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"It's been a golden goose. You remove cable TV from the scenario, and franchises are worth a fraction of what they are today, players make a fraction of their salaries," Greg Bouris, a sports management professor at Adelphi University and a longtime observer of the sports cable space, told theScore last year. "This boom has been going on for almost 30 years. But the vast majority of people that pay never watch. That's been the model."
The Reckoning is coming, folks.
2. Cris E
Posted: January 28, 2023 at 12:53 PM (#6114871)
This hire is the clearest sign that MLB has decided that it needs to take a more active role in producing and distributing its games. Baseball execs believe that it will gain control over many of those rights controlled by Diamond Sports, which has been mired in financial troubles and last month installed former ESPN and NBC Sports exec David Preschlack as CEO. MLB expects it will get control of other rights -- ones held by Comcast and Warner Bros. Discovery -- soon after. MLB already has started looking into creating a national product that would combine its local rights with its out-of-market Extra Innings package -- an effort that would do away with blackouts.
One idea that’s been considered has MLB producing and distributing games directly for distribution companies, like Xfinity, DirecTV, Charter and Dish Network, while at the same time launching a direct-to-consumer service that would combine the out-of-market package with local telecasts.
That sounds cool, but looking at the sheer volume of money that's at stake with all the local and national broadcasts, there's a huge potential for disaster here. MLB only hired this guy to start working on this problem in January, so there's not a lot of time to do anything in 2023. If the RSNs fail to come up with cash in the next six months there could be some serious liquidity problems for some of the big spending clubs (San Diego, I'm looking at you.)
3. Walt Davis
Posted: January 28, 2023 at 03:03 PM (#6114887)
You remove cable TV from the scenario, and franchises are worth a fraction of what they are today, players make a fraction of their salaries,"
Not true. Well true in that 95/100 is fraction but not what the colloquial meaning is here. Local broadcast rights are certainly a big deal but most of these deals are not franchise-defining. Here are fangraphs estimates from 2020. You've got the teams you'd expect (and Padres) around $50 M. Then there's a tier around $70 M (Cards, Phils, Nats, etc.) and then you start getting towards $100 topping out at about $140 then you get the Dodgers at $240.
But teams also only get to keep half of that money, the rest goes into the pool that then gets doled out to every team. Is the Padres missing out on $25 M revenue every year going to make a huge difference to the team they put on the field or the revenue that they produce? And of course that's only if they lose local broadcast revenue and don't replace it with anything. Even if their local TV revenue ends up only half of what it was, that's an overall loss of only $12-13 M. They would have had to non-tender Josh Hader maybe.
From that 2020 article: Four years ago, I estimated local television revenues of roughly $1.5 billion. Despite a somewhat uncertain landscape, that number has risen to $2.1 billion, an increase of around one-third and 8% annually.
So suppose that whole increase was a mirage and it falls back to $1.5 B -- that's a drop of 30%. That $600 M loss would come out to $20 per team. Not good obviously, troubling for the future but not reducing $1.5 B franchises to a "fraction" of their current value. That loss would be approximatel $10 M to each team due to the drop in shared revenue then the remaining $300 M spread across the specific teams affected. Now if there's a similar drop in national contracts ...
The Angels were #2 in that table at $140 M. Uncertainty about that revenue is enough to throw a wrinkle into any sales negotiations.
Some teams have done even better than shown there, by establishing their own cable channel, then selling it or a significant portion for a tidy profit, while continuing to collect the large local rights fees shown in the FanGraphs estimates.
6. Walt Davis
Posted: January 29, 2023 at 12:10 AM (#6114939)
That's only true if only San Diego is affected. If everyone is cut by 50%, they lose 50% of their share of the shared pool as well.
Addressed in the next-to-last paragraph of #3 where I discuss if the overall pool is cut by 30%.
Some teams have done even better than shown there, by establishing their own cable channel, then selling it or a significant portion for a tidy profit, while continuing to collect the large local rights fees shown in the FanGraphs estimates.
Perhaps. I came across a similar table elsewhere that mentioned that parts of Marquee and Yes had been sold off ... to Sinclair. Unless the teams received that money upfront, they're in the same boat.
Obviously losing $20 M a year in reveue per team is bad (a drop from $2.1 B in 2020 to $1.5 B in 2020 $), it hurts the value of the franchise, it reduces payroll. But we're talking about an $11 B industry (end 2019 as I recall) with total local broadcast revenue of $2.1 B. They're not losing all 20% of the revenue, even if it's halved then MLB revenue is down about 9-10%. But there's no reason to think it will be halved.
As I said, if there's a corresponding drop in national TV revenue (which would make sense, at least for regular season) then we could be talking about big trouble. Wasn't my idea to hand out all those 12/$300 contracts. :-)
7. Walt Davis
Posted: January 29, 2023 at 12:35 AM (#6114944)
FWIW, implementing a long-term solution is easy ... as in I'm not sure it would take more than 2 weeks to set up. It might take you 20 years to negotiate the money bits (trivial) but change the MLBtv package to $120/year (or whatever) to stream any single team (non-national games) and an extra $30/year to stream all the rest. Teams get the vast majority of the $120 for every subscription to their team (well, have to put half of it into shared revenue). You could offer half-season, monthly and even $5/game too if you want. Teams can still sell the remaining cable and over-air (is any left?) rights to cater to whoever prefers that delivery method. Anyway, the infrastructure exists -- you just need to write a few lines of code to turn off the blackouts.
