Cubs Payroll Set to Soar with Potential TV Deal

Since 2004, the Chicago Cubs have belonged to a lucrative partnership with the White Sox, Blackhawks, Bulls, and some iteration of Comcast/NBC to broadcast games on NBC Sports Chicago, previously known as Comcast SportsNet Chicago. That partnership appears likely to end at the conclusion of next season, however, according to Bruce Levine at 670 The Score. While the current deal has been fruitful for the Cubs, the opportunity to own their regional sports network will give them a chance to multiply their television revenue several times over. Over the last few seasons, the Cubs have lingered just behind heavyweight clubs like the Dodgers, Red Sox, and Yankees in terms of payroll. A new television deal should put them on par with those teams for the foreseeable future.

The Cubs’ move to create their own network separate from their current partners has been in the works for several years now. The Chicago market has lagged behind cities like Los Angeles and New York in terms of the presence of RSNs. NBC Sports Chicago is still the only game in town, while LA and New York both have four networks broadcasting the major sports. Other big markets like the Bay Area and Boston also have multiple networks despite featuring the same number of — or even fewer — teams to broadcast.

When I last wrote about the Cubs’ option to start their own network three years ago, I noted the ominous cable bubble that has been pervasive for years but indicated the Cubs wouldn’t have a problem getting their channel carried by cable providers. It’s been three years, but the cable bubble refuses to burst. Even the Rays are getting billion-dollar local TV deals.

The market has changed in the last few years, as the number of cable subscribers continues to fall. Traditional cable providers have not only lost customers who no longer or never will pay for cable TV, but they are also facing increased competition from digital-only providers like DirecTV Now, Playstation Vue, Sling, and YouTubeTV. In 2017, cable companies lost 3.3 million subscribers, but digital providers gained 2.6 million, softening the blow dealt by those who no longer pay for television. In most cases, those digital providers are airing local RSNs and emphasizing to customers the opportunities available to watch sports without a traditional cable package. These models are new and it isn’t entirely clear how long they can last providing a skinnier, cheaper version of cable, but it has provided a lifeline to a model that, at one point, appeared to be on the way out.

The continued survival of the current cable model is potentially very good news for the Cubs. The club is reportedly making roughly $750,000 per game on NBC Sports Chicago and around $200,000 on each ABC or WGN broadcast. With 84 games on Comcast and 70 games on WGN and ABC, that total comes to $77 million. If the Cubs were to start their own network, they would be responsible for broadcasting those 70 games, as well. You might expect that, to calculate the Cubs’ benefit from owning their own network, you’d take those 70 games, note the $550,000 difference between those broadcasts and the Comcast ones, and conclude that the team is set to earn $40 million more dollars. That figure, however, doesn’t come close to what the Cubs could earn with their own channel.

RSNs have traditionally made a vast majority of their money on high per-subscriber fees. In turn, they pay large amounts of money to teams to broadcast games. In addition to the Cubs broadcasts, NBC Sports Chicago airs around 50 games each for the Blackhawks and Bulls, plus around 100 White Sox games. Due to the club’s popularity and the relative lack of RSNs in Chicago, the Cubs should not have a problem getting their network on standard cable packages in the area, nor should they have any trouble demanding something similar in terms of per-subscriber fees. For the Cubs, that means the rights fees that previously went to the White Sox, Blackhawks, and Bulls will now belong exclusively to the Cubs.* That’s not a 50% increase for the Cubs; it’s probably more like double what they are currently receiving. And that’s accounting merely for rights fees, not profits.

*The White Sox seem likely to partner with the Blackhawks and Bulls in something of a continuation of the current setup without the Cubs. With the shared ownership of the White Sox and Bulls and a shared United Center between the Blackhawks and Bulls, those teams have natural alliances. While that might not be as profitable for the White Sox as the Cubs’ potential network, the deal would likely earn them more than what they receive now with one fewer partner to share the pie.

NBC Sports Chicago is not a charity. Even if co-owners Bulls, White Sox, Blackhawks, and Cubs wished to operate without traditional profits and instead pay out the money in rights fees, the other co-owner, Comcast, would not put up with such an agreement. The current arrangement currently provides enough profits to keep the three franchise owners (Jerry Reinsdorf owns both the Bulls and White Sox) and Comcast happy. All of those profits would be diverted to the Cubs, and as an added benefit, those profits are not subject to revenue-sharing with other MLB teams. I’m not going to speculate as to the amount of those profits, but I would note that when the Yankees sold a majority of the YES Network to FOX in 2014, the network was worth $3.8 billion, and after Disney’s purchase of FOX’s assets required selling RSNs, the Yankees might be trying to buy the network back. The Cubs are potentially creating a billion-dollar asset out of what might seem like thin air.

There are costs associated with going it alone without a partner like Comcast, Time Warner, or AT&T, and it is possible the Cubs might cut someone in to make the production and operation of a network a little easier, but if the Cubs do make their own way, it will be because they believe those costs are well worth the potential gains. While the Yankees might not be the perfect comparison given the New York market and Yankees’ history, a look at their rivals does provide an interesting comparison. The Red Sox own 80% of NESN and have been running payrolls near $200 million the previous three seasons — and will be near $240 million this season. The Cubs could soon join them at the top of the league.

In 2020, Tyler Chatwood, Yu Darvish, Jason Heyward, and Jon Lester will account for $75 million in payroll, and it isn’t clear how much those players will bring to the table. Add in another $75 million for players like Javier Baez, Kris Bryant, Willson Contreras, Kyle Hendricks, Anthony Rizzo, Addison Russell, and Kyle Schwarber, and the Cubs won’t have much room to maneuver if they don’t add payroll. The Red Sox had little problem this season in writing off $50 million in contracts to Rusney Castillo, Hanley Ramirez, and Pablo Sandoval, while also proceeding to sign J.D. Martinez to a big deal. The Cubs could find themselves in a similar situation if some of their larger contracts don’t work out. A new television network could allow the Cubs to spend through any potential issues.