Cardinals Billion-Dollar TV Deal and In-Market Streaming
As digital technology and internet speeds have improved, there has been an increasing realization that consumers do not — or should not, given the incredibly powerful cable providers — need to subscribe to massive cable bundles with hundreds of channels. Netflix has shown people the amount of programming they could have for under $10 per month, and iTunes and Amazon have allowed people to purchase individual shows while Hulu has provided a combination of both options. HBO Now has lent optimism to the idea that consumers will soon be able to purchase their desired channels a la carte.
For years, MLB.tv has provided both the best and worst aspects of meeting consumer needs, providing an incredible amount of games to fans at a generally acceptable price, but accepting big cash outlays to blackout local games and help keep the current cable bundling model alive. While the St. Louis Cardinals’ new television contract, the latest in a line of local billion-dollar deals, is another example of increasing awareness in Major League Baseball that the current cable model will not last forever. How long it will last is still a matter of great debate.
In many ways, the Cardinals new deal is similar to the deal signed by other teams over the past few years. Despite a market that ranks behind Orlando, Cleveland, and Sacramento, and just ahead of Portland, Charlotte, and Pittsburgh in terms of households, the Cardinals were able to sign a lucrative deal due to incredibly high local ratings and generally high interest in the ballclub. According to Derrick Goold of the St. Louis Post-Dispatch, the deal is set to pay the Cardinals more than a billion dollars over 15 years, an amount that does not include a signing bonus or a 30% stake in FoxSports Midwest, with any revenue received from station ownership not subject MLB’s revenue sharing.
The Cardinals, in the last three seasons of their current deal, are receiving between $25 million and $35 million with the new deal starting close to $55 million in 2018 when the new contract begins. Over the life of the contract, the yearly payout will increase to around $85 million, according to Forbes, who estimated that the new deal increased the value of the Cardinals’ franchise to $1.6 billion, a $200 million increase over their estimate at the start of the season.
The new deal also comes with a recognition of some risk for both parties, and the uncertain landscape of cable television’s future clearly played a role in this deal. At 15 years, this deal is shorter than some of the more recent deals which have generally been for 20 years or more. The parties struck a deal early, as the Cardinals’ current contract with FoxSports Midwest does not expire for another two seasons after this one. In some ways, this was FoxSports Midwest acting like an MLB team approaching their arbitration-eligible slugger and offering a big guarantee to buy out the opportunity to hit free agency. There is the potential for great savings moving forward for the network if the current cable model survives, but on the Cardinals’ side, if the market changes significantly they have already achieved security. Even if the network reaps a windfall, the Cardinals are in a position to benefit with their stake in the network. Cardinals Chairman Bill Dewitt, Jr. acknowledged current uncertainties:
“Everybody wants to hedge their bets. The legacy deals, in general, are below market value. I think a lot of teams are looking at the upside, but it is depending on the market, which is moving. In this deal, we both have the opportunity to benefit in the profitability of the network.”
Two of the bigger deals in recent memory have been major failures up to this point. The Houston Astros deal is already over and the network has filed for bankruptcy with the Astros games now air on RootSports. The Los Angeles Dodgers have been unable to gain entry to much of the LA television market two years into their deal, although the DirecTV/AT&T merger could allow a new set of negotiations to finally get SportsNetLA in all cable-subscribing homes in the area. Despite those difficulties, the Philadelphia Phillies, Arizona Diamondbacks, and now the Cardinals have signed billion-dollar contracts with nearly half of all teams having now signed billion-dollar contracts or own more than 50% of the network airing the games–in some cases both.
Not all teams have it so good. The Atlanta Braves are locked in long-term to a smaller deal, the Cleveland Indians were unable to strike a massive deal when their contract came up, and it is not clear how well a small-market like the Cincinnati Reds will do when their television deal comes up at the end of next season. The next impact deal will happen when the Chicago Cubs’ contracts run out at the end of 2019, with Theo Epstein calling the next contract, “the magic bullet, the paradigm-shifter that’s going to put us in a whole new level.”