It's not like this snuck up on anybody. They should have been doing the grunt work on this a long time ago. Yes, it would have required buying out portions of the cable deals (i.e. clearly contractually securing streaming rights). The trouble with doing it now is that MLBtv doesn't really have that many subscribers because the out-of-market package only caters to carpetbaggers and obsessives. MLBtv is really a pretty awesome product except for that minor little hassle that it doesn't have the content that 95% of the baseball "TV" audience wants -- local games and playoffs. If it had been available to fans at the time of cord-cutting, it would have much higher takeup -- and surely a lot of folks stuck with cable just for the games. But now folks who cut the cable more than a year ago did so knowing they were giving up baseball -- they're used to it now. Now you've got to win them back and that's not easy.
It is interesting that even lockdowns didn't create enough demand for the empty content of cable to delay its demise. Oh well, I look forward to watching World Pickleball on Tik Tok in my golden years.
I came across a similar table elsewhere that mentioned that parts of Marquee and Yes had been sold off ... to Sinclair. Unless the teams received that money upfront, they're in the same boat.
Sinclair only owns 20% of the YES Network, which has had a lot of ownership turnover after the Yankees sold a big chunk of the network. No specific knowledge of how the deal was structured, but it seems more likely that Sinclair borrowed the money to finance its purchase of YES (and other RSNs), so that risk is likely on its lenders, which is why Sinclair seems headed to bankruptcy. The other YES owners - Yankee Global Enterprises (26%), Amazon (15%), The Blackstone Group (13%), RedBird Capital (13%), Mubadala Investment Company (13%) - are all solvent, and the network is reportedly profitable, so it wouldn’t appear that the Yankees are actually in the same boat as the teams where Sinclair owns all or most of the RSN and can no longer pay the rights fees. The Yankees will get their local media rights payments, while Sinclair will presumably be squeezed out by its lenders.
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1. Starring Bradley Scotchman as RMc Posted: January 28, 2023 at 09:34 AM (#6114860)The Reckoning is coming, folks.
That sounds cool, but looking at the sheer volume of money that's at stake with all the local and national broadcasts, there's a huge potential for disaster here. MLB only hired this guy to start working on this problem in January, so there's not a lot of time to do anything in 2023. If the RSNs fail to come up with cash in the next six months there could be some serious liquidity problems for some of the big spending clubs (San Diego, I'm looking at you.)
Not true. Well true in that 95/100 is fraction but not what the colloquial meaning is here. Local broadcast rights are certainly a big deal but most of these deals are not franchise-defining. Here are fangraphs estimates from 2020. You've got the teams you'd expect (and Padres) around $50 M. Then there's a tier around $70 M (Cards, Phils, Nats, etc.) and then you start getting towards $100 topping out at about $140 then you get the Dodgers at $240.
But teams also only get to keep half of that money, the rest goes into the pool that then gets doled out to every team. Is the Padres missing out on $25 M revenue every year going to make a huge difference to the team they put on the field or the revenue that they produce? And of course that's only if they lose local broadcast revenue and don't replace it with anything. Even if their local TV revenue ends up only half of what it was, that's an overall loss of only $12-13 M. They would have had to non-tender Josh Hader maybe.
From that 2020 article: Four years ago, I estimated local television revenues of roughly $1.5 billion. Despite a somewhat uncertain landscape, that number has risen to $2.1 billion, an increase of around one-third and 8% annually.
So suppose that whole increase was a mirage and it falls back to $1.5 B -- that's a drop of 30%. That $600 M loss would come out to $20 per team. Not good obviously, troubling for the future but not reducing $1.5 B franchises to a "fraction" of their current value. That loss would be approximatel $10 M to each team due to the drop in shared revenue then the remaining $300 M spread across the specific teams affected. Now if there's a similar drop in national contracts ...
The Angels were #2 in that table at $140 M. Uncertainty about that revenue is enough to throw a wrinkle into any sales negotiations.
That's only true if only San Diego is affected. If everyone is cut by 50%, they lose 50% of their share of the shared pool as well.
Addressed in the next-to-last paragraph of #3 where I discuss if the overall pool is cut by 30%.
Some teams have done even better than shown there, by establishing their own cable channel, then selling it or a significant portion for a tidy profit, while continuing to collect the large local rights fees shown in the FanGraphs estimates.
Perhaps. I came across a similar table elsewhere that mentioned that parts of Marquee and Yes had been sold off ... to Sinclair. Unless the teams received that money upfront, they're in the same boat.
Obviously losing $20 M a year in reveue per team is bad (a drop from $2.1 B in 2020 to $1.5 B in 2020 $), it hurts the value of the franchise, it reduces payroll. But we're talking about an $11 B industry (end 2019 as I recall) with total local broadcast revenue of $2.1 B. They're not losing all 20% of the revenue, even if it's halved then MLB revenue is down about 9-10%. But there's no reason to think it will be halved.
As I said, if there's a corresponding drop in national TV revenue (which would make sense, at least for regular season) then we could be talking about big trouble. Wasn't my idea to hand out all those 12/$300 contracts. :-)
It's not like this snuck up on anybody. They should have been doing the grunt work on this a long time ago. Yes, it would have required buying out portions of the cable deals (i.e. clearly contractually securing streaming rights). The trouble with doing it now is that MLBtv doesn't really have that many subscribers because the out-of-market package only caters to carpetbaggers and obsessives. MLBtv is really a pretty awesome product except for that minor little hassle that it doesn't have the content that 95% of the baseball "TV" audience wants -- local games and playoffs. If it had been available to fans at the time of cord-cutting, it would have much higher takeup -- and surely a lot of folks stuck with cable just for the games. But now folks who cut the cable more than a year ago did so knowing they were giving up baseball -- they're used to it now. Now you've got to win them back and that's not easy.
It is interesting that even lockdowns didn't create enough demand for the empty content of cable to delay its demise. Oh well, I look forward to watching World Pickleball on Tik Tok in my golden years.
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