MLB Isn’t Losing TV Revenues Yet

Underpinning the agreement between the players and owners about how to approach this season is an acknowledgement that revenues are going to be down in 2020, no matter when this season starts. To start, the season itself is in jeopardy as the country and world deals with the COVID-19 pandemic. And even if games are played, there are likely to be fewer than the typical 162; some of those games might not have any fans in physical attendance at all. Baseball teams are bound to take a huge loss at the gate compared to previous years. Whether MLB and its individual teams will take similar losses with their television partners isn’t as clear.

Before getting to the television money, though, let’s do a quick hypothetical on ticket sales. Forbes estimated thatin 2018, MLB teams took in around $2.8 billion at the gate. If teams play a half slate of games this year, and get half as much money at the gate in those games, we end up with $700 million in gate receipts and roughly $2 billion in revenue losses over a typical season. Now, if players receive only half their salaries, those losses basically even out. That isn’t to say that there aren’t a large number of associated revenue losses that will keep MLB teams from turning a profit, but even a massive loss at the gate wouldn’t create huge losses for MLB teams by itself. It’s losing television money that would create those losses.

MLB has three relevant national television contracts that amount to around $1.7 billion in yearly revenues, which are split among the 30 teams. There is roughly another $1 billion that comes from the central offices that is split among teams, per Forbes, but that revenue comes from MLB-owned properties like MLB Network, MLB.TV and The television deals are with FOX, TBS, and ESPN. While FOX and TBS air regular season games, most of the value in those contracts for the networks comes in the postseason, as well as the All-Star Game. FOX puts many games on FS1, but those games are on FS1 to gain the network subscribers rather than for advertising; the network suffers very little in terms of actual losses. In addition, FOX’s contract with MLB has already been extended through 2028, providing both groups incentive to work well together. TBS also airs some regular season games, but the bulk of the contract comes from air playoff games, which have yet to be impacted.

ESPN airs a single Wild Card game in the playoffs, so the loss of regular season games will impact the network and its deal. ESPN has been paying roughly $700 million a year to air more than 100 regular season games as part of a deal that expires in 2021. While ESPN makes a lot of money on subscriber fees, it also draws revenues from advertising, which they are currently missing out on. (It is worth noting that advertising money never comes close to equaling what the networks pay for MLB rights due to its penchant for demanding high per subscriber fees, and networks advertising their other shows, particularly on FOX.)

It’s going to be difficult to make good on all those games this season, though there are a few possibilities that could salvage the losses. One might include giving the two MLB Network division series games over to ESPN (or to FOX or TBS) to help make up for lost games. An extra week of playoff games might be enough to satisfy all the television partners. As ESPN and MLB negotiate their next deal, extending the contract by a year at a slightly discounted rate might be beneficial for both parties, as MLB’s CBA and the deal with ESPN both expire at the end of 2021, making it difficult for MLB to make promises about the specifics of the playoff structure, or to guarantee there aren’t work stoppages. MLB and ESPN might also simply factor this season into a new seven-year deal.

On a national scale, MLB still looks to be in pretty good shape, assuming it can get in at least half of the season. Their partners are certainly going to suffer some losses, but those shouldn’t be insurmountable or game-changing from the league’s perspectives. There’s considerably more danger when it comes to the Regional Sports Networks, which are much more single-purpose than FOX, TBS, and ESPN. From a revenue standpoint, the RSNs are in mostly good shape. While they might not be airing games at the moment, more than 90% of their revenues comes from subscriber fees with under 10% coming from advertising. That means as long as they are already a part of the current cable bundle, they will continue to rake in money. (This of course assumes that subscribers, who are very likely facing their own economic uncertainty, don’t come to view cable as a luxury they can do without.) But it’s bad news for Marquee and the Cubs, who still don’t have an agreement with Comcast; the Cubs are missing out on half of Chicago’s homes and potentially $10 million per month by not having a deal.

For cable providers, there is a similar spread in revenues, though perhaps not as pronounced as the RSNs when it comes to subscriber fees versus advertising. For both groups, the money comes from customers paying for cable and not from selling a ton of advertising. That doesn’t mean everything is fine, however. As Scott Soshnick noted for Bloomberg, cable providers could demand money from RSNs.

The most difficult discussions, [Lee] Berke said, will involve regional sports networks, some of which carry teams from multiple leagues. While ESPN can air “SportsCenter” and specials, and dip into a trove of archives, RSNs have few options outside of classic games. RSN contracts with cable operators usually call for a minimum number of games and teams. “If they’re not hitting those minimums, there are going to be serious discussions,” Berke said.

Soshnick also mentioned force majeure clauses that might apply in the case of a pandemic, though the language differs by contract. Many of the RSNs airing major league games are at least partially owned by the teams themselves. While teams are going to lose money at the gate, they might also make a push to get in as many games as possible, less for the gate sales (which might explain a call for doubleheaders, which aren’t normally big attendance drivers) and more to ensure there are as many games on television as possible. We don’t know the minimum number of games the networks have promised nor do we know the exact pay structure for the RSNs — whether they are paying a flat fee or on a per game basis — but the push for as many regular season games as possible might be driven more by television concerns than by having paying fans in the seats. For teams that own their RSNs, so long as they meet the minimum number of games required by cable providers, that income could serve as an insulator, as the networks profits wouldn’t be significantly affected so long as cable providers remained pleased.

Right now, MLB appears to be in pretty good shape with its broadcast partners. The playoffs are still a long ways off, which should keep the national networks happy, and as long as the RSNs are on your local cable provider, they are likely to remain pleased as well. In terms of television revenue, MLB isn’t in trouble. Yet.

Craig Edwards can be found on twitter @craigjedwards.

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Logically, the owners would strike a deal with the Players Association to expand rosters, and squeeze in more games–twice weekly double-headers and no non-travel days off. A good reason to draft the Kelenic’s and Gore’s in reserve rounds, and avoid players like Cabrera and Pujols, who will likely see less PT under an expanded roster.

BTW: The new quick test and a test for anti-bodies will speed the coming of an interesting season for the books.