Maury Brown is the president of the Business of Sports Network, which includes BizofBaseball.com. He is a contributor to Baseball Prospectus and Forbes.
“These days, a franchise’s No. 4 hitter is no longer in uniform. The No. 4 hitter is the guy who negotiates the contract for the TV rights.” – Scott Boras
You, Mr. and Ms. Discerning Sports Fan, love your television. With the exception of a rare few, you will watch more sporting events on the boob-tube than you will live sitting in the stands. We build “Man Caves” around them, tap them into the internet, mount them on the wall, yes, we can dare say they are the only love we can have an affair with and not get in trouble for.
But that’s all about to change. Like an addiction we can’t shake, the costs begin to rise, and that thing we once so loved is a lifestyle we can’t shake. It’s not your fault. Your love for high-definition, nitro-fueled action is as pure as your first game of tee-ball, but that cable or satellite bill is getting out of control. It’s getting to the point where you seriously wonder whether you have to take out a second mortgage on the house just to keep up with the fix.
And while we’re at it, let’s talk about those blasted battles between the carriers and the networks. Right now it’s Time Warner Cable and CBS, but it’s been others over the years. Too many to count. Too many more coming. It’s all too much.
How did this happen. Is it all just inflation or greed or…. or what exactly got us in the mess and is it going to get better or worse?
Blame many things, but start with sports. Yes, that thing you love so purely is stealing money from your wallet when you’re not looking. The skyrocketing growth of rights fees is at the heart of it. It’s the devil in disguise.
It isn’t one of these deals that is going to cause your bill to explode like George Brett coming out of the dugout in the pine tar incident; it’s a cumulative effect. In the industry, we call it “the bubble.” When the bubble is going to burst is the question. That’s because as these monumental deals are reached between a network and the cable and satellite carrier, the fees eventually have to be passed on to you, the consumer. As they say, “stuff” rolls downhill.
It all started with collegiate sports, namely the Big Ten. When they launched the Big Ten Network in August of 2007, it was unprecedented. With the advent of the DVR, those that negotiated the deal were quick to hone in on the fact that live sports programming was the last bastion for advertisers. Instead of recording and watching their shows later, fans still want to get the drama of live sports as it happens, and therefore, advertisers get the coverage they’ve been used to. For the Big Ten, what they call the “first-tier” rights, those football and basketball games that are broadcast nationally for ESPN, came in at $1 billion for 10 years. If ESPN doesn’t pick those games up—those called “second-tier”—and are broadcast on Big Ten Network came in at $2.8 billion over 20 years. And there are third-tier rights, and selected sports, such as just basketball, that all add up. In total, the Big Ten pulls in an average of $248.2 million annually.
It set off shockwaves across the sports landscape. For collegiate sports, the conferences all saw what was happening and decided to get in on it. The effect is the creation of “super conferences” to allow for maximum television programming. Whether it’s the PAC-12 ($250 million a year), SEC ($205 million annually), ACC ($240 million a year), BIG-12 ($150 million annually), the needle has arced dramatically upward.
Baseball was watching when this occurred. The last “pre-bubble” broadcast deal was the Pittsburgh Pirates. In 2010, the club started a 10-year agreement with ROOT Sports. This year that rights deal will pay the Bucs approx. $18 million, a pittance compared to others. The deal was reached just before the Rangers saw what was happening in the market place, namely the Big Ten, and focused, not on “the now” but forecasted “what will be.” As one former Rangers executive said, “No one was paying attention to how the television landscape was changing. We got in on that.” Reached in 2010, and slated to kick in in 2015, the Rangers hit pay dirt with a $3 billion, 20-year rights deal with Fox Sports Southwest. That deal became the domino that has tipped the rest of the league. Where fans bemoaned how the Yankees and Red Sox had economic advantage with ownership of their respective regional sports networks in YES Network, and NESN, the boom has moved into other markets. The Angels saw what the Rangers had pulled off, and reached their own $3 billion deal. The Padres and Astros reached deals that while look small by comparison, none the less top out at above $1.5 billion each. The Mariners, seeing that there was this gold rush, purchased the majority stake in ROOT Sports Northwest at what is worth approx. $2 billion. The Yankees, who had held advantage for so long with YES Network, sold the controlling stake in the RSN to FOX Sports. FOX, who has a plethora of regional sports networks across the country, is embarking on a 24/7/365 network, FOX Sports 1, that will challenge ESPN. That 49 percent controlling rights deal went for $1.5 billion, which is small by comparison of some of the other deals, but tells you just how important the Yankees wanted to get in on “the bubble” and do so before it bursts.
