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Home Pete Toms LWIB: The Competition for Local TV Rights in MLB, Plus Tidbits

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Pete Toms Article Archive
Written by Pete Toms   
Monday, 01 March 2010 09:49

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall”, the vigorous competition for local TV rights plus the weekly tidbits.

THE COMPETITION FOR LOCAL TV RIGHTS

MLB reaps upwards of $650 million per year from national TV rights deals with Fox, TBS and ESPN. Obviously that is an important source of revenue for MLB, accounting for approximately 10% of 09 industry revenues. Last week in BizBall saw a reminder that the value of local TV rights is as important to MLB franchises, more so to some clubs, than national TV rights.

LWIB, David Barron reported for the Houston Chronicle that Fox Sports Houston will broadcast a record 152 games this season plus four spring training games. Earlier in the week, John Ourand reported for the SportsBusiness Journal that FS Houston’s deal with the Astros expires after the 12 season. Although three seasons remain to be played before the deal expires, negotiations for the next deal are already underway.

In what could be a bellwether for local sports TV rights negotiations, up to four suitors — including MSO Comcast and telco AT&T — are attempting a power grab for the Houston Astros TV rights, one of the oldest team relationships in the Fox Sports Net stable.

The negotiations provide a vivid example of the power local video distributors place on local sports rights in markets where they operate video systems.

AND

Comcast officials met with Astros team executives late last year about obtaining local TV rights and setting up its own RSN in Houston, similar to the nine Comcast regionals already in place. Comcast wanted the rights as a way of continuing its strategy of operating RSNs in markets where it is the dominant cable provider. Comcast is Houston’s biggest cable operator.

This decade has seen a number of MLB franchises partnering with Comcast in RSNs. CSN Bay Area (Giants), CSN Chicago (White Sox, Cubs) CSN Philadelphia (Phillies) and SportsNet NY (Mets) are a few examples.

SELECT READ MORE TO SEE THE REST OF "THIS WEEK IN BIZBALL"

 

Mr. Ourand also points out that this is not the first time that AT&T - in partnership with sat provider EchoStar - has attempted to launch an RSN. In 08 the same parties failed to launch their own channel in the Detroit market. In order to fend off AT&T/EchoStar, FSN Detroit locked up the Tigers, Red Wings and Pistons. FSN Detroit was supported by the dominant cable operator in the market, Comcast. Comcast’s opposition to the proposed AT&T/EchoStar Detroit RSN was consistent with the cable industry’s opposition to multiple RSNs in the same market.

 

FSN’s aggressive behaviour in the Detroit market is in keeping with their practice of recent years. In 2008 the SportsBusiness Journal reported that, Fox Sports Net has signed rights deals with 24 MLB, NBA and NHL teams in the past two years..” According to the same report, most of those deals “run until at least 2014.” In 2007 FSN Northwest and the Mariners agreed to a 12 year / $500 million deal. The following year the Rockies agreed on a 12 year extension with FSN Rocky Mountain. Last month the SportsBusiness Journal reported, “Earlier this year, Fox Sports Net tried to offer Texas Rangers owner Tom Hicks a cash advance to help him with financial troubles. According to local press reports at the time, MLB stepped in to block the move.”

While CSN and FSN have vigorously competed for local MLB TV rights, some clubs have instead opted to launch their own channels. According to the aforementioned June 08 report in the SportsBusiness Journal, the Indians turned down an offer of “more than $30 million a season” from FSN Ohio to launch their own SportsTime Ohio channel in 06. Along with the Indians, the Yankees (YES), Red Sox (NESN), Orioles (MASN) and Nationals (MASN) own the RSN which broadcasts their games. (YES is 40% owned by Goldman Sachs) In 02 the Astros and Rockets had plans to launch their own channel but eventually remained with FSN. Earlier this month saw media reports that a key component of the Pittsburgh Penguins pursuit of the Pirates was their interest in launching an RSN. And most recently, court documents filed in the divorce proceedings of Dodgers owners Frank and Jamie McCourt revealed long term plans which included a club owned RSN.

