National TV Rights Deals
This year, Major League Baseball (MLB) enters the first year of their national television contracts with Fox, TBS, and ESPN. These contracts are eight years long and run through 2021 (More Details). The three combined television contracts will bring in approximately $1.5 billion per year to the league’s central fund to be distributed amongst the 30 teams. The $1.5 billion per year represents an increase of nearly $750 million over the previous contracts. As a result of the $750 million increase, each team will receive an additional $25 million in national TV revenue versus 2012.
The increase of $25 million is across the board for all thirty teams, and may have been influential in the rise of player salaries and payrolls in the last few years, but it is not the only factor for the growth. Growth can be attributed to not only the increase in the national TV revenues, but also a similar increase in the value of local TV revenues.
Revenue sharing is important in order to maintain a competitive balance between large-market and small-market teams. MLB’s collective bargaining agreement stipulates that teams share 34% of their local TV money; the pool is split evenly among all thirty teams. This helps to close the gap theoretically by taking from the rich, and giving to the poor.
Equity in Regional Sports Networks
Nearly half of the teams in Major League Baseball, 14 out of 30 teams (including the Philadelphia Phillies), currently have an equity stake in the regional sports network that controls their local TV rights. It’s challenging to figure out the true value of an equity stake in a regional sports network. At the end of 2012, News Corp. acquired 49% of YES Network at $3 billion value, and in 2015 will have the option to acquire another 31% in a deal that values the network at $3.8 billion. The YES Network was the first true RSN, and its valuation is going to be slightly higher than other networks because of the ratings, market size, and large fan base, but it does allow some perspective that these equity stakes are of notable value to the teams.
Another benefit to having an equity stake in the RSN is it allows the team to share in the profits of the network. As mentioned before, the MLB collective bargaining agreement calls for 34% of a team’s local TV ratings for revenue sharing. Team’s that have equity in their network generate additional revenue from carriage fees, which are not subject to revenue sharing under the current MLB collective bargaining agreement.
Local TV Rights Deals
For years, experts have tried to figure out when the bubble would burst on live sports TV rights, and no one has definitively answered the question yet. With the windfall that the Phillies received, I am certain that day has not come for the large-market teams, as Philadelphia just received over $2.5 billion dollars. At the moment, it appears that small-market rights have leveled out. Every MLB team has negotiated a local TV contract within the last 10 years, with most deals lasting approximately 20 years. Four teams that have TV rights available in the next 3 years are the Arizona Diamondbacks, Chicago Cubs, Cincinnati Reds, and Tampa Bay Rays. Here’s a quick look at the deal in Philadelphia, as well as a look at what the Diamondbacks, Cubs, Reds, and Rays will come up against in the next few years.
The Philadelphia Phillies opened up 2014 by securing a 25-year long deal with Comcast SportsNet Philadelphia for their local TV rights. According to reports, the Phillies average annual rights fee will be $100 million per year, plus a 25% equity stake in the network. It would make sense if the Phillies deal were structured similar to the Yankees, with escalator clauses increasing their annual rights fee by 5% per year. If that is the case, the Phillies would earn $52,340,000 in the first year of the deal (source: WhatYouPayForSports.com). Giving the Phillies an equity stake in the local network is similar to what Comcast has done in other markets such as the Bay Area, Houston, and Chicago. The Phillies become the sixth team to receive a average annual rights fee of nine-figures per year, joining the Dodgers, Angels, Mariners, Rangers, and Yankees. The Phillies will eclipse $100 million dollars in 2030, while the Yankees should reach the plateau in 2015.
“We’re feeling very bullish about our future opportunities. And why not?” said Derrick Hall, Diamondbacks president and chief executive. The club’s existing deal with Fox Sports Arizona expires in 2015. “It’s obvious the market is very robust, and we’re now doing a lot of due diligence to see exactly where the Diamondbacks fit into that landscape. Among our questions is certainly whether we continue with FS Arizona, who’s been a great partner, or create some type of Diamondbacks vehicle of our own.”
The market is robust, but it’s nearly impossible to predict how much the Arizona deal will garner. Phoenix is the 12th largest local television market according to Nielsen in 2014 and Arizona’s TV territories extend through parts of four states (Arizona, Nevada, Colorado, and New Mexico). Their TV ratings sit somewhere in the middle of the pack, so it makes sense for them to get a deal with an average annual payout of $75 – 95 million per year in the neighborhood of 15 – 20 years.
The Chicago Cubs have two deals, one with WGN-TV and another with Comcast SportsNet Chicago, that were both scheduled to end in 2019. The Cubs exercised an option to get out of their broadcast agreement with WGN at the end of 2014. WGN is owned by the Tribune Co. (former owner of the Cubs) and currently airs about 70 games per season. WGN is local CW-affiliated station in Chicago, and has been a broadcast partner of the Cubs since 1948. The Cubs will probably end up back with WGN at a higher rate through 2019, at which point they could reevaluate the potential to launch their own Regional Sports Network. The Cubs don’t really have leverage in offering their games to Comcast SportsNet Chicago, already owning local TV rights for the White Sox, Blackhawks, and Bulls. Jerry Reinsdorf (owner of the White Sox and Bulls), The Ricketts Family (owner of the Cubs), and Rocky Wirtz (owner of the Blackhawks) have equity in the network, so there isn’t an opportunity to get a larger equity share either.
