Huge Companies Like Subway Are Now Too Poor To Advertise During Sports Events

A "day of reckoning" is coming for sports networks who continue to charge brands higher and higher prices to advertise during games, even as the audience for those events has plateaued.

That was the message Thursday from American Honda assistant VP-advertising Tom Peyton, whose company spends more than $600 million on U.S. television advertising annually and sponsors the Honda Classic golf tournament, the Rose Bowl's Rose Parade, and the NHL's Anaheim Ducks.

"There has to be a point where the price of sports properties on TV, the price of tickets for consumers to games, is truly affecting the amount of sports we can engage in - and the type of sports we engage in," Peyton told Ad Age in an interview after speaking at the 2014 IMG World Congress of Sports in California.

In fact, some major marketers have given up on sports because of its spiraling price:

• In 2014, Cars.com skipped the Super Bowl after appearing in every Big Game since 2008.
• 2013 advertiser Subway opted for a regional commercial instead of paying $4 million for a national spot.
• FedEx broke a 19-year streak of running an ad during the game in 2009, and hasn't returned since.

If Honda and others act on Peyton's frustrations with cable networks and refuse to continuing pouring money into in-game commercials, it could spell trouble for networks like ESPN, Fox, and NBC - all of whom have spent billions securing the rights to broadcast major sporting events and are forced to charge high ad prices to maintain a profit.

What's happened is that the internet and new, massive cable packages have created so many different entertainment options for people, that they are very rarely all watching the same TV show at the same time.

And in the era of DVRs and illegal download sites, live sports make up some of the only TV programming viewers feel compelled to watch live. In fact, live NFL games accounted for nine of the 10 most-watched TV broadcasts of 2013.

As a result, advertisers in the market to reach a large group of people with the same message at the same time have been willing to pay more and more money for commercials during sporting events. While online channels like Facebook are starting to be able to offer marketers the same amount of reach as television, they can only do so by staggering a brand's message to users over a period of time.

Because of the NFL's unparalleled popularity and unique real-time marketing platform, the price of a 30-second Super Bowl ad has jumped from $3 million to $4 million since 2011, even though the audience for the game has remained steady around the 110 million mark.

But because of those high prices, more and more networks have been trying to get a piece of the pie. In recent years, live sports titan ESPN has faced intense competition from upstarts like NBC Sports, CBS Sports, and Fox Sports 1 for the rights to air broadcasts from the English Premier League, the World Cup, and Major League Baseball. Most recently, ESPN paid $15.2 billion over 10 years for Monday Night football, 73% higher annually than the previous deal.

It remains to be seen whether Honda, which did advertise at this year's Super Bowl, will scale back its investment in live sports ads and sponsorships, or whether it ultimately decides the unique marketing opportunity the games provide is too good to pass up.

But the fact that Honda is even thinking this aloud shows we may be approaching a ceiling on sports media deals: If America's biggest brands literally can't afford to advertise in sports, then TV channels literally won't be able to pay the massive media rights fees sports franchises command.

And at that point, the entire business will need a new model.