With ESPN acknowledging that at some point in the future, but not for at least five years, that they might need to offer their programming a la carte, there is an understanding that the current bundling system will not last forever. While only a portion of cable subscribers are sports fans, cable companies continue to negotiate deals that put networks like ESPN on the standard cable tier with high per-subscriber fees, perhaps worried about erosion from its overall base of customers who might not get cable without sports. MLB has the ability to provide it’s product directly to consumers with MLB.tv, it is aware of a potential shift, and it is open to in-market streaming of games, a potential godsend to those currently blacked out of watching many of the games they wish to see.
Dewitt again, (in a different article from Derrick Goold):
“There’s no arrangement now with MLB for in-market streaming and that’s one initiative that Commissioner Manfred is on in a big way,” DeWitt said. “I feel confident that sooner rather than later there will be in-market streaming”
But…
“meaning if you have cable in your house in Cardinals territory and you have a tablet that you can watch that game on that tablet. Right now, you can watch all the other teams but not your team, just to protect the rights.”
MLB is still in the same acknowledgement phase as ESPN, unable to move away from the massive paydays that per-subscriber fees in a bundling system allow. In-market streaming in the above form could potentially help those who subscribe to cable, but do not receive all games through their cable package due to archaic, over-expansive blackout regions like in Iowa that blacks out one-third of the games whether the game is available locally or not.
While a slowing of deals in their present form might be inevitable, sports provide massive amounts of content with necessary commercial breaks that appeals to both consumers and advertisers. At some point, MLB might not be able to reap the benefits of cable providers passing along the costs of massive rights fees to uninterested consumers by way of the cable bundle. When that happens, and MLB potentially cuts out the middle-man cable provider, it will then receive a much greater share of the pie from consumers and advertisers. Those dollars might not keep pace with the current guarantees being paid, but they are not going to vanish. The bubble might get smaller and be more manageable in size, but it does not look like it is going to burst.
Craig Edwards can be found on twitter @craigjedwards.
Great stuff, Craig. I think all Rays fans are paying close attention to this with Tampa Bay’s deal set to expire following 2017. Hopefully the bubble will still exist by then. Cardinals did well to hedge that bet.
All four Rays fans are definitely paying attention.
The Rays generally do well in the cable ratings. They should be alright. Still need to get their stadium figured out as their game attendance is atrocious.
I have their stadium issue figured out. It’s called Brooklyn.
No better time to hedge your bets than when MLB and the FBI are about to come down really hard on your franchise. I’m pretty hacked off about the whole situation, to be honest with you.
This is exactly the type of flippant response that pisses me off about Fangraphs’ commenters. Just stupid. This is a serious investigation and yes the FBI should come down hard with RICO. This org is as corrupt as it is. FBI used RICO to bust up the five families. Needs to do the same here.
MLB itself isn’t coming down hard on this team. Get real. Most they will do is a small fine and take away a couple draft picks. Nothing crippling to the franchise, which is what they need to do. This team likely built its postseason runs the last couple years on the info they stole from the Astros. They were probably still cheating right up until they got busted this year. Look at this year’s trade deadline. Two terrible moves for the corpses of Brandon Moss and Jonathan Broxton. Guess suckers Dewittless and Mozeliak can’t work their magic without some thievery.
Well we agree on one thing, the Cardinals are as corrupt as the Cardinals are (corrupt).
what’s the point in MLB disciplining the Cards in the midst of a criminal investigation? RICO? How would that statute be used in this situation? You complain about fangraphs posters but then make a claim about RICO with no explanation or justification for it. C’mon, man!
Well, RICO is used to take down corrupt entities/organizations by going after the lower rung guys and getting them to talk. Also a good point is that in this case we are not talking about a lower guy, we are talking about Chris Correa, the scouting director and likely the GM’s right hand man.
All we need is the FBI or Justice department or whoever to put some pressure on Correa and get him to tell them the truth – that he did this at the behest of DeWittless and Mozeliak. A organization that makes a practice off of stealing from others does need to be dealt with by possible disbandment. The Cardinals would be contracted and a draft of their players would happened. This is the best option IMO. Another option would be to force a sale and move them to Las Vegas or Charlotte.
I don’t understand all the negative ratings on my posts, as this is a serious matter and should be dealt with harshly. This is like Enron, but people don’t take it seriously until it is too late.
@ Big Daddy Cool —
I live in Houston and I can tell you as a resident of the city most affected by the Enron scandal, this is nothing like Enron nor is it anything like the mafia, as your first comment implied.
