his sights set on a bigger prize: dethroning ESPN as the sports champion of the world. ESPN is in about 100 million homes, almost 20 million more than NBC Sports Network. ESPN is able to charge pay-TV providers like DirectTV and Time Warner Cable 16 times more than NBC Sports Network. Obviously there is a lot of gold and silver at stake. The goal of owning the next 4 Olympic Games broadcasts goes beyond the calculation of one event’s or Olympiad’s advertising revenues. Instead, the longer-range business objective makes calculation of the offering price very different. If his competitors were only doing the simple math of revenue minus costs equals profits, their offers would be different.
2. The numbers – In our book, “How to Close a Deal Like Warren Buffett,” we give multiple examples of Warren Buffett making offers for businesses using very different math than the traditional M&A types. By looking at the longer-range value of the property, Buffett made offers in the short-term that left the conventional wisdom talking heads puzzled and critical, like in the case of Burlington Northern Santa Fe. However, within 24 months the genius of Buffett’s insight on the real value that justified his unprecedented offer became clear. The lesson is that if you are looking at the numbers the same way your competitors are, you are following their mistakes or missing the hidden value in the opportunity. Traditional calculations are starting points, not final justifications for your offer.
3. The price – One additional element that justified the price is the reach. NBC put on a record 293 hours of Olympic coverage on the cable network, which is an average of 15 hours a day of programming. In addition to the main and sports networks, the London Games coverage was spread over CNBC, Bravo, MSNBC and the Spanish-language Telemundo. This reach across the network platforms creates additive benefit and offsets the cost burden of buying rights and then single-platform broadcasting. All of this was calculated in making the winning offer.
To our way of thinking, the most successful dealmakers start with what they think everyone will be looking at. Then they do the calculation by not how little it will take to win, but by how much it will add to have won.