The Cincinnati local TV market is only the 35th largest in the United States, and the city ranks as the smallest TV market amongst those that host MLB teams. The Reds had the fourth highest average rating amongst MLB teams, with a 7.6 average rating behind only the Tigers, Cardinals, and Pirates. Ratings were down for the Reds from 2012, but still managed to be the second-highest in the history of Fox Sports Ohio. The Reds will not have the same benefit as most other teams, being that they are from the smallest market and Fox Sports will likely be the only bidder for the rights. In late 2012, Fox Sports acquired SportsTime Ohio, the Cleveland-based regional sports network that had owned the broadcast rights for the Indians since 2006. The Reds should expect to get a similar deal to that of the Indians, perhaps slightly more because of their high ratings.
Tampa Bay Rays
The Tampa Bay Rays in 2012 ranked last out of all 30 MLB teams in home attendance, averaging only 18,645 fans per game. Fortunately, Tampa Bay-Sarasota is the country’s 14th largest television market, and Rays viewership on Fox’s Sun Sports network was up 28% in 2012 over 2011. In 2013, the ratings held and the Rays finished in the top third of the league in ratings, which will bode well for them when their TV contract expires.
The local TV rights landscape will continue to develop and mature over time. Inevitably, a few times will try to launch RSN’s (like the Houston Astro’s in 2013), and it’s not a shoe-in that these networks will be profitable. One thing is for sure, and that is that expenses in MLB will continue to rise and teams will continue to look to maximize their revenue streams. For MLB teams, one of the most important revenue streams will continue to be their local TV rights. Will the bubble burst? At this point, no one knows when or if the live sports rights bubble will burst, what we know is that these rights are highly coveted and valuable because they are DVR-proof. We continue to see this with deals like the LA Dodgers, Texas Rangers, and most recently the Philadelphia Phillies.
MLB Local TV Contract’s
as of January 4, 2014
|MLB Team||RSN||Avg. Annual Rights Fee||Equity Stake||Deal Signed||Expiration Year|
|Arizona Diamondbacks||FS Arizona||$31 million||–||2008||2015|
|Atlanta Braves||FS Sports South||$20-$30 million||–||2007||2031|
|Baltimore Orioles||MASN||$29 million||86%||2006||N/A|
|Boston Red Sox||NESN||$60 million||80%||N/A||N/A|
|Chicago Cubs||CSN Chicago/WGN||$50 million (combined)||20%||N/A||WGN: 2014/CSN: 2019|
|Chicago White Sox||CSN Chicago||$45.5 million||40%||N/A||2019|
|Cincinnati Reds||FS Ohio||$30 million||–||2007||2016|
|Cleveland Indians||ST Ohio||$40 million||–||2013||2022|
|Colorado Rockies||Root Rocky Mountain||$20 million||–||2005||2014|
|Detroit Tigers||FS Detroit||$40 million||–||2008||2017|
|Houston Astros||CSN Houston||$80 million||45%||2013||2032|
|Kansas City Royals||FS Kansas City||$20 million||–||2008||2019|
|Los Angeles Angels||FS West||$150 million||25%||2013||2032|
|Los Angeles Dodgers||SportsNet LA||$320 million||–||2014||2038|
|Miami Marlins||FS Florida||$18 million||–||2006||2020|
|Milwaukee Brewers||FS Wisconsin||$20 million||–||2010||2019|
|Minnesota Twins||FS North||$29 million||–||2011||N/A|
|New York Mets||SNY||$68 million (increase per year)||65%||2006||2030|
|New York Yankees||YES||$95 million (+5% per year)||25%||2012||2042|
|Oakland A’s||CSN California||$43-$48 million||–||2009||2029 (opt-out after 2023)|
|Philadelphia Phillies||CSN Philadelphia||$52.45 million (+5% per year)||25%||2015||2040|
|Pittsburgh Pirates||Root Pittsburgh||$18 million||–||2010||2019|
|San Diego Padres||FS San Diego||$60 million||20%||2012||2031|
|San Francisco Giants||CSN Bay Area||$30 million||35%||2008||2032|
|Seattle Mariners||Root Northwest||$115 million||–||2013||2030|
|St. Louis Cardinals||FS Midwest||$25-28 million||–||2008||2017|
|Tampa Bay Rays||SunSports||$20 million||–||2008||2016|
|Texas Rangers||FS Southwest||$150 million||10%||2015||2034|
|Toronto Blue Jays||Rogers Sportsnet||$36 million||–||N/A||N/A|
|Washington Nationals||MASN||$29 million||14%||2006||N/A|