In the Enron scandal, the Enron executives lied to their investors, convincing their employees to convert nearly all of their retirement holdings to Enron stock. The execs did this deliberately knowing that their company was in a terrible condition as they were cooking the books to make it seem as though it was earning massive profits. When Enron stock crashed — as the execs knew it would — they had gotten rid of their holdings making a ton of money and leaving their employees with nothing. Many of them lost hundreds of thousands of dollars in their retirement portfolios.
To say that the Cards’ hacking scandal is like the deliberate and fraudulent actions of the executives who stole hundreds of thousands of dollars from hundreds of their own employees shows that you have little grasp of how seriously the Enron scandal affected the people of Houston.
@Big Daddy Cool: Lemme guess, you’ve got a double layered tinfoil hat on your head don’t you? A practice of stealing from others? Name ONE other time the Cardinals have been caught stealing anything. Disbandment, Contraction? Please tell me you just learned those words and really wanted to use them in a sentence because that is the absolute stupidest thing I have ever read on the Internet, like ever. May God have mercy on your soul.
@Big Daddy Cool: I’m saying this as a Cubs fan… disbanding the Cardinals is the most stupid thing I’ve see on the internet all day. The team should be punished harshly, but you are severely blowing this out of proportion. Again, I’m saying this as someone who hates that team.
Can we please see an article showing how the Jays are paid only a small fraction of what their TV rights are worth because they are owned by Rogers who broadcast all their games. This team could easily sustain a $200M payroll if they received market rates for those rights.
You could say the same about the YES network and the not-so-small fortune that it has amassed for the owners of the team. Interesting note above that the stake in this deal doesn’t fall under the Revenue Sharing umbrella. That’s where the real profit is located.
I know this is far off and speculative, but I fear that within the 20 year timeframe of many of these deals enough households will have cut the cord that the provisions preventing streaming to non-cable-subscribers will hurt the game’s ability to create fans among the younger generation.
Forget the 20 year timeframe. This is already happening right now.
I’m not so sure about that. Baseball fans were created in droves throughout the 70s, 80s and 90s (not commenting on pre-me eras) when one was lucky to even see one game a week on TV.
That’s not at all the same thing. The competitive landscape was different. I can entertain myself for hours on YouTube alone. I’m sure as hell not paying for cable. If I’m not following baseball because other forms of entertainment are. Ore easily accessible, I don’t have an emotional connection to a team or players.
If I don’t have an emotional connection, I don’t care. Baseball needs to think long term with in market streaming. I live in Texas and can’t watch one of the best stories this year because they think I’ll spend 120/month on cable.
If you’re not willing to shell out $25-50 bucks a month for cable to watch baseball and other live sports, then you’re not a very big sports fan and/or you’re a poor.
There is no scenario where MLB or other leagues are going to just give away their content for free. That is a libtard fantasy.
More kids PLAYED the game back then, and more dads TAUGHT their kids the game back then. Now, if dad is a football or basketball fan and doesn’t care for baseball, how is the kid going to be exposed if he doesn’t find it on TV or streaming?
Maybe their Mom would teach them.
Gosh, what a great argument. I guess MLB should just give away their content for free, huh? Maybe also give away tickets for free?
Wild guess – you’re not an econ major.
I disagree that MLB will cut out the cable middleman. The middleman provides the bundle that forces 90+% of cable subscribers to pay for a Regional Sports Network (RSN). That is what is driving the big payouts for teams. $2.50 per customer for 12 months is $30 per year. How many people will buy MLB for $100 per season? Not 30%, since that is the breakeven point for MLB at $100. At best you would average 10%. Some markets might get up to 15 or 20%. And it would be subject to the quality of the team. Retool and you lose a big chunk of revenue the next year (similar to season ticket sales).
MLB is going to milk this golden goose as long as the bundle holds together. They (and ESPN) will not be the ones to break it.
I agree, they will hold out as long as cable providers are paying them.
Right now, MLB is happy to let the cable companies take on the surprisingly high costs of running a consumer company. MLB.tv has a nice number of subs, but if they were to absorb even a portion of the TV audience, they would have to massively ramp up not only technical capacity, but customer service reps, payment backend systems, etc.
High Costs? Yeah, it must be terrible watching these poor cable companies banking *only* a 40% profit.
MBL Advanced Media already provides streaming for HBO Now, March Madnesss, and other events, I’m sure they could handle the traffic.
