Even the Rays Can Get a Billion Dollar TV Deal
Five years ago, the Los Angeles Dodgers signed an $8 billion television deal to broadcast games locally on a Time Warner cable station, SportsNet LA. While quite large, there was some precedent for an agreement of this size. By that point, the Angels, Astros, Giants, Mets, Padres, and Yankees had all received billion-dollar contracts of their own. The Dodgers’ deal is notable, however, for how poorly it worked out. Even today, half of Los Angeles can’t watch the club because Time Warner and DirecTV have yet to agree on terms to broadcast games in Los Angeles.
The combination of the Dodgers’ situation and the Astros’ own disastrous effort to create a regional sports network appeared to indicate that the RSN bubble was about to pop.
That didn’t happen, though. Not at all, really. Soon, the Mariners sold their rights for a billion dollars, followed by the Rangers, Phillies, D-backs, and Cardinals in subsequent years. The Reds likely received something close to a billion dollars for a pact that begins this season. And now even the Tampa Bay Rays seem to be getting a billion dollars of their own.
The Rays’ deal, reported by John Ourand and Daniel Kaplan of the Sports Business Journal, will begin next season and pay the Rays an average of $82 million per season over 15 years, which amounts to $1.23 billion. The Rays are set to receive $35 million in the last year of their current contract, and that will increase to roughly $50 million in 2019. Assuming a steady rise over the life of the deal, rights will increase at 6.7% annually. The Rays’ new agreement is worth significantly less than many of the others inked over the last few years and doesn’t appear to come with an ownership stake. However, the money for the Rays is an indication that tremendous value still exists in the acquisition of local rights even as the landscape of television changes.
With cable subscription numbers falling, there remains some possibility of a television-rights bubble in sports broadcasting. The big contracts MLB teams receive for local television rights are generally based on the current cable model. The regional sports networks charge the local cable provider per subscriber and demand to be placed on the basic-cable tier. A portion of every cable subscriber’s bill helps pay the fees for RSNs, which, in turn, give teams large sums of money. This model is somewhat dependent on the idea that everyone gets cable, and a decrease in subscribers over the last few years could mean trouble. As I discussed last season in my post on the robust viewership numbers for teams, however, MLB is currently well insulated against potential trends:
Whether it’s Sling, PlayStation Vue, Hulu, DIRECTV NOW, or YouTube TV, all of them are including RSNs as part of the smaller packages. The fear would be that, as channel providers get slimmer, regional sports networks might be vulnerable. That hasn’t been the case so far, as the newer streaming providers have placed an emphasis on sports and on local sports channels, deeming those channels part of the essential cable experience. If cable subscribers are dropping traditional cable carriers for streaming services, MLB teams appear to be well insulated for now. If, at some point, the model switches to an exclusively a la carte model, teams will have a difficult time navigating guaranteed sums of money from an already established fan base versus selling their product more cheaply as advertising in order to promote to fans who don’t yet follow the game.
Teams have actually become further insulated from a correction since the middle of last season. Disney has made two major investments in MLB in the last year. First, they accelerated their purchase of a majority of BAMTech, the MLBAM spinoff used all over the place to stream live events. That investment will help Disney and ESPN as they move toward their own streaming service — similar to the ones already out there and something closer to an a la carte model. The second deal hasn’t been finalized yet, but Disney has agreed to purchase a large amount of FOX properties, including the 15 RSNs it owns. Fox Sports Sun, which broadcasts the Rays games, would be a part of that sale. The acquisition would potentially help Disney combine their national sports platform through the various ESPN properties with local coverage through RSNs which the company currently lacks. If they wanted to pursue an a la carte sports streaming service, they would have the local and national firepower to do so in many of the biggest markets in the country.
Breaking into a streaming market where Sling, DirecTV Now, PSVue, YoutubeTV, and Hulu already exist would be a difficult proposition for Disney, but the Fox deal means that Disney will also own a majority of Hulu, doubling its current 30% share. Based on the potential acquisition — the RSNs are a big part of the $50-plus billion acquisition — Disney believes that local live sports are an important part of its future. Most of the other RSNs not currently controlled by Fox are similarly positioned to be players in the streaming market should cable continue to lose subscribers. NBC (owned by cable provider Comcast) and AT&T (which owns DirecTV) own nine RSNs. The rest of the RSNs are essentially team-owned, with the Nationals and Orioles in charge of MASN, the Red Sox with NESN, the Blue Jays tied to Rogers, and the Dodgers and Mets each in a partnership with Charter/Time Warner.
