A Cubs-Sinclair Partnership May Be Cause for Concern

It’s been long known that the Chicago Cubs would likely form their own regional sports network (RSN) after their partnership with the White Sox, Bulls, Blackhawks, and Comcast ends at the conclusion of the 2019 season. The news that the White Sox, Bulls, and Blackhawks would stick with Comcast, as reported by Bruce Levine, left the Cubs needing their own partner for a new network. The specific details vary, with the Sun-Times reporting the Cubs had agreed to a deal with Sinclair Broadcast Group while Bruce Levine indicated Sinclair were merely frontrunners, with Jon Greenberg hearing the same. In addition to the Cubs, Sinclair is also in the bidding to buy 15 more FOX RSNs. That should worry Major League Baseball, but perhaps not just for the reasons many think it should.

Sinclair has been in the news most recently for its political leanings. According to FOX Business, Sinclair “control(s) more than 200 stations in over 100 local markets. The local media empire was built on snapping up these stations around the country and adding an extra element of right-wing commentary to its programming.” The company has come under fire for its content practices across those affiliates and been defended by the President for the same. Those content-based criticisms are surely a concern for many, but their business model also presents a separate potential issue for baseball. While baseball is trying to expand its reach and ensure young people have access to the sport, Sinclair is tied to an older model that could threaten massive carriage fee disputes and blackouts for fans in local markets.

The vast majority of the Sinclair-owned stations are the traditional, over-the-air networks like FOX, ABC, CBS, NBC, and the CW. Anyone with an an antenna and in range of the broadcast tower can view those networks for free, but cable and satellite providers aren’t allowed to simply broadcast those networks. Instead, cable providers must pay a retransmission fee to broadcast those networks on their cable packages (here’s a primer on retransmission fees). Sinclair has leveraged those fees in the past and been a part of the largest blackout in television history.

The biggest issues with Sinclair’s retransmission fees occurred in the lead-up to its eventual purchase of the Tennis Channel. Back in 2015, Dish Network, which has had its fair share of carriage fees disputes, indicated that it had reached agreement to broadcast 129 Sinclair-owned stations, but was being blacked out due to Sinclair’s attempt to gain leverage in its carriage negotiation with an unnamed cable network it was planning to purchase. Roughly five million Dish customers went without local programming.

In 2016, Sinclair bought the Tennis Channel, which was then available in about 30 million homes, and said it planned to pair negotiation for that channel with its broadcast networks. For the most part, the plan worked. The Tennis Channel now has roughly 55 million subscribers while nearly every other cable channel has been seeing its numbers drop. But those increases did not come without collateral damage. In addition to the previous Dish Network blackout:

• In the beginning of 2017, Frontier Communications and Sinclair could not agree to a deal in a dispute that affected customers in the Pacific Northwest.
• In September, failure by Sinclair and Hulu to reach an agreement led CBS corporate to undercut Sinclair in markets with a Sinclair CBS affiliate.
• PsVue and Sinclair couldn’t reach an agreement earlier this year.

Sinclair’s attempt to buy half the regional sports networks offering baseball comes on the heels of a failed merger with the Tribune Company that might have meant an even greater reach of local broadcast networks, including those in Chicago and New York. That deal failed when the FCC determined that approving the merger would violate the law that caps the percentage of households into which one owner can broadcast. FCC Chairman Ajit Pai found fault with some of the sales Sinclair proposed to bring it under that cap, saying the sale “would allow Sinclair to control those stations in practice, even if not in name, in violation of the law.” Tribune Media Company has since sued Sinclair for the part they played in halting the deal.

A deal for the Fox RSNs would not require FCC approval, as they are cable channels, but would fall under anti-trust regulations. The problem for baseball is less the federal regulations, and more in how Sinclair would negotiate carriage fees. Of the cities with Fox RSNs, Sinclair owns local stations in Minneapolis, Cincinnati, St. Louis, and Milwaukee. They also own stations in a whole host of smaller markets in Michigan, Ohio, California, Texas, Georgia, Florida, and New York. It’s not difficult to imagine how Sinclair might attempt to leverage retransmission fees to extract even more money for the RSNs. With few exceptions, RSNs have had little difficulty gaining entrance to cable providers basic digital package. This isn’t a situation analogous to the Tennis Channel, as the RSNs are already in a large percentage of homes. But if Sinclair raises the price higher than providers are willing to pay, disputes become more likely.

We could also see the RSNs used as leverage to gain greater access for the Tennis Channel; Sinclair could make getting an RSN on cable contingent on the provider accepting the Tennis Channel as well. Both situations would find the RSNs that broadcast baseball games caught in the middle of disputes having very little to do with the popularity of the sport or the desire of fans to watch baseball. While carriage disputes are in some respects inevitable, the results, with the Dodgers being the prime example, can be messy and deprive fans of access to the game and limit the number of new fans the sport can draw. With Sinclair potentially owning the rights to the broadcasts of 16 teams in 16 different markets, might they let a dispute drag out in Cincinnati or San Diego if they thought they could get a better deal in large-market Dallas?

As baseball moves forward, it’s imperative that it avoid these types of disputes, particularly as its audience grows older. Sinclair’s current difficulties negotiating with newer streaming platforms like Hulu and PSVue could be a warning sign that the company will likely cling to its older methods of extracting revenue from customers, and disputes could get worse as the number of cable subscribers shrink. That would be bad news for baseball as it tries to reach the consumers who are ditching cable for these streaming services.

Disney is in the process of buying a large number of Fox Entertainment assets. In order to receive regulatory approval for that purchase, it agreed to sell Fox’s RSNs to ensure that Disney, which owns ESPN, wouldn’t control too much of the cable sports market. The first round of bids was just received and were apparently underwhelming, coming in below the more than $20 billion expected price. According to reports, Sinclair is currently in the driver’s seat to purchase the RSNs if all of the networks are sold as one. It’s possible the RSNs aren’t worth the $20 billion, as initial estimates proposed, but a large part of that misestimation could be because MLB has said it retains control of the digital streaming rights, leaving any potential buyer with an uncertain future and more negotiations to contend with. It could be that at some point, MLB joins the fray in bidding for these networks, so as to easily combine streaming and broadcast rights, but it seems likely they would prefer someone else pay for that guarantee. In the end, Fox may attempt to buy back the stations they’ve sold, but if the highest bidder ends up being Sinclair, it could be in the league’s best interest to make their own bid and ensure a bigger say in controlling its own future. There is considerable risk in making such a purchase, but Sinclair’s track record indicates there is also significant risk in letting it control who gets to watch baseball across the country.