They may be able to handle the traffic, but can they handle the broadcast? Production costs aren’t cheap, though they might be in comparison to the potential revenue.
@Matt P – there is a huge difference between having an embedded system vs. ramping up to build one.
Plus, this narrative that cable companies are massively lucrative is kind of funny, because they are considered boring, non-growth stocks by people that actually study this stuff for a living. Keep complaining about your overpriced cable bill from your MacBook paid for from your Chase bank account.
“High Costs? Yeah, it must be terrible watching these poor cable companies banking *only* a 40% profit.”
Not that I disagree entirely, but I think the annual reports suggest more like 20-25% than 40%. And think about that 20-25% figure.
Lets say, these public companies said, “screw the investors, lets do the actual customers a solid, ” and changed their pricing to target a 10% profit.
If your cable bill [including internet and possibly phone] is $200 a month, then the actual total costs to provide those services is around $160-$167. With 10% profit, that would put your bill at $176-184.
Now, I’m not going to poo-poo saving $196-288 a year — that is a pretty nice chunk of change, but the same people will plunk down $199 to upgrade their two-year old iPhone that likely still meets their needs [and just toss the old one in the Best Buy e-cycling bin even though it is still worth like $400 on the second-hand market]. And tack on that I believe now Verizon, AT&T and T-Mobile all offer “discounted” plans if you bring your own phone [or your subsidy is paid off].
you can milk geese?
This is a nice article. However, I have to say it continues to amaze me that smart people cite Forbes as though they are worth citing. They have no expertise. They’ve somehow spun a reputation out of whole cloth, and get cited over and over without doing anything to actually earn that credibility. They’re the ESPN the Magazine of finance.
Cardinals cheat cheat cheat. Cheat with this TV deal. Stupid franchise is allowed to do whatever it wants. Why didn’t MLB come in and block this deal? When are they going to bring down the hammer? When is the FBI going to bring RICO and rain down on these midwest pond scum with the hammer of Thor?!
Typical protecting of the fat cats of society.
Also, another Craig Edwards Puff piece. Did fangraphs hire this guy or is he on the Cardinals payroll writing all this propaganda.
Upvote for the heavy-handedness of your trolling.
I like the CUt of your jiB, if you know what I mean (and I think you do).
Cardinals always gaming the system so that teams in their division with large markets, infinite resources, excellent draft position year after year because of poor performance, and legions of rich daddied Trixies and trust funded hipster fans willing to bankroll futility because losing is cute, can’t ever get a fair shake. It’s not fair! Why do the Cardinals have to be so competent!!! Can’t wait till Ricketts’ man Scott Walker is President so the FBI will finally Guantanamo the Cardinals front office like they deserve!
Well, maybe you’re right and Walker becoming president would probably be tougher on crime, but that is a long time to wait for justice. Walker would not assume office until January 2017.
And while the Cardinals didn’t pick at the absolute top of the first round every year, they made up for it with all the intel and scouting reports that stole from the Astros. Also, who knows if the Astros is the only org they have stolen from? What’s that phrase people say – If you catch someone once there’s probably ten times they did the same thing and you didn’t catch them?
you are literally too stupid to insult.
Interesting to see what this deal (and the Diamondbacks’ deal) will impact the team that is really disadvantaged by its cable deal – the Washington Nationals. They still haven’t agreed on the last reset of the rights fees under the MASN deal, and a new cycle is coming up next year. Yes, they’re likely to still be in litigation for the last five years while they are trying to agree on the rights fees for the next five years. That’s a conversation I’d like to listen in on!
from the MASN Agreement:
“TCR shall have the sole and exclusive right and the obligation to
telecast, using commercially reasonable efforts, all Available Games of the Orioles and the Nationals and all ancillary programming related to the Orioles and the Nationals throughout the Television Territory through the medium of the RSN as described in this Agreement.”
This would suggest that the Nationals, should they choose to do so, could establish their own over-the-web broadcast system parallel to the MASN production. Were I the Lerner family, I would enter into an agreement with Monumental Network (in which both the Lerners and Ted Leonsis, the Capital’s majority owner, hold a stake) for the right to webcast in-market.
Seems much more likely that the HBOnow model will be used than that the cable networks will be completely cut out by MLB.
