Padres Improving But Many Fans Can’t Watch On TV

Yesterday Jeff Sullivan wrote about the San Diego Padres. If you haven’t read Jeff’s post, go read it now. I’ll wait. Okay, so now you know that since June 10, the Padres have a record of 41-30 and have outscored their opponents by 32 runs. But that’s not all. The Padres are 9-1 in their last 10 games, 13-7 in their last 20, and 18-12 in their last 30. They are outplaying everyone in the National League West other than the division-leading Giants.

The Padres also have new owners. The second and third generation of the O’Malley family — who owned the Dodgers from 1950 until 1998 — now own the Padres, along with San Diego businessman Ron Fowler and a group of minority investors. Fowler has been designated as the team’s control person, but Peter O’Malley and his sons and nephews, with their longstanding baseball pedigree, will be key to the Padres’ efforts to re-energize the team and the fan base.

It won’t be easy.

The new owners take charge of a Padres team whose games cannot be viewed by more than 40 percent of fans in the San Diego area. The problem stems from the creation of Fox Sports San Diego, a new regional sports network launched in March. The Padres signed a 20-year TV broadcast deal with FSSD before the 2012 season. The contract is valued in the range of $1.2 billion to $1.5 billion, putting average annual payments to the Padres in the $50 million to $75 million range. It is believed that the initial payment for 2012 was closer to $30 million. The Padres also received a 20% equity share in FSSD.

But FSSD has spent the season in a stalemate with several cable and satellite service providers in the San Diego area. FSSD netted deals with Cox Cable and DirecTV, reportedly for $5 per subscriber. Time Warner Cable, AT&T U-verse, and DISH Network wouldn’t agree to that fee, leaving subscribers to those services in the San Diego area without access to Padres games in their homes. According to a report from the Associated Press in July, these sorts of disputes between program providers and cable and satellite providers are becoming much more commonplace, as each sides seeks to squeeze out additional marginal profits in an otherwise stagnant industry.

The Padres reportedly have left the negotiating to FSSD but the failure to reach deals with the hold-out cable and satellite providers for next season and beyond will hurt the Padres in the pocketbook. The 20-year deal is believed to contain escalators, so that higher viewership results in higher payments from FSSD to the Padres.

And the Padres will need every penny if they are to regain competitiveness in the National League West. The Dodgers, of course, also have new owners, who seem hell bent on spending whatever it takes to win a World Series. Much of that financial bravado comes from the new TV deal the Dodgers are expected to enter into after this season. The Dodgers’ current deal with Fox Sports expires at the end of the 2013 season, but the two sides will begin formal negotiations on a new contract after October 15. A new 20-year deal is likely to be worth between $3 billion and $4 billion, outpacing the $3 billion deal the Angels entered into with Fox Sports last fall. The Diamondback’s current TV contract expires in 2015.

The Padres, like the other 29 teams, also will benefit from the new deal between Major League Baseball and ESPN. On Tuesday, the league announced a new 8-year contract with ESPN worth $5.6 billion. ESPN will pay MLB approximately $700 million per year for the right to broadcast Sunday Night Baseball exclusively, in addition to non-exclusive rights to Monday Night Baseball, Wednesday Night Baseball, and highlights for Baseball Tonight. ESPN also will have the right to broadcast one wild card playoff game, alternating each year between the American League and National League.

The math is pretty simple. MLB equally divides the revenue it receives on its national TV contracts among the 30 teams. The Padres and every other team can expect an additional $23 million in national TV revenue from new ESPN deal. So while the Dodgers will be in a position to sign any free agent they want for the foreseeable future, the Padres should have some additional financial flexibility to lock up their young players before they become free agents.

With the outlook improving for the Padres, now’s the time for the team and its broadcast partner, FSSD, to make sure most Padres fans in the San Diego area can watch the team on TV next season.