Analysts found that Comcast might need to revise its scoring system after Steve Burke, CEO of its NBCUniversal unit, announced Wednesday that the company would “about breakeven” with their 2012 London Olympics Game coverage.
The reported network win was surprising, as the Olympics have “long been a loss leader,” Barclays Capital’s James Ratcliffe told the , according to the New York Post. Comcast CFO Michael Angelakis has since confirmed that purchase-price accounting allowed NBCUniversal to write down the price of the games by about $200 million.
“Through purchase accounting the [Olympic] losses were eliminated,” Angelakis told analysts. “We will have a negative impact in free cash flow in the third quarter. I just wanted to make sure folks understand a little of those finer details.”
NBC paid $1.2 billion for the rights to broadcast the Olympic games in the U.S., and has claimed it sold more than $1 billion in ads.
Though NBC surpassed the $850 million advertising record set during the 2008 Beijing Olympics, Burke had expected ratings to be down, according to the Associated Press, due to the London time difference that has delayed events previously shown live from Beijing. Instead of being down the estimated 20 percent, however, ratings were up 9 percent five days into the event.
3 Comments
Actually, the issue is not "purchase accounting" rules; the issue is accounting rules governing the impairment of an asset's value. When an asset is purchased, it is supposed to be recorded at the fair market value of that which is given for the asset, or the fair market value of that received (in this case the FMV of the individual assets of NBC, including the rights to broadcast the Olympic games), whichever is more clearly determined. Almost always the FMV of that which is given is more clearly determined and used and no write down occurs. Thus, the book value of the newly acquired asset will normally be the FMV of that given to acquire it. However, Under impairment of value rules, if the book value can no longer be expected to be recovered, the value of the asset must be written down to the amount of expected net cash flows (expected net cash inflows less expected cash outflows) from the asset's use. Future depreciation or amortization is then determined using this reduced value. It is impairment of value rules that require that the asset be written down and a loss be recorded, not "purchase accounting."
Posted by: gmay | August 7, 2012 6:24 AM
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When Comcast acquired NBC, it fair valued the acquired assets as required by purchase-accounting. Since at the acquisition date the Olympic forecast showed a $200 million loss, the $1.2 billion paid for the rights by NBC was written down to $1 billion.Since the costs and the revenues for the Olympic games are expected to be approximately the same, $1 billion, the the break-even is expected by NBC.
Posted by: adam.nmn.roth@gmail.com | August 6, 2012 1:07 PM
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Could you please give more identification by what you mean, in the context of this case that NBC "broke even" using "purchase accounting." Was there a change in their amortization or depreciation of the asset - Olympic monopoly? What cash flows are represented. Have there been any FASB or IRS rulings in point?
Posted by: ETBI | August 6, 2012 11:28 AM
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