Despite Risks, Cubs Eyeing Own TV Network by Craig Edwards November 16, 2015 The Chicago Cubs are located within the third-largest media market in the country, have a base of rabid fans supporting the team even in lean years, and — despite having closed the bleachers for much of the early part of the 2015 season — have received greater attendances at Wrigley Field since 2011, in part due to the team’s playoff run this year. While the team has started to have tremendous success on the field, they are moving forward slowly with payroll due to renovations around the ballpark, investments in rooftop bleachers, debt incurred by the Ricketts family when they bought the team, and a below-market television contract that runs out after four more seasons. That the Cubs are interested in starting their own cable network in Chicago is not a secret. The team’s deal with Comcast runs out after 2019, and they have been setting the stage for an exit. The Chicago Cubs have a long history of airing games locally on WGN, which also found its way on to most cable packages around the country. The Tribune Company owned WGN as well as the Chicago Cubs, and the baseball team provided the company with relatively inexpensive programming that provided a big help to the bottom line. The television industry, and in particular the sports television industry, have changed over time, rending the broadcast of games on WGN less beneficial. Regional sports networks began swooping up the rights to local baseball games, putting more and more games on cable. The regional sports networks gained much of their revenue from subscriber fees as opposed to traditional advertising, and cable providers felt these stations were necessary to give to subscribers as part of the basic cable bundle. This meant that the Tribune Comany airing games on WGN, while a cable channel to those outside of Chicago, was not maximizing revenue by putting games over the air in Chicago. In 2004, Comcast Sportsnet Chicago (CSN Chicago) was formed. At the time the Tribune Company still owned the Cubs. CSN Chicago’s ownership was split between the local clubs. Right now, the split is 20% each to the owners of the Cubs, White Sox, Bulls, and Blackhawks, with the remaining 20% to NBC/Universal. Jerry Reinsdorf has the biggest share at 40%, as he owns both the Bulls and White Sox. The Cubs kept about half of their games on WGN, but opted out of that contract when it was up after the 2014 season. The Cubs negotiated their current contract with WGN and the local ABC affiliate so that they would expire after 2019, the same season as their deal with Comcast. While the Cubs might not have a mega-deal like the Dodgers, they are still doing fairly well financially. The team is a sure bet to crack 3 million fans in attendance next season for the first time since that 2011 season. They are increasing ticket prices by 10% for next season. Moreover, the team has saved money with a relatively low payroll. After holding steady at roughly $140 million from 2009 to 2011, the team slashed payroll as it went through the rebuilding process — before increasing salaries again this past season, per Cot’s Contracts. The Cubs do not appear in a hurry to make any further drastic increases in payroll. That relative modesty of the payroll increases and the increased buzz regarding a possible Cubs network four years from now would appear to make the two linked. That is not necessarily the case. When the Ricketts family purchased the Cubs, they did so with a complicated debt due to demands by the Tribune Company, and the debt service payments cut into revenue that could be invested back into the club. Couple the debt service payments with massive renovation in an around Wrigley Field — along with the purchase of local rooftops — and it is not clear that the TV deal is really holding the Cubs back. The Cubs are making $60 million to $70 million per season under their current TV contracts, a figure that is below market compared to other big markets like New York, Los Angeles, Boston, Dallas, and Philadelphia. However, the deal is still around the back end of the top-third in all of baseball. The Cardinals’ new billion dollar contract, which doesn’t kick in for a few more years, is set to pay the Cardinals an average sum roughly equivalent to that which the Cubs currently receive. A new television deal might solve some of the Cubs’ pre-existing problems, but it is those problems themselves that are keeping payroll down, not the Cubs’ current television contract. The Cubs will wait a few more years before inking their deal. According to recent quotes from business operations president Crane Kenney, the Cubs will indeed start their own network in 2020, and believe the club can carry a network by themselves. There is some risk in waiting for 2020 to start their own network. For several years there has been a fear of the cable bubble bursting, and while the Dodgers might have set the mark a bit too high, teams that have negotiated deals since that time have still made out well. The Cubs could choose to renegotiate with Comcast, and much like the Cardinals deal, hedge their bets a bit on the future of cable television. Their current tack indicates that they still believe there will be a heavy market for their broadcasts in four years. While deals in Houston have not worked out and the Dodgers’ contract is in turmoil as they’re still unable to broadcast their channel in much of the greater Los Angeles area, assuming the cable model exists in its present form, the Cubs should have no problem forming their own network and forcing their way into homes on the lowest cable tier. In addition to the Cubs’ popularity, Chicago has just one cable sports network, an oddity for a major market, especially one that has more than one team in a single sport. The chart below shows the top markets in the United States, the regional sports networks those cities have, and the sports teams they broadcast among the major three sports (MLB, NBA, NHL) that air games regionally. Regional Sports Networks in Major Markets Market TV Network Team 1 Team 2 Team 3 Team 4 New York YES Yankees Nets SportsnetNY Mets MSG Rangers Knicks MSGPlus Devils Islanders Los Angeles TWC Sportsnet Lakers TWC Sportsnet LA Dodgers Fox Sports West Angels Kings Prime Ticket (FOX) Clippers Ducks Chicago Comcast Sportsnet Cubs White Sox Bulls Blackhawks Philadelphia Comcast Sportsnet Phillies Flyers Sixers Dallas Fox Sports Southwest Rangers Mavericks Stars Bay Area/San Jose Comcast Sportsnet Bay Area Giants Warriors Comcast Sportsnet California A’s Sharks Boston NESN Red Sox Bruins Comcast Celtics The Dodgers faced a crowded market when launching their channel, a problem not likely to be duplicated in Chicago. While New York and Los Angeles spread their teams across four channels, Chicago has four teams sharing just one channel. This allows the Cubs to air some games on WGN, but that will likely end in 2020, and even with that split, Chicago still airs many of its other sports broadcasts on other channels because one channel cannot meet the capacity. The Cubs could form their own channel, or they could try to add the Blackhawks if they wanted a winter sport. While the Bulls and White Sox are unlikely to be separated given their ties to a single owner, the Blackhawks and Cubs could make for interesting programming together in light of the fact that the Blackhawks have had higher ratings recently than anything shown on CSN Chicago. The most profitable route would be to go it alone, but if they want to have no problems negotiating their way onto cable packages the Blackhawks make an enticing partner. A lot will change over the next few years, and even if there is a bit of a cable bubble, the Cubs are still in good position to capitalize on their popularity and the ability to show three to four hours of programming almost every day for six months. Even without cable, the Cubs will still own their content, and as mass broadcasts targeting everyone deteriorate in favor of niche targets, the Cubs will be in prime position to deliver targeted content to a devoted audience — at a cost, of course.