The Rays are the beneficiary of a system that many expected to deteriorate by now. MLB’s somewhat fortuitous decision to stay at the forefront of streaming technology and the fans’ continued commitment to watch baseball on television in an increasingly fractured market continues to make local television rights a valuable property. The Rays might have stadium and attendance problems, but they still get solid television ratings. Tampa Bay’s new deal bodes well for a handful of smaller-market teams currently on relatively weak deals. The Brewers, Pirates, Rockies, and Royals are all believed to have deals that will expire in the next few seasons. The Cubs and White Sox, meanwhile will also see their deals expire after 2019 and they are well positioned to consider their options. Major League Baseball’s biggest issue will continue to be reaching new fans as the current set ages. Technologically, teams should have no problem reaching fans interested in their product; it is gaining and keeping that interest that will be baseball’s biggest hurdle in continuing to grow the sport.
Craig Edwards can be found on twitter @craigjedwards.
I’m worried that only broadcasting local MLB games on cable channels limits the teams exposure to non-baseball fans. I don’t have any data to back this up but it seems obvious that the NFL gets alot more exposure putting its games on network television that even a 20 dollar antenna can pick up.
I can’t thumb this up enough!
4 major league teams are blacked out here in Memphis and the closest one is 4 hours away. I am forced to listen to games over MLB radio because every baseball TV package can have many days where I can’t watch any games at a reasonable hour.
The worry isn’t so much that the RSN set-share will go away as that something will happen that topples the commercial airtime prices from their current position as the most desirable on television, or cause television commercials in general to see another steep price decline.
I would not be anxious, in an RSN’s position, to sign one of these big long-term deals right now.
Disney is in fact creating a streaming service for its content. Star Wars, Marvel movies, Disney kids shows. Why couldn’t that include its regional baseball content?
Fox RSNs are available on the SLING streaming service. Which RSN you get is a function of your location.
Just because people move away from Cable doesn’t mean they move away from the content and the technology exists to allow the RSNs to reach fans directly, bypassing cable company deals. Conceivably, there might be more money for the RSNs by signing fans to their own streaming services.
In the non-sports arena CBS, HBO, SHOWTIME, WARNER BROS,and yes Disney are doing their own subscription streaming services.
The CW service is entirely ad -supported. No subscriber fees. (So far.)
Apparently it works well enough they pulled their shows off Hulu.
That business model bears watching.
The Jays will be even more disadvantaged now, since they’re owned by their cable company. So instead of receiving TV money, they give it value back and are at its whim. Rogers also owns the Toronto Maple Leafs, which are a much higher priority. The fact that there is no MLB.tv blackout in the whole of Canada (due to the peculiarity of the Jays market) is good for the fans, but I doubt the Jays themselves see any of that money.
It’s in the interest of the cable company to keep a good product on the field though as the baseball team offers 162+ days of 5ish hours of content throughtout the course of a year and a better on field product will draw ratings that can be used to sell advertisements. This goes back to when Turner and owned the Braves and broadcast all their games on TBS. It can be difficult to fill a station with content that people actually want to consume. I can’t speak for anyone here but I don’t watch much of TBS if it isn’t related to a sporting event broadcast
I agree with TheNEW_guy.
If anything, it’s the teams in the early years of long-term local TV deals with no RSN ownership that have a lessened financial incentive to be competitive. They don’t capture the advertising revenue from more people watching games when the team is good.
I’m not certain that you can call the Jays’ situation a disadvantage at all. It’s going to be a financial scenario that’s arranged differently but ultimately the same. Certainly, SportsNet revenue won’t go directly to the Jays, but it isn’t like the team itself has completely lost that income and won’t ever see it again. They might not have a direct hand in that pot or visibility into numbers and revenue, but they probably do.
The main point here is that if Rogers wants people to continue to watch Jays games (and the Jays by all indications are by far the most watched team on TV) then they’ll continue to spend money to put a good product on the field. There’s just an extra step or two required to do so, is all. The meme is that Rogers is cheap, but they certainly are not poor by any means.
The Rays deal makes me wonder if the Cardinals were too generous, only like $50 million a year. Not that they would spend it on the team nor that my cable bill would go down, so perhaps moot point
Meanwhile, the Nats and the Os are still duking it out over their RSN arrangement.
And Angelos is seriously trying to argue the Nats only deserve $40m/year.
Seems like delaying this might actually harm Angelos’ case even more, as now teams like the Rays are getting $82m/year. The Nats claim of more than $100m/year is looking increasingly like a bargain.
Yeah, the whole methodology argument falls apart when the Nats can point to contemporaneous deals instead of trying to project a future market. Angelos is essentially trying to run the clock as long as he can – but he’s going to have to pay eventually
Why does the author apparently think that $1 billion and $8 billion are remotely similar? Yes, LA is a larger media market than any of the others that have sold since then., but you’d still be talking about multi-billion dollar contracts for the Rangers and Philllies at least if they were comparable to LA related to market size
Still insane that so many baseball fans in LaLa Land get screwed because of the pure greed of Time Warner and Directv. Cable going the way of CD’s.
Eventually I would expect the viewer will be able to deal directly with the teams. Cut out any non productive middle man. Whoops, middle person. Cable companies are dying more quickly than they create more monopolies. Directv selling cable free service, for $10 a month.