Aside from the profitability of these RSNs, owning one can also decrease the amount of revenue sharing dollars a franchise pays out. From economist Andrew Zimbalist’s recent paper, Reflections on Salary Shares and Salary Caps:

In 2008, approximately $400 million was transferred from the high- to the low-revenue teams. The higher a team’s revenue, the more it has to contribute. The lower the revenue, the more it receives. The principal terrain of disputation is related party transactions, where team owners also own the regional sports network (RSN) that broadcasts the team’s games. It appears that several teams underreport the market value of the RSN revenue received by tens of millions of dollars and, in one case at least, this underreporting appears to exceed $100 million by a substantial margin.

This same underreporting of the value of local TV rights was widely reported as one of the factors which prolonged the completion of the sale of the Cubs last year by Tribune Co. to the Ricketts family. Crain’s Chicago Business reported last May:

The Ricketts family, whose original bid was close to $900 million, now believes the real price should be closer to $850 million, a source said. The sides disagree over the value of the team’s multiyear contract to broadcast games on Tribune’s WGN network.

AND

Broadcasters pay sports teams for the right to air games. The contract between the Cubs and WGN, which was inked last fall, might have been set too low, given that the broadcaster and the sports team have been owned by the same parent: Tribune Co.

Ed Sherman followed up at his ChicagoBusiness.com blog, speculating on the long term future of Cubs local TV rights:

The Cubs' television and radio rights probably rank behind only the Yankees, Mets and Boston Red Sox in terms of value. Again, it is hard to pin a number on the TV side because of the various complexities, but safe to say it is in the $50-million neighborhood.

That neighborhood is upwardly mobile. Perhaps if you're Mr. Ricketts, you want to take some of those WGN-TV games and move them to Comcast SportsNet, a channel in which you're a co-owner. There's a double revenue stream on cable with advertising and subscriber fees. It would make fiscal sense for Mr. Ricketts to increase CSN's inventory of the Cubs from 80 to 100-110 games.

It certainly can be used as a bargaining chip with WGN.

Also, if Mr. Ricketts is thinking of launching a Cubs cable station down the line, would it be in his best interests to have games tied up with a long-term deal with WGN? I would think not.

The near and long term (non?) future of TV broadcasting in the digital world is the subject of much debate. But in the present, the value of local MLB TV rights to cable operators and programmers might be greater than ever.

TIDBITS

  • Boston based ticket reseller Ace Ticket announced that they “will continue to be a proud Corporate Sponsor of the Boston Red Sox.” Red Sox COO Sam Kennedy was quoted in the press release, “We are proud to have Ace Ticket on board as a valued Corporate Sponsor. They provide great customer service to our fans and are a terrific resource to the members of Red Sox Nation." Did StubHub anticipate in 07 when they entered into a revenue sharing partnership with MLB that the Red Sox would “go rogue”?
  • Dave Sheinin of The Washington Post wrote a flattering profile of (not so) new MLBPA ED Michael Weiner. The piece includes compliments for Mr. Weiner courtesy of Commissioner Selig and MLB’s point man on labour matters Rob Manfred. First from Mr. Selig, "Even though we obviously come from different points of view, I have a lot of respect for Michael as a person, I like him." And from Mr. Manfred, "I like Mike. He's a good guy. We have mutual interests. Our kids are of a similar age. We both went to Harvard Law. Professionally, we have worked hard [to ensure that] even when we disagree on the substance of an issue, we try to do it in a way that has been respectful of the other person."
  • The Sports Law Blog informs us that a new trial date of April 19 has been set in the MLB Properties vs. Upper Deck trademark infringement lawsuit.
  • Pirates President Frank Coonelly is quoted in a column by Chuck Finder of the Pittsburgh Post-Gazette on his franchise’s interest in hosting the NHL’s next Winter Classic.
  • MLB Network is again producing a “reality” show. This season the subject is the Chicago White Sox. Ed Sherman questioned Why the Sox decided to become reality TV stars at his ChicagoBusinees.com blog. Mr. Sherman questions if the intent of the program is to craft an image for the team”, noting that the club has “a say in the final edits.“ The participation of manager Ozzie Guillen is certainly no surprise but the participation of owner Jerry Reinsdorf certainly is. Scott Reifert, White Sox VP of communications is quoted, “I hope Jerry will be seen by the public the way we see him. They will see through our day-to-day interaction why he's such a great guy to work for and why we all have tremendous respect for him. I don't know if somebody on the outside has that same vision. I hope it creates a new understanding for the public."


Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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