My understanding of the HBOnow model is that HBO splits revenue from non-cable HBOnow subscribers with the cable companies, and that HBO can afford to do that because they charge customers twice as much for buying directly as the customer pays through the cable company.
HBO also says that less than 1% of HBOnow subscribers cut cable after 3 months… Unfortunately, the article is at WSJ behind a paywall.
The revenue that is lost by the cable company when cutout isn’t just the direct cable payments from the customer. It’s also the advertising and that proximal programs like MLB tonight or whatever don’t get viewed as much and don’t get as much advertising revenue either.
I’m very happy with the number of games I currently see of my local team through RootTV which is about 160 or so games a year(only ones I don’t receive are the ones on Fox or ESPN). I live less than 40 miles from the ballpark so I feel really lucky when I read about people being blacked out. One game a day, an article or two and a quick look through the box scores is about all the time I have any more.
The market is changing. The Cardinals did well to hedge their bets.
I’m very happy that I’m not a fan of my local team.
“the magic bullet, the paradigm-shifter that’s going to put us in a whole new level.”
I hate hate hate HATE HATE how “paradigm shift” has become a buzzword. It is the absolute worst.
you are aware, however, that fundamentally changing how content is delivered to consumers in the US is actually a paradigm shift.
for example, you may hate the “cloud” as a buzzword — but it’s still okay to call those things in the sky by the dreaded word.
If I had 20 cents for every time someone said “paradigm”
you’d have a pair of dimes?
Craig,
How are mlb.tv revenues distributed today? Are revenues shared equally? If we hypothetically time-warped to a model where all MLB content was delivered via the internet (mlb.tv) would that mean that the “viewership advantage” of big-market teams would disappear?
This post lays things out pretty well.
http://www.fangraphs.com/blogs/marlins-mlb-revenue-sharing-syste/
MLBAM, which does MLB.tv plus a lot of non-MLB work distributes a dividend evenly. Even if all content was distributed using MLB technology, however, local clubs would likely retain a fair bit of control. Using purely national ads for all broadcasts would not make as much revenue as the local ads we currently see tailored to every market, and advertisers in NY will still pay more than advertisers in Kansas City, sending more money locally. In addition, most teams still make a lot of their money locally on ticket sales, in-stadium ads, etc. and that money would still favor big markets.
I can’t wait until the blackout rules are changed. As an Iowa resident we are blacked-out for Cubs, White Sox, Twins, Royals, Brewers and Cardinals games. It’s a 5 hour drive to see any of these “local” teams live, though. Plus, I pay extra to receive regional sports channels through DirecTv, but I still only get networks that cover Cardinals games and some of the Cubs, White Sox or Brewers games.
You should get MLB.tv + a VPN.
same here. I live in little rock, arkansas. blacked out of Texas (5 hr drive), Houston (8 hr drive), KC (6hr drive), and STL (6 hour drive). STL, KC, Houston, and TX all have AA teams that play in the Texas League and play Angels AA team that plays here. So, I go to minor league games, see these guys play, then can’t see them in the big leagues? that’s just dumb.
Does this billion dollar deal have any impact on the Cardinals getting extra draft picks for being a “small market?”
The Cardinals have the 19th largest TV/media market in MLB (smaller than, say, the Twins’ or Marlins’). Yes, they leverage that market quite well, but that doesn’t make the base size of that market any larger, nor, imo, the awarding of the occasional compensation pick any less fair.
As a Brewers fan, I do think it’s unfair that the 19th largest TV/media market gets almost as large of compensation as the smallest market.
What’s that TV market metric based on? STL metro area? Because I’m pretty sure their broadcasts reach something like 9 states and include pretty large cities such as Memphis and Nashville.
Yeah, what a joke. You know what, stupid MLB will probably take away a draft pick from this repugnant franchise and then just give them a competitive balance pick to make up for it.
People call this team the Yankees of the Midwest. Yeah, more like the Gambinos of the Midwest, making their millions illegally.
you refer to the Dodgers TV deal as a failure…..and in the respect of alienating the 70% of their market unable to watch them because they don’t live in a Time Warner area, it is. Vin Scully can’t get the Dodgers on TV in his house! And yet..the Dodgers got paid $8.35 billion and can outspend everyone. They have that cash to spend, and are doing so in spades….so how is that a failure?