And then there’s the Dodgers.
The Dodgers, with their iconic brand and being in Los Angeles—baseball’s second-largest market—hit what might be best called the jackpot. With a bidding war between FOX and Time Warner Cable, the rights fees climbed to heights not seen before. Time Warner Cable won out on a deal that is worth a reported $7-$8 billion. The deal has yet to be approved by Major League Baseball (a league source said that talks are moving forward, leading one to expect it will), but would kick in at the start of next season. This after TWC reached a $4 billion deal with the Lakers.
The effect in baseball has been staggering. Economic parity, once only offset by the Yankees and Red Sox, has tipped and now sees a host of clubs going wild. The Dodgers, flush with this new-found cash, have spent as if it’s the end of the world through trades and free agent signings. The club started the season with a $230 million player payroll or $41 million over the luxury tax threshold. Somewhere in the afterlife, George Steinbrenner must have his eyebrows raised. The Angels have signed questionable deals with Albert Pujols (10 years, $240 million) and Josh Hamilton (5 years, $125 million), that were a reaction to the Rangers signing players after their deals. As just a handful of examples there was Adrian Beltre (5 years, $80 million), Ian Kinsler (5 years, $75 million), and Yu Darvish ($51,703,411 posting fee plus 6 year, $56 million).
While money does not buy wins, it offers flexibility. There’s never been an exec that said that given the choice between having deep pockets or barren shelves chose and said they’d turn down the money. As Stan Kasten, the CEO and President of the Dodgers said, “Being rich helps. But you have to be smart first.” He didn’t say, “having some extra revenue” he said, being “rich.” That tells you just about everything you need to know.
The bubble can’t take this much longer. It will pop under its own collective weight. The Cubs and Phillies, while not the last deal that’s in the billions, will likely be the last two club deals that reach into the stratosphere. Major League Baseball reupped on all their national broadcast deals with FOX, ESPN, and TBS which kick in next year and will double the amount they were receiving from $788.3 million annually to $1.5 billion. The NFL’s nine year extension reached in 2011 pulls in a whopping $4 billion annually. The industry is watching, as are the politicians. DirecTV CEO Mike White spoke of how this all is adding up, using the Lakers as a target. “In terms of Los Angeles, I think it’s another example of how broken this system is,” White said. “People take the same content, package it up, bid it up for 3 times the national average on a per-game basis and then try and stick it back to the other distributors in the geography. And I think that’s very unfortunate.”
Since all these deals affect everyone—even those that don’t want them on their channel listing– Sen. John McCain, R-Ariz has introduced a bill that would allow fans to purchase channels “a la carte.”
“I believe the consumers are at a tipping point when it comes to their monthly pay-TV bill,” McCain told a Senate subcommittee in May. “In my view, the a la carte option is a non-regulatory and consumer-friendly way to provide consumers with the freedom to lower their bills and pay only for what they watch.”
So, you may love your sports, but as sure as you love watching it all, the bet is you hate your provider bill. If you’re a fan of a club that’s reached one of the monster rights-fee deals, you might look the other way. If the money is pouring into making your team more competitive, you’re more likely to swallow the bitter pill. But for those that are fans of the have-nots—those, like the Pirates that reached deals before the bubble started to expand, or those clubs that are in the midst of deals that would come up for renewal after the bubble has potentially burst—it creates that sense that their team “has no chance.” Maybe. Sure, the Pirates, A’s, or Rays could make the playoffs, but how deep they go, and whether that winning can be replicated for several seasons is the question. Money fuels the ability to be risk adverse. Mistakes in signings can be more easily absorbed, and the ability to be active in free agency is there.
“The bubble” will have effects for at least 20 years, and likely beyond. The battles between the networks and the carriers will rage, as will the games on the field between the haves and have-nots. The only real losers in all of this is you, Mr. and Ms. Discerning Sports Fan. You don’t have to believe me. Just look at your growing cable or satellite bill for the proof.